Do You Need Homeowners Insurance During Construction?
Updated: August 14, 2024
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Homeowners insurance is necessary during construction to cover potential risks associated with building or renovating your home. The construction process, while fulfilling, can also lead to increased exposure to hazards like fire, theft and weather damage. By updating your insurance, you can cover these potential hazards and avoid significant financial losses. Discussing your construction plans with your insurance provider can help you identify necessary adjustments.
Having homeowners insurance during a construction project helps protect your investment and manage risks, whether you're building a new home or adding a new structure to your property. Standard home insurance policies typically offer limited coverage for homes under construction, so it's advisable to ensure that your policy addresses potential issues such as theft, vandalism and liability. Discuss your construction plans with your insurance provider to verify that your current policy covers the new structure and any associated risks.
You can also consider builder's risk insurance, which provides more comprehensive coverage tailored for construction projects. This type of insurance protects against damage to the building materials, tools and equipment used in the construction process. By having both homeowners insurance and builder's risk insurance, you can minimize financial risks during your construction project.
In insurance, construction refers to the process of building or significantly renovating a structure, which includes everything from the initial groundwork to the final touches.
Builder's risk insurance is a specialized policy covering buildings and structures while they are under construction. It’s typically purchased by the property owner or the general contractor, ensuring that both parties are financially protected. Builder’s risk insurance for new constructions normally covers:
Physical Damage to the Structure
Builder’s risk insurance offers protection against fire, wind, theft, vandalism and other covered risks during construction. This ensures the primary structure is safeguarded against unforeseen incidents.
Building Materials
Your coverage includes protection for materials on-site, in transit or temporarily stored off-site. This allows building supplies to be insured from the moment they are purchased until they are used in construction.
Equipment
This insurance protects tools and construction equipment used in the building process. It covers losses due to theft, damage or other covered perils, ensuring essential equipment remains available and functional.
Scaffolding and Temporary Structures
Builder’s risk insurance covers crucial elements like scaffolding, temporary structures and construction forms.
Debris Removal
The policy covers costs associated with removing debris after a covered loss. This ensures the site can be quickly cleared and work can resume without significant delays.
Soft Costs
Builder’s risk insurance potentially covers additional expenses like architect fees, permits and interest on construction loans due to project delays caused by covered events. This helps manage unexpected financial burdens that arise from construction interruptions.
Before getting started on your project, ensure the building contractor you hire has adequate insurance coverage, including liability and worker's compensation. This protects you from potential financial liabilities in case of accidents or damages during construction.
Builder’s risk insurance doesn’t cover everything, such as employee thefts, design errors or mechanical breakdowns. Understanding what isn’t covered ensures you can purchase additional coverage that covers all your risks. In particular, builder’s risk insurance costs do not cover:
Employee Theft
Losses resulting from theft or dishonest acts committed by employees or subcontractors are usually not covered. Internal theft requires a separate policy like fidelity insurance.
Normal Wear and Tear
This includes damage to belongings that happens naturally over time due to regular use or aging of materials and equipment. Builder's risk insurance is designed to cover unexpected events, not the gradual deterioration of construction materials.
Faulty Workmanship
Builder's risk insurance doesn't usually cover defects or failures in the construction process due to poor-quality work or improper techniques. This coverage gap emphasizes the importance of hiring reputable contractors and tradespeople.
Design Errors
This includes losses that arise from mistakes in design, planning or engineering. Builder's risk insurance does not cover flaws or omissions in the architectural or engineering plans, which would require professional liability insurance.
Mechanical Breakdown
Failures of machinery or equipment breakdowns unrelated to a covered peril, such as fire or vandalism, are usually not covered. Regular maintenance and separate equipment insurance are necessary to cover these incidents.
Home insurance typically includes protection for the existing structure and your personal belongings, but it also covers new constructions or renovations in your home. When undertaking new construction within your existing home, it’s wise to understand how your home insurance policy can provide coverage. Here’s what you need to know about how residential construction insurance applies to new constructions in your existing home:
Structural Damage
Home insurance can cover damage to the existing structure and new additions caused by covered perils such as fire, wind or vandalism. This ensures that any part of your home, whether old or newly constructed, is protected against unexpected events.
Personal Property
Coverage extends to personal property that might be damaged during construction. This includes furniture, appliances and other belongings that could be affected by construction activities.
Liability Protection
Home insurance includes liability coverage in case someone gets injured on your property during the construction process. This can help cover medical expenses and legal fees if a visitor gets hurt while renovations are ongoing.
Additional Living Expenses
If the construction makes your home temporarily uninhabitable, home insurance can cover additional living expenses. This includes costs for temporary housing, meals and other living expenses while your home is being repaired or renovated.
Homeowners insurance doesn’t cover everything, such as flooding, earthquakes or routine maintenance issues. Understanding what isn’t covered ensures you can purchase additional coverage to protect against all your risks.
Flood Damage
Losses resulting from flooding during construction are typically not covered by standard homeowners insurance policies. You usually need a separate flood insurance policy to protect your construction site from flood-related damages.
Earthquake Damage
Damage caused by earthquakes during construction is generally excluded from homeowners insurance. Consider purchasing a separate earthquake insurance policy if your area is prone to earthquakes.
Like builder’s risk insurance, homeowners insurance doesn’t cover faulty workmanship, design errors or mechanical breakdowns. Planning ahead for such instances and choosing a reputable contractor can ensure financial protection on all fronts.
Renovations can increase the value of your home and introduce new risks, making it essential to update your coverage. You can safeguard against potential damages, liability issues and unexpected costs with the proper changes to your home insurance. Typical policy adjustments for a smooth and secure renovation process include:
Ensure your policy covers the increased value of your home post-renovation. This protects your investment and guarantees that the new additions are included in your coverage.
Consider adding builder’s risk insurance to protect against construction-related risks like theft, vandalism and weather damage.
Ensure that your liability coverage is sufficient to cover potential injuries to workers or visitors during the renovation. This helps manage legal and medical expenses if accidents occur on your property.
Adjust your personal property coverage to protect any new appliances, fixtures or furniture added during the renovation. This ensures that all new items are insured against potential damage or theft.
Understand and address any exclusions in your policy that might affect coverage during renovations. This includes checking for exclusions related to construction defects, design errors and mechanical breakdowns.
Before starting any construction or renovation project, adjust your home insurance policy to ensure adequate coverage of your home and new additions against potential risks. Timely adjustments protect your investment and provide comprehensive coverage throughout the construction process.
Planning construction on your home can be an exciting but complex process, and understanding how it impacts homeowners insurance is vital. We address some common questions about homeowners insurance during construction to help you navigate this important aspect of your renovation or building plans.
Homeowners insurance during construction is necessary to protect your existing home and any new additions from risks such as fire, theft and vandalism. It ensures coverage of your home's ongoing construction and completed structures.
Standard homeowners insurance policies may offer limited coverage for construction projects. Reviewing your policy and possibly adding endorsements or obtaining additional coverage will help ensure full protection during construction.
Homeowners insurance during construction typically covers risks such as fire, wind, theft and vandalism. However, coverage can vary, so it's important to confirm the specific risks covered by your insurance provider.
Yes, you might need additional insurance, such as builder’s risk insurance, to cover specific construction-related risks. Builder’s risk insurance can provide more comprehensive coverage for materials, equipment and the structure under construction.
Contact your insurance provider to discuss your construction plans and adjust your policy accordingly. It can guide you on the necessary coverage adjustments and any additional policies you may need.
