Word on the street is building a home is right up there with a colonoscopy- without anesthetic. The countless decisions, the money and the stress of the process seem to take their toll on many people. I should know- I’ve insured many folks that have built homes.
Just this week, a longtime customer called to tell me she and her husband are building a new home. Yes, they’re excited, but also nervous and pretty darn stressed about heading into uncharted territory. She had lots of questions- ones I’ve heard many times. And that got me thinking- why not share those questions here? So I am, along with my answers.
Do we need a special policy for this type of situation?
And the answer is…..get ready for it…..it depends. Argh! Don’t you hate those answers? There is a general name for these types of policies- Builder’s Risk. However, the type of policy is dependent on the company doing the insuring. My companies allow me to use a standard homeowners policy with a few modifications. I’m assuming that a lot of other companies allow the same. But, some could require you to insure the house on a dwelling policy, which may offer less coverage. It’s your agent’s job to educate you on the differences, so when in doubt, ask! Again, if all you remember is the term “Builder’s Risk”, you’re way ahead of the game.
When you meet with your builder, you will make tons of decisions as to what features you want in your home (type of foundation down to the type of molding you want around the doors & windows). Once you’ve picked out everything, the builder will calculate how much it costs to build the house to your specifications. THAT number is what we use. Cost to build = replacement cost in this situation, and replacement cost is the gold standard for insuring homes. We’ll verify once the house is finished of course.
If I take out a loan that includes money to buy the land, can I insure the whole amount?
Insurance policies never insure land. It doesn’t burn up or blow away- meaning nothing can happen to it. We can only insure things that can be damaged. We don’t care what the bank says- we can’t insure something that is uninsurable. Make sense?
My contractor said I’m responsible for insuring items that are awaiting installation. What does he mean?
In the course of building your home, it’s quite possible the contractor will leave certain items at the job site- for example, a pallet of windows is delivered to the job site toward the end of the work day. I’m pretty confident he won’t load them up and store them in his office overnight. They’ll stay there until the next day. But what if an interested party has been casing the job site and decides to steal all of the windows?
If the thief isn’t caught, who ends up paying to replace these windows? Hmmmm……this is a question you need to get answered before construction even starts. And normally it’ll specify right in the building contract. My experience is that it’s usually the customer’s responsibility, not the builder’s.
Luckily, there’s a handy endorsement available called “Theft of Building Materials” or “Dwelling Under Construction- Theft” that insures your building items awaiting installation. It’s usually available in increments of $5,000- the highest I’ve ever needed is $10,000 and higher limits could be available depending on insurance company.