Do You Need Insurance While Your New Home Is Under Construction?
When you see your new home being constructed brick by brick, you can’t stop imagining the little cosmetic details that would make your house a happy place.
From cabinets to curtains, you have it all figured out well in advance.
And, we are sure that you would soon connect with your insurance agent for a homeowner’s policy that would kick in once you move in.
But, what about the risk of property damage when the building is under construction?
While your home is being constructed, it can get damaged from fire, storms, lightning, theft, vandalism, and many other factors out of your control. Especially, if you live in a hurricane prone area, the probability of damage is high.
What can you do in such a situation to protect your property?
If you think, like many others, that your contractor carries insurance, you might be surprised to know that your contractor’s coverage might not cover all damages to your property.
Let’s dig deeper into this.
In This Article
What is Builder’s Risk Insurance or Course of Construction Insurance?
Builder’s Risk Insurance pays for the cost of repair, replacement, or recovery of the project value if there are damages to the structure or equipment in use due to a number of causes.
Usually, when a contractor builds a house, they buy Builder’s Risk Insurance, also known as Course of Construction Insurance, to protect the structure, equipment and tools (onsite, in-transit, or stored somewhere else temporarily) from any damage or theft.
Their coverage may or may not include protection for the structure and even when it does, it may not cover the accurate value of the construction project.
That’s why you should always read the contract carefully to know what exactly is covered under your contractor’s policy.
What Is Covered Under The Builder’s Risk Insurance Policy?
Most policies cover damages from these events - fire, wind, theft, lightning, hail, explosion, and vandalism - to foundations, underground pipes, wiring, machinery, fixtures, structures, fencing, scaffolding, and construction signs.
Do remember to note that events such as war, federal actions, earthquakes, floods, wind in coastal areas, employee theft, water damage, and mechanical breakdown aren’t usually covered under the policy.
There might be other exclusions as well in your policy, so read the fine print carefully.
Though there are exclusions to what is covered, some of the best insurers for Builder’s Risk Insurance cover a lot more such as debris removal, modular components, defective workmanship, and profits as well.
Simply Insurance is the simplest & fastest way to compare home insurance online.
"Simply Insurance... focuses on consumer-facing insurance products and instant online insurance quotes"
- USA Weekly
Would the homeowner need to buy coverage to protect the structure?
As the contractor may or may not carry appropriate coverage, the damage to the structure becomes the owner’s responsibility.
If you’re the owner of the land on which the property is being constructed, then you should ideally buy coverage for protection, especially if you’re building a house from scratch.
In most cases though, you wouldn’t need to buy a policy if you aren’t the owner of the land.
For instance, if your home is being built by a major builder in a community, the ownership of the lot lies with the builder.
Also, builders carry out many construction projects, so they are able to negotiate with insurance agents for a better deal on their policy.
An important point to note here is that the coverage doesn’t include damages from faulty designs or flaws in workmanship as that falls under the purview of professional liability.
What should be the policy limit for Builders’s Risk Insurance?
The Builder’s Risk policy, like any other coverage, would cover damages up to the policy limits. If your contractor’s policy includes the structure, make sure that the policy limits are in line with the value of the completed building.
To make an accurate valuation of your house, you can calculate the construction budget around which the policy limit should be set.
For how long is the Builder’s Risk Insurance coverage valid?
As the insurance intends to cover damages during construction, it lasts until the building is completed.
It can be extended, however, if the construction isn’t over within the stipulated period.
Normally, this coverage is written in periods of three months, six months, or a year.
Whether you buy your own coverage or rely on your contractor’s policy, you must ensure that your property is safe from any damages.
If you want to understand what qualifies as construction for the purpose of a Builder’s Risk Insurance policy and what exactly is covered under the policy, you can watch this quick 3-minute video:
How much does Builder’s Risk Insurance cost?
The premiums depend on the policy limit that you plan to purchase.
Naturally, if your home’s value is on the higher side, the premium cost would be high.
That’s why it’s essential that you accurately estimate the cost of your house so that you can buy the right amount of coverage.
You can also enjoy discounts from your existing insurer if you bundle your Builder’s Insurance with your current policies.
Though not every insurance company offers bundling with a Builder’s Risk policy, you can always check for discounts before buying.
Checklist - Before buying Builder’s Risk Insurance
- 1Connect With An Experienced Agent - Since Builder’s Risk is a specialized coverage, you need to find an agent who understands your unique needs and designs a policy that protects you from all damages.
- 2Make a list of your inventory - Do make an inventory of all your equipment, tools, and other things that are stored, being used, or in-transit so that you can include everything in the policy.
- 3Keep an eye on the coverage start and end date - If you know the tentative completion date of your construction project, you can stick to that timeline for your coverage. However, if the construction isn’t completed by the initial deadline, you might have to extend your policy.
Frequently Asked Questions (FAQs)
1. Is the builder required by law to carry insurance while your house is under construction?
The builder is usually required by the law to carry insurance that protects the materials or equipment being used for construction.
In addition, the contractor is also responsible for personal injuries sustained by himself and other workers on site, which is covered under a separate general liability policy.
2. What about insurance coverage while you’re renovating the house?
Even when you’re renovating your house, you need to take the same precautions as you would in case you were building a new house.
However, minor renovations are usually covered under your homeowner’s policy, but if you’re making structural changes, then you would need a Builder’s Risk Insurance policy.
It’s always recommended to connect with an insurance agent to assess your need for coverage during renovations.
3. Would you need coverage if you’re financing your house?
Your lender would usually expect you to buy a Builder’s Insurance Coverage because they have a financial interest in your house and damages during the construction phase might set you back by thousands of dollars if you aren’t covered.
IN THIS ARTICLE
Schimri Yoyo is a writer for AutoInsurance.org and a financial advisor with active life and health insurance licenses. Born in Haiti. Reared in Brockton, MA. Matured in Philadelphia. Schimri is a proud graduate of Arcadia University, having earned both a Masters in Special Education and an MFA in Creative Writing from the castle-riddled campus in Glenside, PA. By personality and by profession, Schimri is an educator and a storyteller who is eager to assist individuals and families to craft and complete their own financial success stories.