The next time you plan to renovate or remodel your home or want to buy a new home still under construction, keep these five important points about homeowners insurance in mind. Having the right insurance coverage before a project begins can help the whole project run smoothly.
When owning a home, most people know they need homeowners insurance. But when it comes to homes under construction, the kind of coverage required can get a little fuzzy. While remodeling a house or buying a new house still under construction can be exciting, it’s also important to make sure all aspects of the home and project are covered. Check out these five things to know about home insurance while your house is under construction, so you’ll be better prepared.
1. Homeowners Insurance Covers Liability and Property Claims During Renovations If You Remain in the Home
When it comes to home insurance, one important distinction to make is where the homeowner will be living while a construction project takes place. If the homeowner is residing within the home during remodels, renovations, or other construction projects, a standard homeowners insurance policy will provide coverage for property damage and liability-related issues. Liability coverage reimburses homeowners for legal fees in the event a third party sues them.
Personal property coverage protects against damage to your home’s dwelling or structure while it’s under construction and also protects your belongings such as furniture, electronics, clothing, artwork, and decorations from potential damage during the project. Liability coverage protects against bodily injury or property damage claims made by third parties, such as the contractors and other workers, while on your property.
2. A Different Insurance Policy Is Required If You Plan to Move Out During Renovations
Some renovations are so complex that the homeowner must temporarily move out. While this may mean more drastic and rewarding changes for the home, it also complicates matters when it comes to insurance, since homeowners insurance is not designed to cover complex renovations. If you plan to live elsewhere while your home is under construction, your homeowners insurance policy won’t provide enough coverage. Instead, you’ll need a different policy known as builder’s risk insurance.
Builder’s risk policies provide more extensive coverage than standard homeowners insurance. During complicated renovations and remodels, builder’s risk insurance is crucial to keep your property protected. This type of policy covers property with constantly changing values, such as homes under construction. If something happens to your home during the project, you’ll be reimbursed for the current value of the property with any added value from the new construction factored in.
Additionally, you’ll likely want to purchase an umbrella insurance policy. Umbrella insurance extends your liability coverage to a much higher limit—up to one million dollars. For huge home construction projects, many workers will be on your property. As the homeowner, you are responsible for their safety when it comes to dangers posed by your home or belongings. It’s important to have substantial liability coverage in case a worker gets hurt on the job and decides to sue you.
3. New Homes Under Construction Are Unique
When it comes to new homes still under construction, there technically isn’t a homeowner yet. In this case, the party responsible for carrying insurance coverage is the builder. Contractors working on the home under construction will carry liability coverage and builder’s risk insurance while the project is underway. If you purchase a new home while it’s still under construction, know that it’s the contractor’s responsibility to carry enough coverage to protect the property while building is in progress.
4. Contractors Must Carry Their Own Insurance, Too
Licensed contractors must also carry insurance coverage. Before hiring someone to do risky construction work on your beloved home, you have the right to ask them what type of insurance they have. As the property owner, you are responsible for coverage to the dwelling and your personal belongings, as well as liability coverage for any injuries workers sustain due to perils on your property. Contractors need their own liability protection, as well.
Contractors need to have liability insurance in case they accidentally damage or destroy your property, and you decide to sue them. They also need it to protect themselves if they injure the homeowner or another property owner while working and get sued.
Additionally, contractors often carry policies called inland marine insurance to protect their equipment that gets transferred between job sites. They also usually carry builder’s risk insurance to protect their materials. Finally, contractors must be covered by workers’ compensation coverage in case they get injured due to routine job-related activities during a construction project.
5. Why It’s Important to Have the Right Coverage
Though standard home insurance provides coverage for homeowners in many ways, homes under construction are a more complicated matter when it comes to insurance. The two biggest concerns homeowners tend to have when remodeling or renovating their home are for the actual dwelling and fire protection. Both of these aspects are covered under builder’s risk policies or homeowners insurance if you remain in the house during the project.
Builder’s risk policies are designed to cover property being added, not property already in existence. This type of insurance is necessary for many home remodel or renovation projects due to the changing value of the property and because materials used by workers transfer ownership during construction. Materials used by contractors become part of the home as construction progresses, and builder’s risk policies help provide coverage during that gray area before a project is complete.
With a deeper understanding of how different types of insurance coverage apply to home construction projects, you’ll know what you need before starting your next project and if your existing homeowners policy will be enough. Don’t hesitate to ask your independent insurance agent for further clarification if you have any remaining questions.
Paul Martin, CPCU, is an insurance professional for Trusted Choice with over 30 years’ experience in the field. Throughout his career, his mission has been to advance the insurance industry through education to be better equipped to serve the public.
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