Builder's risk insurance insures the house-in-progress against wind and fire, and some other possibilities depending on the policy language. Lenders require these policies to protect their investment in the property. Contact an insurance agent to get a policy, it's pretty similar to any other insurance product. While you're talking to an agent, it is important to have a liability policy that covers the house (if some kid walks onto your half-built house and injures himself, you could face liability for his injuries). Builder's risk policies usually do not cover this kind of risk. However, your current homeowner's insurance policy probably does, but you should check. And if you don't currently own a home, then you probably need to obtain additional insurance.

Your builders risk policy is a homeowner's policy minus personal property coverages that are generally 70 - 75% of the dwelling coverage. Your personal property won't be there and won't need as much coverage at this location. You should definately have a renters policy for your personal property at the unit you are renting and yes it will have some liability as well. You will want your own liability coverage in the event someone walks on your property and gets hurt or a child falls into a whole/basement/well etc. As materials are delivered they will be covered which is very important. Theives like to go ahead and help themselves to materials. Fire is also covered, I had a customer do what your doing and each time he got close to being done, the house burned down to the ground. Needless to say, he didn't build again but can't sell the property neither. There will be other coverage's but that will depend on which state your in and the policy coverage's issued there.

In the Greater Toronto Area (GTA), I obtained the best price from my regular home insurer, Desjardins. Independent insurance brokers I contacted were twice that price and more. Still, the Desjardins price was three times the amount for a homeowner policy. BTW, years ago, builder's insurance carried only a slight premium vs. homeowner policies. Credit vandalism, theft and suspected sub-division arson by disgruntled buyers.

In the absence of detailed design plans, paying a contractor to come up with a detailed plan to quote is common. Insurance usually has an adjustor come up with a claim through Xactimate though. It's usually very very lowball. To get the insurance payout to equal the actual damage does require a lot of work creating a detailed work estimate. Again, it is not uncommon to reimburse contractors for that amunt of work. In the absence of actual details here, nothing is too out of the ordinary. But "mortgage insurance claim department"? Your mortgage insurance reimburses your mortgage holder in case of default or destruction of the property. It does not pay you. Only standard homeowners insurance reimburses the owner for the equity in the home and it's contents. There's a lot of details lacking here. Maybe a claims adjuster should be involved. Or your attorney.