If you are having a custom house built, or if you plan to buy a house that’s currently under construction, that can create some tricky issues when it comes to insurance. It’s important to understand what types of insurance are needed and who is responsible for obtaining coverage.
Why Homeowners Insurance Doesn’t Apply to a House That’s Being Built
Homeowners insurance is designed to provide protection for a house that is secure and occupied by the owner. If a house is under construction, you aren’t the owner yet. That means a standard homeowners insurance policy won’t be appropriate at that time.
Types of Insurance for a House Under Construction
A contractor is usually legally required to carry builder’s insurance, but sometimes the responsibility for purchasing coverage falls on the owner of the home being built. Builder’s risk insurance protects materials used in a construction project. It covers several perils, such as a storm, fire, theft and vandalism. If equipment or tools get damaged, destroyed or stolen, builder’s risk insurance will pay for repair or replacement.
Builder’s risk insurance may or may not cover the structure itself. If the contractor’s policy doesn’t cover damage to the structure, you may be responsible for obtaining an insurance policy. It will depend on whether you own the land where the house is being built.
If you have bought the land where the house is being constructed, you will need to buy insurance. If a house is being constructed on land that the builder currently owns, it will be the builder’s responsibility to get appropriate coverage.
Builder’s risk insurance only applies while a house is under construction. A builder’s risk policy is written for a short period of time, usually up to a year, but it can be extended if the project falls behind schedule. Once construction is complete, you will need to have a homeowners insurance policy go into effect.
Contractors are required to carry liability coverage in case a worker damages the property or injures someone. Contractors must also have worker’s compensation insurance in case an employee gets hurt on the job.
Understand What Type of Insurance is Needed and Who is Responsible for Obtaining It
The contract that the builder draws up before work begins will explain what insurance coverage is required and who has to purchase it. Review the contract carefully. Ask about the contractor’s insurance coverage limits and which perils are covered and excluded. Even if the builder has insurance, you may need to purchase additional coverage if the builder’s limits aren’t high enough to adequately insure your new home.
