Don’t forget your Course of Construction insurance. Whether you are taking on the task yourself or have hired a General Contractor to oversee your construction, insurance should be top of mind.
Builders/Developers building spec homes cover the insurance during the construction phase, as ownership is still theirs during the exposure of construction. Ownership does not change until the deal completes, typically when the home is built. If a lot is purchased independently and a contractor is being hired to build a home, or if an older home is being totally remodelled, the construction insurance will fall onto the owner of the land/home, and this is when course of construction coverage is needed.
Course of Construction insurance includes replacement cost, and as such requires the home be covered for full completed value from the inception of the policy. If a claim is to happen during construction, the insurance company will replace with a completed house. Regular homeowner insurance perils and exclusions apply.
Standard perils such as fire, smoke, explosion, and storm are covered. Theft is also a covered peril, but not theft of contractors or trades tools and equipment on site. Tradesmen would need to have coverage for their tools and equipment through their own commercial insurance policy. Theft of lumber or delivered appliances are examples of a potential theft claim during construction.
Construction liability is also included in case of a third-party property damage or an injury scenario. However, most policies require that the General Contractor, as well as any trades hired, have a valid certificate of insurance verifying they have contractor’s insurance of their own, as the fault of the claim could be due to their negligence. Ensuring your trades have insurance, including products and completed operations coverage, could help with quality issues or defects, even after your construction stage is complete. A builder’s status with any home warranty programs is also something to note.
Although most Course of Construction policies are rated using the standard homeowner’s rates, there is a rate factor applied to cover the added exposures during the construction period. Discounts still apply with most markets, keeping the premiums reasonable. The best rating usually requires a guarantee that the home will be complete within a specified period of time, and that it will be occupied by the insured as a family home, post construction.
Although it is always the best to have coverage as soon as you are ready to build, underwriters will offer Course of Construction coverage anytime prior to the foundation stage is complete. If you are doing a major renovation, your insurance company should be aware before any changes begin. There are some specialty markets that will offer coverage mid-construction at a much higher premium.
Be prepared and add insurance to your to-do list when you start planning your project.