For years, I’ve heard different versions of how you must handle the insurance process when you’re building a home. So, I’m here to clear the air by giving you the facts!
Are you thinking of applying for insurance during the construction of your home? Is that even possible? Thankfully, yes. In fact, I highly recommend it.
Taking out any kind of insurance is all about managing risk. And this includes having insurance during the construction of a home. Yes, home insurance is usually associated with losses and damages to existing homes. But you can’t disregard the fact that with any construction project comes risk. Property damage and bodily injuries are just some of the risks you can’t completely rule out.
You might as well be proactive and protect yourself from such possibilities from the outset, right? But aren’t all these risks supposed to be covered by the contractor’s insurance? Yes, they should. But you’ll soon realize that a contractor’s insurance policy can only cover so much. There are areas where you can still be left exposed, as I’ll explain a little later.
And what if you’re renovating your home? Is there any home insurance for renovation projects? I’ve taken the liberty to answer any burning questions you may have regarding this issue. Ultimately, I want to clarify the matter and arm you with the necessary information to protect your assets during construction in case you’re sued. That’s right.
Let’s get started!
Why Do You Need Insurance During Construction?
If you’re building a custom home, you must seriously consider applying for home insurance. Mind you, this policy should be in place before the first backhoe hits the ground!
Building a new home is a huge milestone. But a risky one at that. A lot could go wrong during such a cumbersome project. The best you can do is protect yourself from any possible risk, which includes the following:
- Damages caused by natural disasters such as storms
As you can imagine, any of the above-mentioned factors can destroy your partially built house. A home insurance policy will also provide you with liability coverage in the event of bodily injuries.
Case in point: A friend visiting the construction site can slip and fall during a tour and decide to sue you. If this happens, a contractor’s insurance surely won’t cover you. But your home insurance will, under liability coverage. Or, someone working on-site or a child could get injured on the property. The policy will cover you in these cases.
To avoid exposing yourself in any way, get yourself a homeowner’s insurance policy for the construction project.
Which brings us to the next question: How do you take out insurance for a construction project?
How Do You Get Home Insurance For A Construction Project?
There are a few options you can consider. First, a simple way to get insurance coverage while building your home is to take out a standard home insurance policy. Such a policy will cover your building in the event of any damage while it’s under construction. Depending on the policy and insurer you pick, you’re covered for theft of your building supplies.
Alternatively, you can opt for a fire and dwelling policy. As the name suggests, this particular policy covers your building against any fire damage. What it won’t do is cover your building supplies from theft. You just need to double-check if your insurer of choice offers this service.
If you have significant assets on your property, you may have to buy umbrella insurance on top of your home insurance policy. The latter will give you additional liability protection.
Limitations Of A Home Insurance Policy During Construction
Unfortunately, while a standard home insurance policy can protect your house during construction, it doesn’t cover your personal property. Even more so if your building isn’t yet complete.
The moment your building is complete and lockable, you can talk to your insurer and reevaluate your coverage. You can now go ahead and add home insurance coverage for your personal property. Also, once your home is complete, you can upgrade your coverage and purchase a full home insurance policy.
My advice to you is that you must pay attention to the standard home insurance policy you purchase. Find out what exactly the policy covers and if it provides adequate coverage for your circumstances so you’re not left wanting. Even more so if you happen to make changes to the original building plans. For example, did you add another room or more building supplies?
Builders Risk Insurance vs Home Insurance
There’s a lot of confusion regarding a builder’s risk and home insurance during a construction project. What does the afore-mentioned cover, and where does it fall short?
Know this: Simply because you’re taking home insurance for your building project doesn’t mean your contractor shouldn’t have insurance. Avoid hiring a contractor who doesn’t have insurance.
A contractor’s insurance plan, commonly known as a builder’s risk insurance, will cover costs related to the following:
- Damage to property as a result of improper construction of structures
- Damage to a structure in progress
- Damages to any temporary structure erected on the construction site
- Injuries to third-parties such as subcontractors who are working on site
- Theft of materials used to build your home
- Vandalism of tools and equipment that are being used for the construction project
- Theft of materials and tools being kept on-site for future use
- Banks that are funding the construction
Ordinarily, you shouldn’t be liable for the costs mentioned above. The property developer and general building contractor should be responsible for these costs. However, there’s no law prohibiting you from applying for a builder’s risk insurance.
So, where does home insurance come in when the contractor also has insurance? Understand that this is YOUR home being built. You can’t leave anything to chance by leaving everything in the contractor’s hands.
Play it safe by applying for your home insurance policy, especially in cases where you own the property. If you don’t own the property—for instance, when the house is being built in a community by a major building contractor—you might not need coverage.
Also, apply for home insurance if your contractor doesn’t have ample coverage or any coverage at all.
The decision to take out a home insurance policy during the construction is also based on what you agree upon with the contractor. What does your building contract say? Some contracts state that the general contractor should have insurance. Others state that you’re the one who should apply for the builder’s risk policy.
If you’re going to rely on the contractor’s insurance, just make sure you get a certificate of insurance from them. The certificate will cover aspects such as what the policy covers and its duration so that you’re on the safe side.
How Much Does Builder’s Risk Insurance Cost?
The exact amount will depend on the policy you take, what it covers, and, of course, the insurer. The amount you pay will also depend on the size of your home, finishes, and materials used.
But generally, you can expect to pay anywhere between 1% and 4% of the budgeted construction cost. Some insurance companies offer steep discounts since the home isn’t finished yet.
What Is Renovation Insurance?
Can you take out home insurance for a renovation project? Yes, you can.
This coverage falls under renovation insurance. As a homeowner, you’re likely to undertake multiple home renovations as you strive to perfect and upgrade your dream home. Whether you’re looking to increase your home’s value or make it more energy-efficient, you can take out renovation insurance for the intended project.
Mind you, you can still apply for renovation insurance whether you’re employing a professional contractor or taking the project into your own hands. The key is to pick the right insurance coverage for your circumstances.
So, what is renovation insurance? This type of insurance is open to you if you’re making any adjustments to your existing home. And this insurance applies if you:
- Conduct upgrades to a home you’ve just moved into or have lived in for a while
- Make ANY structural changes to any part of your home (Are you planning on knocking down a wall or conducting an electrical rewiring of your entire home?)
- Are required to vacate the premises as a result of the renovation project
Note, however, that not all jobs on your home require renovation insurance. For example, any cosmetic job, such as repainting your walls, doesn’t require home insurance. Or, if you’re fixing a kitchen cabinet!
What Is Covered Under Renovation Insurance?
Renovation insurance policies usually cover the following:
- The physical aspects of the project such as the existing structure and materials
- Accidental injury to someone on the property
- If a worker is killed or injured while working on site
- Legal expenses to cover contractual disputes
- If you’re injured while managing the project
Hopefully, I’ve covered everything you need to know about insurance during the construction of a home. I’ll round out the article by reiterating the key facts you must always remember:
- It’s highly advisable that you apply for home insurance when building your home (even if the contractor has insurance)
- Make sure the contractor has insurance in place
- You can apply for renovation insurance for any structural changes you’re doing to your existing home
Do you now have all the facts to undertake your home construction project with confidence?