Building or renovating a home is exciting, but risky. During construction, accidents, theft, and property damage can happen. That’s why you need home construction insurance. This insurance protects your home financially during construction. It covers unexpected problems like accidents or theft. This guide explains home construction insurance and how to use it
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What is Dwelling Under Construction Insurance?
Dwelling under construction insurance, also known as a dwelling under construction endorsement, is an add-on to your standard homeowners insurance policy that provides coverage for your home while it’s being built or renovated.
Imagine you’re building a new home or doing a major renovation. Your regular home insurance might not cover everything during construction.
That’s where “dwelling under construction insurance” comes in. It’s like an extra layer of protection for your home while it’s being built or remodeled.
Think of it as a special add-on to your normal insurance. It helps protect your property from things like accidents, theft, or damage that can happen during construction.
This extra insurance is especially important for longer projects, like building a new house or adding a big addition. If you’re just doing a quick kitchen remodel, your regular insurance might be enough. It is highly recommended to secure this insurance before construction begins to avoid any gaps in coverage and potential financial losses.
This type of coverage is typically necessary for projects that are expected to take longer than a month or two, but when renovating more than just a kitchen or living room but all rooms or adding a new room dwelling under construction, insurance is essential.
George Nicola shares:
Now, there’s also something called “builder’s risk insurance.” It’s similar, but it’s usually a separate policy used for new construction or big projects. It can also help protect you from having to make a claim on your regular home insurance, which can sometimes raise your rates.
Basically, if you’re building or doing a major renovation, it’s a good idea to talk to your insurance agent about getting extra coverage to protect your investment.
| Category | Home under construction insurance | Builders risk insurance |
|---|---|---|
| Type of Coverage | An endorsement you can add to your standard home insurance policy to ensure you're fully protected while your home is under construction | An entirely separate insurance policy that's either purchased by you or your contractor prior to the start of construction |
| Project Duration | Short-term construction projects like adding a new room to your home or remodeling your kitchen | New construction homes or long-term construction projects like renovations or repairs that are expected to last longer than a month or two |
| Coverage Details | "Fire storm damage burst pipes theft & other covered perils — plus soft costs associated with construction delays building materials & premises liability" | "Your home and construction materials from fire vandalism storm damage theft & other covered perils — but not liability" |
| Cost Structure | Varies based on the scope of the project | Varies based on the scope of the project |
Understanding Your Policy
Every insurance policy has its own rules and details. To avoid any surprises, it’s important to understand the specifics of your dwelling under construction insurance.
Here are some key things to look for:
- Coverage limits: This is the maximum amount the insurance company will pay if something happens.
- Deductibles: This is the amount you’ll have to pay yourself before the insurance kicks in.
- Exclusions: These are the things that the insurance doesn’t cover.
- Claim procedures: These are the steps you need to take to file a claim if you need to use your insurance.
If you have any questions about your policy, don’t hesitate to contact your insurance agent or company. They can help you understand the details and make sure you have the right coverage for your needs.
What Does Dwelling Under Construction Insurance Cover?
Dwelling under construction insurance protects your home from many risks during construction.
Here are some examples:
Core Coverage
Fire: Building materials can easily catch fire, so this is important coverage.
Storm damage: Strong winds, hail, and lightning can cause serious damage.
Vandalism and theft: Construction materials and tools are tempting targets for thieves. This covers the loss of those items from the job site. Malicious damage also often happens to properties under construction. This could include graffiti, broken windows, or other acts of destruction.
Burst pipes: Water damage from burst pipes can be a big problem.
Weather Events:
Wind: Protection against damage caused by high winds.
Hail: Covers damage from hailstones.
Rain: Most policies will cover damage from wind-driven rain.
Lightning: Protects against damage caused by lightning strikes.
Vehicle or Aircraft Collision: If a vehicle or aircraft crashes into the structure being built, this coverage comes into play.
Damage to Temporary Structures: Covers damage to structures like construction trailers or sheds on site.
Debris Removal: If a covered loss results in debris, this will help with the cost of removal.
Besides these basics, there are some special coverages too (Usually Available as Endorsements):
Soft Costs: This is a crucial add-on. If a covered event (like a fire) delays construction, this can add a lot of extra, unexpected costs. Soft costs coverage helps with things like:
- Lost income.
- Additional interest on loans
- Real estate taxes.
- Architects’ fees.
- Engineering fees.
- Permit and legal fees.
Other expenses incurred directly from the delay.
Building Materials in Transit: Covers materials while they are being transported to the construction site.
Scaffolding: Coverage for the scaffolding being used during construction.
Premises Liability: This is a separate but essential type of coverage. It protects you if someone gets injured on the job site and sues you. This is usually purchased separately, not included with dwelling under construction insurance.
