The decision to build a new home is one of the biggest investments in life. It is not just a permanent shelter, but also a symbol of your hard work, dreams, and family security. Many people only focus on the construction cost, design, or finishing when planning, while the importance of insurance is often overlooked.
However, if an accident occurs during construction, a natural disaster damages the house, or a partially built structure collapses, then you will have to bear the brunt of the damage. One question needs to be clear from the beginning: when should you take out insurance, and what type of insurance is actually needed?
In this article, we will discuss why insurance is essential during house construction, at what stage it is necessary to obtain it, and what types of coverage can be most effective for building a new home.
Why insurance is important during building a home
During construction, your home is at risk in many ways. Unfinished structures can easily be damaged by storms or heavy rain. Expensive construction materials such as iron rods, cement, bricks, or electronic equipment are always at risk of being stolen as they are lying in the open. Fires or electrical short circuits often occur at construction sites.
Not only property damage, but liability issues are equally risky. Workers on construction sites perform dangerous tasks every day. If a worker is injured or a neighboring house is damaged, you may be legally liable. Legal costs and compensation can sometimes exceed the cost of the entire project.
In such a situation, insurance can save you financially and give you peace of mind that your dream home will be safe in the event of any disaster.
When should you take out insurance?
Getting insurance at the right time is crucial to the safety of your entire investment. The best time is before construction begins. The first insurance should be taken out immediately after purchasing the land, approving the plans, and hiring a contractor.
New risks arise at each stage of construction. When the foundation is dug, there is a possibility of landslides or accidents. There is a risk of storms or lightning while erecting walls. Many unexpected events can happen right up until the roof is installed. Therefore, having insurance is essential throughout the entire process.
On the other hand, when the house is almost finished and you are preparing to move in, it is essential to get homeowners’ insurance. This will give you full coverage from day one, and there will be no gaps.
What kind of insurance is required?
1. Builder’s Risk Insurance: Builders’ Risk Insurance is the most important coverage during home construction. It protects the home under construction, the materials used, the machinery, and the structure. If there is a fire, storm damage, or theft of materials during construction, this insurance covers the loss. Since construction work can last for months or even a year, this coverage is essential to keep the project safe throughout this period.
2. General Liability Insurance: General liability insurance is usually the responsibility of the contractor, but sometimes the homeowner may also need to take it out. If someone is injured or property is damaged during construction, you will have to pay a lot of money. If the contractor’s insurance is not sufficient, you, as the owner, may be liable. So it is best to check the contractor’s insurance coverage before building a house and take out additional insurance yourself if necessary.
3. Worker’s Compensation Insurance: This is a legal requirement in many states to ensure the safety of workers. If someone is injured during construction or becomes chronically ill as a result of their work, their medical expenses and compensation are covered by this insurance. If the contractor does not have adequate coverage, you, as the owner, may also be responsible for this.
4. Homeowner’s Insurance: Homeowner’s insurance is the most important protection after the house is completed. It covers not only the structure of the house, but also the interior furnishings, electrical appliances, and even theft. In addition, if someone is injured or has an accident in your house, the insurance also bears the responsibility. So it should be activated before moving into a new house.
5. Flood Insurance: Many people mistakenly assume that regular homeowners’ insurance covers floods. In reality, it does not. If your house is in a flood-prone area, then taking out flood insurance is essential. Once you have suffered damage in a flood, you will understand how much you need it. So it is better to have it in your plan from the beginning.
How much can insurance cost?
The cost of insurance depends on many factors. The premium is determined by the location of your home, the cost of construction, how long the work will take, and what type of coverage you are taking. Typically, the cost of builders’ risk insurance ranges from one to five percent of the total construction cost.
For example, if your home costs $300,000 to build, the insurance premium can range from $3,000 to $15,000. While this may seem like a large expense to many, the financial loss that will occur if an accident occurs is very difficult to bear. Therefore, it should be viewed as a safety investment rather than an expense.
Strategies for choosing the right insurance
Before taking out insurance, it is essential to discuss it with an experienced agent. He or she can suggest the right policy based on your location, budget, and construction risks.
It is very important to check the contractor’s insurance. Many owners think that the contractor’s coverage will cover everything. But in reality, their insurance is often limited. So if they don’t have enough liability or workers’ comp, they’ll need to get additional coverage themselves.
Buying multiple coverages at once can often reduce costs. Also, as construction progresses, it’s important to update your coverage regularly. What was sufficient insurance for an unfinished home may no longer be sufficient for a completed home.
Common Mistakes to Avoid
The biggest mistake many homeowners make is to take out insurance after the house is completed. When the risk is greatest during construction, others rely entirely on the contractor’s insurance, which often provides limited coverage. Omitting flood insurance, under-extending liability coverage, and not updating coverage on time are some other common mistakes. Avoiding these can help you avoid major losses in the future.
Conclusion
Building a new home is one of life’s greatest joys and investments. But to keep that joy safe, there is no substitute for insurance. You should take out builder’s risk insurance before construction begins, ensure construction liability and workers’ comp, and it is essential to start homeowners insurance as soon as the house is completed. If you live in a flood-prone area, you should also take out flood insurance.
If you have a well-planned insurance strategy from the start, storms, accidents, or any unforeseen event will not be able to damage your dream home. Instead, you can rest assured that your dream is not only built, but also protected.
