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Tarion vs Construction Insurance: Different Problems, Different Paper
Construction Insurance
Tarion vs Construction Insurance: Different Problems, Different Paper
People say “I have Tarion, so I am covered” about the way they say “I have a truck, so I can move a piano.” Tarion is a warranty on the builder’s work and materials, and it starts the day you take possession. Insurance pays for damage from an event, fire, wind, theft, while the house is being built. One is a guarantee on the workmanship. The other is a tarp over the whole job.
One Covers Events, the Other Covers Work
Builder’s risk, also called course-of-construction insurance, is property insurance on a house that does not exist yet. It pays when something happens to the structure and the materials: fire, wind, theft off the site, vandalism.
Tarion is Ontario’s statutory new home warranty program. It backs the builder’s promise that the work and materials are free of defects, up to $400,000 per home. It does not pay for damage from an event. The master Tarion page covers how it works; I will not repeat it here.
| Question | Builder’s risk insurance | Tarion warranty |
|---|---|---|
| What it responds to | Physical damage from an event | Defects in work and materials |
| When it runs | Bound before the first delivery; ends at completion or occupancy | Starts at possession |
| Limit | Completed rebuild value, land excluded | Up to $400,000 |
| Deposit protection on a contract home | None | Up to $40,000 |
| What it costs you | About 1% of hard cost, our planning number: about $4,500 on a $500,000 house | Built into the builder’s price |
November 2026. The premium is our planning number inside a published range that runs much wider.
Why insurance prices are all over the map: the brokerages, insurers’ guides and lenders we checked did not quote the same thing for the same house. An Ontario and Quebec brokerage and a Canadian renovation marketplace put the premium at 0.5% to 1% of completed value; two Ontario brokerages and a Canadian comparison site said 1 percent to 4 percent; a US personal-finance site went to 5%. On a $500,000 house that is $2,500 at one end and $20,000 at the other. The gap is percent of hard cost versus a flat minimum, term, deductible, construction type, fire protection grade, and soft costs and liability in or out. Budget about 1% of hard cost, about $4,500 on a $500,000 house, and get two or three quotes on the same written description of the build.
A Fire During the Build Is Insurance. Full Stop.
The framing is up, a heater tips over at night, and the whole thing is a black hole by morning. Tarion owes nothing. The warranty has not started, because you have not taken possession, and fire is damage from an event, which Tarion does not cover.
The builder’s risk policy is the only paper that pays here. If nobody bound one, there is no claim, and the lender still wants its draws repaid. Never let a delivery or a trade on the site before the policy is bound in writing. Who buys it is settled in the contract; the who pays page walks through the clause. On our own builds, when the client owns the lot the client usually carries it with the lender named; when we own the lot until closing, we carry it.
If the Builder Goes Under
A builder going bankrupt halfway through is not an insured event. Builder’s risk responds to fire and wind, not to a company that ran out of money. Two things stand between you and the loss: the contract, and Tarion’s deposit protection.
On a contract home on your own land, Tarion’s financial loss protection covers your deposit up to $40,000 if the builder fails to finish. That is the deposit, not the half-built house. The contract does the rest: stage payments tied to work you can see, the 10 percent lien holdback, a clear insurance clause. The contract page lists what belongs in it. If you are paying for a house in two big cheques up front, no warranty program will save you.
Owner-Built Homes Are Outside Tarion
If you pull the permit and hire the trades yourself, you sign an Owner-Built Home Acknowledgement at the building department. It says that the home is not eligible for warranty coverage. You may live in it and you may rent it. Sell it without first living in it and you are a builder without a licence, with the penalties that go with that.
That leaves insurance as your only backstop, and insurance does not cover bad work. The owner-builder insurance page covers what the application asks. One more trap: on a contract home, if you take significant control of the construction or do parts of the work yourself, the home can lose its eligibility. Ask Tarion before you pick up a trowel, not after.
Defects After You Move In Are Not an Insurance Claim
Six months after possession the basement floor cracks and a window leaks at the corner. The home insurer says no, and is right. A home policy covers sudden damage from events; it excludes faulty workmanship, faulty materials, settling and wear. The route for a defect is the Tarion warranty, filed on Tarion’s forms inside Tarion’s deadlines; the 1-2-7 year page lays those out.
One nuance that matters during the build too: builder’s risk excludes redoing faulty work, but a 2016 Supreme Court of Canada decision held that the resulting physical damage is generally covered. The plumber’s bad joint is his problem; the soaked drywall is often the insurer’s.
We build houses and carry these policies on every one of them; we are HCRA-licensed and enroll every house with Tarion. We do not sell insurance. The binding answer on any policy comes from a RIBO-licensed broker, and the binding answer on warranty comes from Tarion.
This is general information from a builder, not insurance, legal or tax advice. Policies differ; confirm yours with a RIBO-licensed broker and your lender. The construction insurance hub has the three policies and who carries each.
Questions people ask
What is the difference between Tarion warranty coverage and builder’s risk insurance?
Builder’s risk is property insurance on the house while it is being built: it pays for physical damage from fire, wind, theft and vandalism, up to the rebuild value. Tarion is a statutory warranty on the builder’s work and materials that starts at possession, up to $400,000. One responds to events, the other to defects.
Does Tarion cover fire or storm damage during construction?
No. The warranty has not started before possession, and even afterward it excludes damage from fire, storm or theft. Damage during the build is a builder’s risk claim. If nobody bound a policy before the fire, there is nothing to claim against.
Are owner-built homes eligible for Tarion warranty coverage?
No. An owner-built home is not enrolled with Tarion and has no statutory warranty; you sign an acknowledgement saying so at permit. You can live in it or rent it. Selling it without first living in it brings registration and penalties. Insurance still applies, but insurance does not pay for bad workmanship.
What happens if my builder goes bankrupt before completing my home?
Builder’s risk does not respond; insolvency is not an insured event. On a contract home on your own land, Tarion’s deposit protection covers your deposit up to $40,000. Beyond that you rely on the contract: stage payments tied to visible work, the 10 percent lien holdback, and a lawyer.
Does builder’s risk insurance cover defective workmanship?
Not the faulty work itself. Policies exclude redoing bad workmanship, design or materials. A 2016 Supreme Court of Canada decision held that the resulting physical damage is generally covered under an all-risk form, so water damage from a bad joint may be paid. After possession, defects on a builder-built home go to Tarion.
Price the insurance half before you sign
The warranty is the builder’s job. The builder’s risk premium is usually yours and belongs in the budget before the lender asks for proof. The free calculator gives you a planning number and a quote request sheet.
Sources and further reading
- Tarion: building a custom home: contract homes on your own land, HCRA licensing, the $400,000 coverage, and how owner control can cost you the warranty.
- Tarion: what is not covered: the statutory warranty exclusions, including damage, homeowner-supplied work and alterations.
- Owner-Built Home Acknowledgement form (Guelph): the form an owner-builder signs at permit: no warranty, and the owner takes on the builder role.
