Building a new home is an exciting project that entails considerable investment. To safeguard this venture, new home construction insurance plays a critical role. This type of insurance, often called ‘builder’s risk insurance’, protects property owners, developers, and contractors during the construction of a new home.
What is New Home Construction Insurance?
As the name suggests, this insurance protects your new home during construction. It covers financial losses due to unexpected events such as fire, theft, vandalism, and weather damage that could interrupt the construction project.
You can get new home construction insurance if you build or renovate a residential property. This policy will provide insurance coverage during the construction process and usually remains in effect until the project is finished or up to 9-12 months after completion. It’s important to note that this insurance policy offers less coverage than a typical home insurance policy. Your contractor can assist you in selecting the most suitable insurance policy for your needs.
This policy is typically a form of personal property insurance and is often required by lenders before they approve a construction loan. Depending on the agreement, the builders or contractors often purchase builders’ risk insurance, but the homeowner can also acquire it.
Insurance pricing, including home insurance, hinges upon financial risk assessment. The lower the likelihood of a home requiring repair works or other modifications following insurable damage, the lower the insurance premium. Moreover, the policy will be cheaper if projected repair costs are lower. The anticipated claim frequency and repair cost are key factors in setting insurance premiums.
Thus, insurance providers typically view new construction home insurance as presenting lower financial risk. Take, for example, the replacement cost of readily available, new materials compared to the cost of outdated products that are not as easily obtainable. The latter typically entails higher costs.
The coverage offered under the builder’s risk insurance policy primarily includes physical damage to the insured property. It often covers:
- Building materials, both on-site and in transit
- The structure under construction
- Temporary structures like scaffolding and construction forms
However, it’s important to note that every policy has exclusions. Commonly excluded items include:
- Tools and equipment
- Accidents at the construction site
- Professional errors or omissions
Home Construction Insurance vs. New Home Insurance
While these two types of insurance may seem similar, they serve different purposes. New home insurance, commonly known as homeowner’s insurance, protects a house that has been completed. It covers the structure of the home, personal belongings within, and liability for injuries that occur on the property.
On the other hand, home construction insurance covers the property during the construction phase, protecting against damages and losses that could occur during this period.
New Home Construction Discounts
Insurance firms frequently provide markdowns on insurance policies for newly built houses. These fresh constructions are generally considered less risky by the insurance providers, leading them to incentivize using certain building materials that could decrease the likelihood of homeowners filing a claim. If you’re a first-time home purchaser, it might be worth taking these home insurance discounts into account when contemplating the acquisition of a new property.
The specific discounts offered can differ among insurance companies and may hinge on the materials employed in the construction process. Here are some common discounts that could apply to new homes:
Discount for newly constructed homes: This can be one of the most significant markdowns you could encounter when insuring a home. The actual amount you could save will fluctuate among different companies and policies, but typically, discounts for new homes can result in significant savings for homeowners in the initial years of insuring a brand-new property.
Discount for home security: A wide array of devices, from fire extinguishers to smoke detectors and theft alarms, might make homeowners eligible for discounts. Technological safety enhancements that lower the risk to your property can frequently decrease your insurance premiums.
Discounts for roofing: The age and composition of your roof can affect your premiums. New roofs, particularly those made from sturdier materials, might often be eligible for discounts with certain insurance companies.
5 Expert Tips for Choosing A Home Construction Insurance Company
Building a new home is an exciting and challenging project that involves substantial financial investment. To ensure that your investment is well-protected against unforeseen circumstances like damages or losses, it is crucial to have a comprehensive residential construction insurance policy in place. Here are five tips to help you choose the right insurance for your construction project:
1. Make Sure You are Covered from the Start
One of the most critical steps is to get your project insured before starting construction. This guarantees that your investment is protected right from the start. It’s important to remember that your existing homeowner’s insurance policy might not cover a construction project. Therefore, you need specific construction insurance, often called ‘builder’s risk insurance’, designed to cover risks associated with the construction process.
2. Read the Contract Thoroughly
Understanding your builder’s contract is fundamental in determining who is responsible for what during the construction process. The contract should outline who is responsible for ensuring the project during construction. Generally, this falls to the builder or contractor, but it might sometimes be the homeowner’s responsibility. Review the contract thoroughly and discuss any unclear points with your builder or a legal expert.
3. Assess the Complexity and Risk of Construction
The scale and complexity of your project will dictate the type and amount of coverage you need. Extending your homeowner’s policy may suffice for smaller renovation projects. However, a separate builder’s risk policy is necessary for larger projects or new builds. This policy can cover the dwelling and materials on site and in transit and may also offer liability coverage. Be sure to provide your insurance agent with detailed information about your project so they can help you get the appropriate coverage.
4. Take Inventory into Consideration
Maintaining a comprehensive inventory of the materials used in your project is a good practice and can simplify the process in the event of a claim. Document all purchases and keep receipts. Also, consider taking photographs or videos of the work as it progresses. This visual record can provide valuable evidence if damage occurs.
5. Replace the Policy Once the Construction is Done
Once your home is built and the construction phase ends, your builder’s risk policy will no longer provide the necessary coverage. You’ll need to transition to a standard homeowners insurance policy. This policy will cover the structure of your home, personal belongings and provide liability coverage for injuries or damages on your property. Coordinating this policy change with your insurance provider is important to ensure no lapse in coverage.
New home construction insurance is a vital component of any building project. It provides peace of mind during a complex and stressful process. You can ensure you’re adequately protected by understanding what it covers and how it works.
Making sure you are covered from the start of your project, understanding your builder’s contract, and assessing the complexity and risk of construction can go a long way in helping you choose the right policy. Transition to a standard homeowners insurance policy when your construction is complete. Doing so will ensure that your home is always protected against damages or losses
Home Construction Insurance FAQs
Who insures a home under construction?
As stated in the building contract, the responsibility for insuring a home under construction typically falls to the builder or contractor. However, there can be circumstances where the homeowner needs to take out a policy. Always review your building contract and consult an insurance professional to understand your responsibilities.
How do you insure a home under construction?
To insure a home under construction, you must take out a specific construction insurance policy known as builder’s risk insurance. This can usually be done through an insurance broker or agent. You’ll need to provide details about the project, including its value, the construction timeline, and the materials used.
Is homeowners insurance cheaper on new construction?
Typically, homeowners insurance on new construction is cheaper than on an older home. This is because new homes are less likely to have issues with old wiring, plumbing, or structural problems that older homes may have. Additionally, new homes often feature safety and security devices, which can also reduce the insurance premium. However, rates can vary depending on various factors, including the home’s location and size, so it’s always best to get multiple quotes.
Do you need special coverage for major home renovations?
Standard home insurance policies typically cover renovations, but there are limits, and the coverage depends on the specific policy. It is possible that certain renovations could invalidate the policy or result in the home being underinsured. Ensuring that any contractors involved in the renovation have proper insurance to cover injuries, damages, or faults in the work is essential.