Insurance Needed When Building a House

Building a new home represents a substantial personal and financial commitment, often spanning many months and involving numerous parties. This complex undertaking introduces unique risks that differ significantly from those associated with owning an existing property. Standard homeowner’s insurance policies are not designed to cover the specific perils encountered during a construction project. Securing appropriate insurance coverage throughout the building process safeguards the investment and mitigates potential financial losses.

Builder’s Risk Coverage

Builder’s Risk insurance is a specialized form of property insurance designed to protect a building and its associated materials while under construction. This policy covers the physical structure from groundbreaking until project completion or occupancy. It also extends to cover the dwelling itself, along with building materials, supplies, and equipment that are on-site, in transit, or temporarily stored off-site. Coverage can also include temporary structures like scaffolding or construction trailers used during the build.

This policy covers common perils, including fire, lightning, windstorms, hail, theft, vandalism, explosions, vehicle impacts, and damage from falling objects. Policies are purchased for a specific construction period, often 6 to 12 months, with options for extension if the project runs longer.

Responsibility for Builder’s Risk insurance varies. Homeowners managing the project typically secure it. If a general contractor is involved, their contract should specify who obtains and maintains the policy. Homeowners should verify any contractor-provided policy adequately covers their financial interest.

Builder’s Risk policies have specific exclusions. Common exclusions include damage from faulty design, poor workmanship, or defective materials. Wear and tear, inherent vice, mold, acts of war, and nuclear hazards are not covered. This policy does not cover bodily injuries to workers or third parties, which fall under different insurance categories.

Liability Coverage During Construction

Construction sites pose risks of injury or property damage to third parties. Homeowners face potential personal liability if someone, such as a visitor or delivery person, sustains an injury on the site. Construction activities could also damage neighboring properties, leading to claims against the homeowner.

A general contractor’s Commercial General Liability (CGL) policy is a primary source of protection against these third-party claims. This policy covers bodily injury and property damage to third parties arising from the contractor’s operations. Homeowners must verify their chosen general contractor maintains current and adequate CGL coverage with sufficient policy limits. They should request a certificate of insurance directly from the contractor’s insurer.

Homeowners should also seek to be named as an “additional insured” on the contractor’s CGL policy. This provides direct protection under the contractor’s policy for claims where the homeowner might be held responsible, offering financial protection and streamlining claims.

Builder’s Risk protects the property being built, while liability coverage protects against financial loss from claims made by others. While a homeowner’s existing personal liability policy might offer limited protection, it is often insufficient for construction site risks. Relying solely on it is not advisable without specific endorsements or a separate policy.

Additional Insurance Requirements

Worker’s compensation insurance is legally mandated in most jurisdictions for employees, covering medical expenses and lost wages for injured workers. While primarily the contractor’s responsibility, homeowners acting as their own general contractor or directly hiring uninsured workers could face significant liability if a worker is injured. The homeowner might then be responsible for worker’s compensation benefits.

A standard homeowner’s insurance policy has limitations or exclusions for properties undergoing significant construction or extensive renovations. Homeowners should consult their current insurer to understand how their existing policy might be affected. It may be necessary to obtain a specific endorsement or transition to a different policy that accommodates the increased risk. Otherwise, the property could be uninsured for certain perils during construction.

Geographical location can necessitate additional coverage for specialized perils not included in standard policies. For example, properties in flood-prone areas may require flood insurance, obtained through the National Flood Insurance Program (NFIP) or private insurers. Homes in earthquake-prone regions may need earthquake insurance, which covers damage from seismic activity. These specialized policies are separate from Builder’s Risk or CGL and are important based on local risks.

Timing is an important factor in securing appropriate coverage. Builder’s Risk insurance should be in place before groundbreaking to protect materials and the structure from the start. Verification of the contractor’s CGL policy and worker’s compensation coverage must occur before any work commences. When seeking quotes, homeowners should provide details like estimated project value, construction timeline, and information about the general contractor and subcontractors.