Communicate and Avoid the Construction Deductible

by Mar 24, 2016

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If we have a mantra at Shepard Insurance Group, it is that all decisions should be made after research which yields a thorough plan. Renovations are no exception. Renovations are full of the unexpected, so it is critical that before you start, you talk to your insurance agent. Regardless of the scale of your project, make sure your insurers are informed about the construction details. They will need to know the dollar value of the construction, how long it will last, and whether you intend to remain in the house while the work is being done.

Lack of notice to your insurance company can have surprising implications.

If your intention is to remain living in your home while construction is ongoing, this is a good thing. Vacating the house during construction, leaves your house unattended and vulnerable. This triggers a premium increase.

It is also a worthwhile exercise to have your agent review the contract and your builder’s coverage before construction starts to make certain you are protected and that any negligence is fully covered by the builder’s insurance. You should also consider having yourself added as an Additional Insured on the builder’s insurance policy for added protection.

However, the most critical step in making sure you are safe against surprises in construction is the dollar value of the work as it relates to the current coverage on your house. If the value of your work exceeds 10% of your home insurance for the dwelling, and the insurer has not been notified, you may find yourself looking at a “construction deductible”. For example, if you are insured to rebuild for $2M and you are doing a $250,000 renovation, you have exceeded the 10% threshold and more than likely your company will apply a construction deductible in the event of a claim.

The construction deductible against a loss will be applied at $500,000 or 5% of your coverage amount, whichever is less. So in the example above, the construction deductible would be $100,000.

Research shows that homes under construction have a significant increase in exposure, so beware. Take the time to inform and discuss any construction projects with your agent to make sure you are prepared. It may well mean that during the construction period you pay an increase in premium, but it is temporary and it serves to eliminate surprises like big construction deductibles.

If you have questions email Kyle at or call 203.698.9342.

Written by: Steve Shepard

Founder/Principal, Shepard Insurance Group. At Shepard Insurance Group we begin every relationship with a face to face meeting with the client. In a comprehensive discussion of coverage needs, personal concerns, objectives and finally appetite for risk, we can arrive at the proper insurance solution. Understanding the client is the first step to accurate execution.

March 24, 2016

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