Property Insurance Options for New Home Construction
Builder’s Insurance – once you select the builder in constructing your new home, and have established the final cost excluding site work, your first option in property coverage is to have the builder implement coverage to insure the build. In our opinion as insurance agents, this is a cost-effective step that tilts heavily to first protect the builder, and then the property owner. It is normal for the builder to additionally add their mark up to the insurance premium as well, which adds to the cost. The simple explanation of this set up is if there is a water damage, or fire loss during construction the check to pay the damage is issued to both the builder and the owner. There could potentially be a third party if the property is secured by a mortgage. Three signatures on your check to get paid. If there is any conflict between the builder and the owner, in the event of a claim, the builder is well protected, and the owner is put in a difficult position.
Builder’s Risk Insurance (BRISK) – is property coverage purchased by the owner, to protect the project against loss. Once the cost of the build is identified, and the builder vetted by the insurance company, a policy is issued to the owner to protect their interest during construction. As agents, we would suggest this is a better coverage option to protect the owner, and their interest in the property. BRISK coverage does have some conditions that are important to keep in mind. The policy comes with a 100% coinsurance clause. The policy limit is set for the total cost of construction at inception. It is vital that any increase in cost, for any reason, be communicated to the insurance agent and the company. As an example: if a build was originally priced and insured for $5m, and through a change or increase in material costs, that number increased to $5.5m, that increase must be reported. If left unreported that 10% difference would be factored into any claim that may occur. A $1m loss would include a $100,000 penalty in settling a claim.
Course of Construction (COC) – is the third option, and our recommendation at Shepard Insurance Group, as the best choice. This type of coverage is a converted home insurance policy that has been amended to reflect the construction project. One of the reasons we prefer this type of policy is because it includes a Building Risk Consultant from the insurance company to monitor each step of the process. The risk consultant is valuable in providing both ongoing construction loss prevention guidance, and additionally the implementation of loss control devices such as: security alarms, fire extinguishers, and leak prevention devices. In our opinion this is valuable insight both during and after construction. COC policies offer premium coverage, which may result in more expensive insurance cost. One final point on COC being a premium insurance contract. In our experience when dealing with water damage or fire losses during construction, you have to manage the delays in arriving at a completed project. If a claim occurs, the need after loss in determining if coverage is accurate for Coinsurance or getting 3 signatures on a claim check, will create significant delays in settling the claim. It’s best to have a contract where the insurance company shows up ready to write the check and get the project back on track.
Building a home is no small undertaking, that comes with significant costs. Selecting the right insurance and complementing it with the appropriate loss prevention measures can only serve to assure a successful result.
Click the link to download a copy of this article:
Property Insurance Options for New Home Construction (1022 downloads)
If you have questions contact Kyle at firstname.lastname@example.org or call 203.698.9342.