The client
A self-build in Owen Sound on a $140,000 lot with a $340,000 construction budget, financed with 20% borrower equity into the total project cost.
Land value
$140,000, Owen Sound
Construction budget
$340,000
Course-of-construction policy in place
Named-perils basis
Covers only specifically listed perils; excludes theft
Lender's requirement
All-risks basis
A funding condition in the commitment letter
The problem
Course-of-construction (builder's risk) insurance comes in two materially different types: a named-perils policy covers only the specific perils it lists, while an all-risks policy covers any loss not expressly excluded, including theft. The two are not interchangeable, and the cheaper one is not automatically adequate.
What went wrong before anyone noticed
- ▸The builder's broker placed the required course-of-construction policy on a named-perils basis, covering fire, lightning and wind but not theft
- ▸The lender's own commitment letter specified an all-risks policy as a funding condition, a stricter standard than what was actually bound
- ▸The gap sat unnoticed through several draws, until a mid-build theft of materials and tools was submitted as a claim and denied
The policy in place was real, paid-up, and in good standing -- the kind of gap that can sit inside otherwise healthy residential construction investment without ever showing up in the project's own numbers. It simply was not the policy the file's own funding condition required.
The numbers
The premium gap between the two policy types was small; the coverage gap it left behind was not.
| Named-perils vs. all-risks, side by side | Amount |
|---|---|
| Named-perils policy (in place) | $1,850/yr |
| All-risks policy (required) | $2,400/yr |
| Annual premium gap | $550 |
| Construction-to-takeout mortgage | Figure |
|---|---|
| Total project cost (land + construction budget) | $480,000 |
| Borrower equity (20%) | $96,000 |
| Qualifying payment at the qualifying rate (7.10%), 25 years | $2,713/mo |
| Total debt service | 38.6% |
38.6% leaves reasonable room, consistent with how Canadian housing starts data shows self-build project costs of this size typically financing.
The solution
The builder's mortgage broker treated the insurance gap as a coverage-type problem to fix going forward, not a claim to keep fighting after the fact.
First, confirmed directly against the lender's commitment letter that an all-risks course-of-construction policy, not a named-perils one, was the actual funding condition.
Second, had the insurance broker replace the policy with a compliant all-risks course-of-construction policy before the next draw was released, at the higher $2,400 annual premium.
Third, confirmed with the insurer that the theft loss itself could not be claimed retroactively under either policy, and had the borrower absorb that $14,000 loss directly from the project's own budget rather than delay the build further disputing it.
The outcome
The next draw released once the all-risks policy was confirmed in place, the construction-to-takeout mortgage qualifies at a payment of $2,713/month, and total debt service settled at 38.6%.
This is an uninsured construction-to-takeout file, so there is no CMHC ratio ceiling; the 38.6% figure is informational.
What to take from this file
- 01Named-perils and all-risks course-of-construction policies are not interchangeable. A named-perils policy covers only the specific perils it lists; theft is routinely one of the gaps.
- 02Check the lender's commitment letter for the exact insurance basis it requires, not just whether a course-of-construction policy exists at all.
- 03Neither policy type covers a loss retroactively. A coverage gap discovered after a loss can only be fixed going forward, not applied backward to the claim that exposed it.
- 04The premium difference between the two policy types is usually modest next to what a real coverage gap can cost. Confirm the basis in writing before the first draw, not after a loss.
Sources
Every regulatory figure in this file traces to one of these primary sources. Client details and anything that varies by lender are illustrative, as flagged below.
- ▸OSFI — Minimum qualifying rate for uninsured mortgages — the minimum qualifying rate — greater of contract rate + 2% or 5.25%.
- ▸Provincial/territorial mortgage-broker legislation fetched directly (bclaws.gov.bc.ca, legisquebec.gouv.qc.ca, fcaa.gov.sk.ca, web2.gov.mb.ca, nslegislature.ca, assembly.nl.ca) plus FCNB's own site for NB and CanLII's index for PE — see notes for per-province method — provincial mortgage regulators and licence titles.
Illustrative in this file — lender-specific, not rules:
- ▸5.10% contract rate — rates move daily; not a quote.
- ▸the named-perils / all-risks premium figures — insurers price course-of-construction coverage individually by project; these premiums reflect one broker's quote, not a published rate.
- ▸the TDS figure — this is an uninsured construction-to-takeout file, so there is no CMHC ratio ceiling -- the number is informational.
Authority & provenance
How this case file was built
We publish the origin, the verification method and the reviewer for every case file, so you can judge how far to trust it before you rely on it with a client.
Where it comes from
Derived from files handled by Treadstone’s fulfillment desk and from scenarios contributed by partner brokerages. Names, employers, exact amounts and dates are changed so no client or file is identifiable.
Provenance: Composite — a pattern seen repeatedly on fulfilled files, not a single transaction.
What is verified
Every regulatory figure traces to a primary source listed above and was checked against it on the date shown. The arithmetic is recomputed by machine on every rebuild.
Anything that varies by lender is labelled illustrative rather than stated as a rule.
Who reviewed it
Reviewed for Canadian regulatory accuracy before publication, and re-checked whenever a cited rule changes.
Reviewed by: Nicholas Parson, Treadstone Associates — reviews every case file before publication.
This case file is professional reference material for licensed mortgage professionals. It is not advice to a borrower, and it is not a lender commitment. Insurer rules, qualifying rates and provincial taxes change — confirm the current position with the insurer, regulator or lender before you rely on any figure here in a live file.