As many homeowners can attest, insuring your property is crucial to protecting your loved ones, your property, and your financial well-being. However, if you’re building your home from scratch, you likely need insurance while the structure is under construction. While this may seem logical, new construction homeowners insurance differs significantly in its limits and operations and is only valid while the home is in production. Confused? Read on to learn how new construction homeowners insurance works and how to get it.
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Insuring a Home That’s Under Construction
Not to be confused with new home insurance, new construction home insurance is a short-term insurance policy specifically for homes currently being built or remodeled. This policy covers damages to the equipment, building materials, and the home’s structure off-site and on-site before the project is complete.
These policies are necessary because, most of the time, a homeowner has to purchase the lot to build on before construction can begin. As the property owner, the homeowner is on the hook for the safety of anyone who visits the site. New construction home policies cover injury to any people working on the site.
The homeowner also provides the cash for the materials. Any theft or vandalism to the property means that either the contractor or the homeowner will have to pay out of pocket to replace what was stolen or repair what was damaged. New construction home policies also cover theft of materials, vandalism, or general damage to the structure before completion.
Who Insures a Home Under Construction?
Anyone with a financial interest in the home should insure it while it’s under construction. This would include the homeowner, the contractor, and the financier if the homeowner needed a loan to complete the project.
Most of the time, the contractor includes the insurance costs in the quote for the job. In other cases, the builder can suggest a few reputable companies for the homeowner to purchase insurance. The financier can also require the homeowner to secure coverage before they loan the cash to start the project. Either way, homeowners should shop around to find the best price for their home under construction coverage.
Coverage for Homes Under Construction
A homeowners policy covers a newly built home the same way it would cover an older home. The policy has a certain amount allocated to repair or replace the main dwelling and other structures. The policy also includes coverage for personal property, liability coverage, loss of use, and medical payments in case anything is stolen or anyone is hurt on the premises.
The main difference in coverage between an older house and a newer house is that the newer house will be less expensive to cover. The new materials the builder put in reduce the risk of any substantial loss, so the insurance company is comfortable providing coverage at a lower rate.
New Construction Home Insurance Coverage Types
The specific varieties of coverage necessary to cover a new construction house depend on various factors specific to the construction project. Given that the main purpose of new construction homeowners insurance is to protect individuals and their property on the job site, you’ll want to ensure your policy includes those features.
However, given the complexity of new home construction, you should also consider some other endorsements when shopping for policies.
Builders Risk Insurance
Builder’s risk insurance protects the builder’s investment in equipment and materials while the home is under construction. Builder’s risk coverage would pay out if the build were affected due to theft, fire, vandalism, or contamination. Builder’s risk also covers natural disasters like wind, lightning, or hail.
A builder’s risk policy only protects the home while it’s under construction. Once the house is finished, the homeowner’s standard homeowner’s policy will take effect.
Dwelling Under Construction Coverage
Most homeowners insurance policies don’t pay out for fire loss or other losses to a home while it’s under construction. Dwelling under construction coverage is a policy that fills in the gap in coverage while the home is going through minor repairs or renovations.
This endorsement is typically just an add-on to an existing policy. The best use for this endorsement is a short-term project that should only last a month or two. Any projects expected to last longer might require a longer-term policy.
Coverage for Perils Not Traditionally Covered
Homeowners insurance, whether for new construction or already constructed homes, is only required to provide coverage for stated “perils” or stated risks in the policy. These perils are generally similar across policies and typically include:
- Fire and smoke
- Lightning strikes
- Windstorms and hail
- Explosion
- Vandalism, malicious mischief, civil strife
- Damage from an aircraft, car, or vehicle
- Theft
- Falling objects
- Weight of ice, snow, or sleet
- Water damage
While that may seem exhaustive, you should remember that those perils are not covered unconditionally and only apply in specific circumstances. For example, water damage is only covered if a water heater or pipe breaks and does not include flooding.
Therefore, you should thoroughly consider the risk factors attached to the project and purchase additional coverage for them, such as a flood rider if you are in an area prone to it.d
Tips for Insuring Construction of Your New Home
As with any other type of insurance, landowners are encouraged to shop around before finalizing a policy they must pay for. That way, they’ll get the most value for their dollar. Read below for additional information to make your purchase go smoothly.
Get Insured Before You Start Construction
The insurance policy only covers incidents that happen while the policy is valid. Locking in coverage before construction starts will ensure you’re covered against anything that could go wrong during the project.
Most insurance companies have to swap a policy from a new home policy to a new construction home policy. The change can take some time, especially if the homeowner has yet to lock in their new home policy.
Read Your Contract
In the contract, most builders include details about new home construction coverage. The contract should outline whether they’ve included the new home construction insurance price in their quote or if they expect the owner to purchase a policy separately and cover the cost. Owners can always check with the builder if they’re unsure about the contract specifics.
Landowners and contractors, if those individuals are different than the homeowner, should also consider getting their own new home construction policy. The landowner’s or contractor’s policy would make the contractor whole if anything were to go wrong with the project.
Determine the Scope of the Project
The scope of construction is another way of noting the size of the job. Is it a minor kitchen remodel, or does the home need to be entirely gutted? Are you building fresh from an empty lot or adding a bathroom to the back of the house?
The larger the scope, the bigger the job, and the more equipment and materials the contractor will need. A bigger job also means more people moving around the site. The larger the job, the more coverage the homeowner will need to protect themselves and their investment.
Create a Home Inventory
A home inventory is a list or record of all of your belongings. The list should include anything you plan to take with you when moving from one house to another. The list should also include any appraisals, receipts, serial numbers, purchase dates, or other vital information that can indicate the age or value of the items.
A home inventory is essential for homeowners because it shows what you own. The list also dictates how much coverage the homeowner needs to replace their belongings if they’re lost. If the homeowner experiences a fire or theft, they can reference the inventory to check what’s missing. They can then accurately report missing items to insurance for replacement.
The easiest way to make a list is to record a video while walking through the home as you pack for the new place. Homeowners can then sit down and type out a list of all their items. They could also email the video to themselves to keep a record and consolidate all their essential documents into a single place so they can keep track of them during the move.
Change Your Policy After Construction Ends
The homeowner should change the home under construction policy to a standard homeowner’s policy as soon as the contractors finish their work. The new construction policy only protects the house while it’s under construction. Once the contractors finish, the policy expires, and the home will be unprotected until the new policy is in place.
The good news is that insurance companies offer coverage at a discount because certain aspects of the house have been replaced or updated.
New Construction Home Discounts
The equipment supplied for a renovation or home build is new. Therefore, the risk of the insurance paying out is lower for newly built homes and recently renovated homes than for older homes. That way, insurance companies can justify offering discounts for new construction.
For example, a new home aspect that warrants a high discount in the eyes of the insurers would be a new roof made from more durable materials. Insurance companies also offer lower rates for new plumbing lines and electrical work. Because the contractors just put everything in, the insurance company is confident that everything is up to code and will be in working order for quite some time.