Who pays for builders risk insurance on an Arizona custom home?

No Arizona statute picks a side on this one. Your contract is the only thing that settles who pays for builders risk insurance. In practice, who carries it tracks the project type. On a build-on-your-lot project, the owner usually buys it, since the owner already holds the land and the construction loan. On a turnkey custom build where the builder controls the lot and the financing, the builder often carries it and bills it as a cost. What matters is that one named party clearly owns the policy, and the other party is protected on it.

The wrong outcome is a build with no builders risk at all because each side assumed the other had it. That gap is exactly what burns homeowners when a monsoon or a theft hits a half-built house. So treat this as a contract item you confirm in writing, not a detail you leave to chance.

When the owner pays

The owner usually pays for builders risk on a build-on-your-lot project, because the owner holds the assets the policy protects. If you already own the lot and you took out the construction loan, the lender's collateral is your property, and the lender will require coverage in your name before it funds the first draw. Buying the policy yourself keeps the coverage tied directly to you and your loan. Our pages on construction loan requirements and the construction loan draw schedule show where this fits in the funding process.

Carrying it yourself has a real upside: you control the policy. You choose the completed value, the construction term, the deductible, and any add-ons like a flood endorsement for a lot in a wash. You also get the claim check directly if something goes wrong, instead of routing it through a builder. The Insurance Information Institute notes that builders risk "may be available as a stand-alone policy, or as an add-on to your homeowners policy," so ask your agent which path fits your lender.

The downside is that you take on the work. You have to shop the policy, keep it active through delays, and extend it if the build runs long. Miss a renewal during a slow stretch and a loss can fall in an uncovered gap. If you pay, calendar the policy's end date against your real timeline.

There is also a cost question worth asking your agent. Some Arizona owners buy builders risk as a stand-alone policy through a specialty insurer. Others add it to a homeowners policy they already hold or plan to start. The stand-alone route often gives more control over the term and the limits. The add-on route can be simpler if one carrier handles both the build and the finished home. The Arizona Department of Insurance and Financial Institutions lists more than 100 companies licensed to write homeowners coverage in the state, so you have room to compare. Ask which structure your lender will accept, since the lender has to be protected either way.

When the builder pays

The builder often pays for builders risk on a turnkey custom build, because the builder runs the job site day to day. A contractor who controls the lot, the crews, and the schedule is in the best spot to manage the coverage and file a claim. Many Arizona custom builders carry a course of construction policy and pass the cost through to you as a line item in the budget. You are still paying for it, just inside the build price instead of on your own bill.

If the builder carries the policy, your protection depends on how the policy names you. You want to be listed as a named insured or additional insured, not left off the policy. If only the builder is named and the builder later has a dispute with you or goes out of business, an unnamed owner can struggle to collect on a loss. Ask for a certificate of insurance that shows the coverage, the limits, the term, and your name on it. Verify the builder's license and insurance the same way you would verify any Arizona contractor with the ROC.

Separate from builders risk, your builder should also carry general liability insurance. As the Insurance Information Institute puts it, "since there is always a possibility that someone will file a lawsuit against you claiming to have been harmed by your work, you will almost certainly need liability insurance." Builders risk covers damage to the house. Liability covers injuries on the job site. They are two different policies, and a complete build needs both.

The coverage gaps to watch for

The most common gap is no policy at all, when each side assumes the other bought it. Close that gap by writing a single sentence into your contract that names who buys builders risk, names the completed value, and names the term. Then collect proof before work starts. This belongs alongside the other protections in our list of what to include in a custom home contract.

A few other gaps trip people up:

• You are not named on the builder's policy. A policy in the builder's name alone may not pay you directly. Get named as an insured and hold a certificate.
• The term is too short. A 6-month policy on a 10-month build leaves four months bare. Match the term to a realistic timeline plus a cushion, and confirm how an extension works.
• Flood and earthquake are excluded. The Insurance Information Institute states that "flood damage is excluded under standard homeowners and renters insurance policies," and earthquake coverage "is available from most insurance companies as a separate policy or an endorsement." A rural Maricopa County lot in a wash may need a separate flood endorsement during the build.
• No liability coverage. Builders risk does not cover someone hurt on the site. Confirm the builder carries general liability.
• Subcontractors are not covered for their own gear. Builders risk covers materials going into the home, not the contractor's or a sub's tools and equipment. Those are the trades' responsibility to insure.

How to settle it before you sign

Settle who pays in the contract, then verify the coverage exists before the first nail. Ask your builder directly: do you carry builders risk on this build, or do I? Then put the answer in writing with three details locked down: the completed value, the construction term, and whether your lender and you are both named. If the builder carries it, get a certificate of insurance. If you carry it, name the lender and the builder's interest as your agent advises.

For background on the policy itself, see what builders risk insurance is and the builders risk glossary entry. The Arizona Department of Insurance and Financial Institutions lets you confirm that any agent or insurer is licensed in the state before you rely on a quote.

Premiums, terms, and exclusions change, and they vary by insurer and by lot, so check the current cost and coverage before you sign. Confirm coverage and current terms with a licensed Arizona agent before construction starts, so the policy matches who is actually carrying the risk.

Where Jematell Homes comes in

Clear allowances and an honest cost breakdown are how we start every custom home. We would rather answer your questions before you build than after, so get in touch any time.

Sources

• Insurance Information Institute: Insurance for remodeling your home (builders risk / course of construction)
• Insurance Information Institute: Insurance coverage for construction contractors (builders risk and liability)
• Insurance Information Institute: Which disasters are covered by homeowners insurance (flood/earthquake excluded)
• Arizona Department of Insurance and Financial Institutions: Homeowners Insurance consumer information