Pollution Cleanup: This coverage is for cleaning up pollutants that may have been released during a covered event.
Coverage for change orders: If you anticipate making changes to your construction plans, you may want to add coverage for change orders. This will ensure that you are covered if the cost of your project increases due to changes
Important Considerations
Who Buys It: Usually the property owner or the contractor purchases builder’s risk insurance. It should be clear in the contract.
Policy Limits: Make sure your coverage limits are sufficient to rebuild the entire structure if there’s a total loss.
Policy Duration: The policy is typically taken out for the expected duration of the construction project.
Transition to Homeowners Insurance: Once construction is complete and you have a certificate of occupancy, you’ll need to switch to a regular homeowners insurance policy.
What's Usually NOT Covered
While dwelling under construction insurance provides comprehensive coverage, there are some exclusions that you should be aware of. These may vary depending on your specific policy, but common exclusions include:
Earthquakes and Floods: These generally require separate policies.
Government Action: Seizure of property.
Employee Theft: Not covered under standard dwelling under construction policies.
Faulty Workmanship or Design: This is typically not covered. Damage caused by faulty workmanship or defective materials may not be covered. The policy usually only covers damage from external events, not contractor errors.
It’s important to hire qualified contractors and use high-quality materials to minimize this risk.
Normal Wear and Tear: Not covered.
Mechanical Breakdown: Not typically covered.
Bottom Line:
Dwelling under construction insurance is essential for protecting your investment during a building project. It is strongly recommended to talk to your insurance agent to tailor a policy that meets your specific needs and to fully understand what is and isn’t covered. They can also guide you through adding any necessary endorsements.
How to Make a Claim on Dwelling Under Construction Insurance?
Dealing with damage or loss during a construction project is stressful enough. This guide will help you navigate the claims process efficiently and get the support you need from your insurance.
Step 1: Secure the Site and Prevent Further Damage (If Possible)
Safety First: Ensure the area is safe for you and others to enter. If there are safety hazards, don’t put yourself at risk.
Mitigate Loss: If it’s safe to do so, take reasonable steps to prevent further damage. This might involve covering exposed areas with tarps, turning off utilities, or moving undamaged materials to a secure location. Your policy likely requires you to take reasonable steps to prevent further damage.
Don’t Disturb: Avoid disturbing the damaged area more than necessary until the insurance adjuster has a chance to inspect it.
Step 2: Document Everything Thoroughly
Photos and Videos: Take extensive photos and videos of the damage from multiple angles and distances. Capture both wide shots showing the overall scene and close-ups of specific damage.
Detailed Inventory: Create a written list of all damaged or stolen property. Include descriptions, quantities, purchase dates (if known), and estimated values.
Gather Receipts: If you have receipts for damaged or stolen materials or equipment, start gathering them now.
Police Report (If Applicable): If the loss is due to theft or vandalism, file a police report immediately and get a copy for your records.
Witness Statements: If there are any witnesses to the event, collect their contact information and any written statements they can provide.
Step 3: Notify Your Insurance Company Immediately
Don’t Delay: Contact your insurance agent or company as soon as possible after the loss occurs. Most policies have strict timeframes for reporting claims.
Provide Basic Information: Be ready to provide your policy number, the date and time of the loss, a brief description of what happened, and the location of the construction site.
Claim Number: The insurance company will assign you a claim number. Write this down and use it in all future communication.
Step 4: Complete the Claim Form (Proof of Loss)
Obtain the Form: Your insurance company will provide you with a claim form, often called a “Proof of Loss” form.
Fill it Out Accurately: Complete the form carefully and truthfully. Provide all requested information, including:
- Your contact information (or the policyholder’s).
- Policy details.
- Date and time of the loss.
- Detailed description of the event and the damage.
- List of damaged or stolen items.
- Estimated value of the loss.
Supporting Documents: Attach all the documentation you’ve gathered, such as photos, videos, receipts, police reports, and witness statements.
Sworn Statement: Be aware that the Proof of Loss form usually requires a sworn statement, meaning you are affirming under oath that the information provided is true and correct to the best of your knowledge.
Submit on Time: Proof of Loss forms often have deadlines for submission, so be sure to submit on time.
Step 6: Get Repair Estimates (If Requested)
Multiple Estimates: Your insurance company may ask you to get estimates from contractors for the cost of repairs. It’s often a good idea to get at least three independent estimates.
Contractor Selection: You usually have the right to choose your own contractor, but it is wise to discuss the bids with the adjuster.
Step 7: Review the Settlement Offer
Settlement Determination: After the adjuster completes their investigation, the insurance company will make a settlement offer.
Review Carefully: Carefully review the offer to make sure it covers all your covered losses and aligns with your policy limits and deductible.
Negotiate (If Necessary): If you believe the settlement offer is too low, you can negotiate with the insurance company. Be prepared to provide evidence to support your position.
Consult with a Professional: If you’re having trouble understanding the settlement offer or negotiating with the insurance company, consider consulting with a public adjuster or an attorney specializing in insurance claims.
Step 8: Receive Payment and Begin Repairs
Payment: Once you and the insurance company agree on a settlement, they will issue payment. This may be in the form of a lump sum or a series of payments as repairs progress.
Repairs: You can then begin the repair process using the contractors you’ve selected.
Keep Records: Keep meticulous records of all repair costs, invoices, and payments. You may need to provide this information to the insurance company.
It’s important to keep detailed records of all communication with your insurance company and any contractors involved in the repairs. This will help ensure that your claim is processed smoothly.
Contacting Your Insurance Company with Questions
Your insurance policy is there to protect you, but it can be complex. Don’t hesitate to reach out to your insurance company with any questions or concerns. Clear communication is key to making sure you have the right coverage and understand how it works.
Clear communication is key to making sure you have the right coverage and understand how it works.
How to Contact Your Insurance Company?
You’ll typically find their contact information on your policy documents, their website, or any correspondence they’ve sent you. Most insurers offer multiple contact methods:
Phone: This is often the quickest way to get answers to urgent questions. Look for a dedicated customer service or claims number.
Email: Ideal for non-urgent inquiries, getting answers in writing, and keeping a record of the conversation.
Online Chat: Many insurers offer live chat on their websites, providing a convenient way to get quick answers to simple questions.
In-Person (Agent): If you purchased your policy through a local agent, you can schedule an appointment to meet with them in person.
Mail: While less common for general inquiries, you might need to send documents via mail for certain procedures.
Preparing for Your Contact
Before you reach out, take a few minutes to prepare. This will help you make the most of your interaction:
Have Your Policy Number Ready: This is the first thing the representative will ask for.
Review Your Policy: Briefly review the relevant sections of your policy related to your questions. This will help you ask more informed questions and understand the answers.
Write Down Your Questions: Jot down your specific questions beforehand. This ensures you don’t forget anything important.
Gather Relevant Documents: If you’re inquiring about a potential claim, have any related documents, photos, or reports on hand.
Key Questions to Ask About Your Dwelling Under Construction Policy
Here are some essential questions to consider asking. Tailor these to your specific situation and policy:
Coverage:
What specific perils are covered? (e.g., fire, theft, windstorm, vandalism, etc.)
What are the coverage limits for each type of peril? (e.g., what’s the maximum the policy will pay out for fire damage?)
Are there any sub-limits? (e.g., is there a separate, lower limit for theft of building materials?)
What are the specific exclusions to my coverage? (e.g., are earthquakes or floods excluded?)
Does my policy cover “soft costs”? If so, what specific soft costs are included, and what are the limits?
Does my policy cover materials in transit or at a temporary storage location?
Is my policy for “all risks” or “named perils”? (This is a crucial distinction in how broadly the policy covers different types of events)
Does this policy cover liability? (Usually, liability is covered under a separate policy).
Deductible:
- What is my deductible?
- Is it a flat amount or a percentage of the loss?
- Does the deductible apply to all types of losses, or are there different deductibles for different perils?
Claims Process:
- What is the exact procedure for filing a claim?
- What are the deadlines for reporting a claim?
- What documentation will I need to provide when filing a claim?
- How long does the claims process typically take?
- Who will be my primary point of contact during the claims process? (e.g., an agent or a specific adjuster)
Other Important Questions:
When does my coverage start and end?
How do I transition from a dwelling under construction policy to a standard homeowners policy once construction is complete?
Are there any discounts available? (e.g., for security systems, fire suppression systems)
Can I review the full policy wording, not just the declarations page?
Getting it in Writing:
Email Confirmation: If you discuss your coverage by phone, ask the representative to send you an email summarizing the key points of the conversation.
Document Everything: Keep detailed records of all your interactions with the insurance company, including dates, times, names of representatives, and the topics discussed.
Comparing Quotes and Choosing a Policy:
Shop Around: Before you purchase a policy, get quotes from multiple insurance companies.
Compare Coverage Carefully: Don’t just focus on the price. Compare the coverage details, limits, deductibles, and exclusions of each policy.
Ask About Reputation: Inquire about the insurance company’s reputation for customer service and claims handling. You can check online reviews and ratings.
Final Thoughts
Your insurance agent or company representative is there to help you. Don’t be afraid to ask questions until you fully understand your dwelling under construction insurance policy. It’s much better to clarify things upfront than to be surprised during a claim. Proactive communication and a good understanding of your policy are essential for a smooth and stress-free construction process.
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