So you’re making the leap and building a new home. Let the fun begin! However, in between picking out floor plans and fixtures, don’t forget about the homeowners insurance!
Depending on your insurance company, insuring a new construction home may be as simple as taking out a new homeowners policy OR getting a different policy called Builder’s Risk. Our insurance companies all use the simpler option of writing a new homeowners policy, so that’s the option I’ll describe here.
Writing a homeowners insurance policy for a new construction home
So, luckily the process of insuring a new construction home is very similar to insuring an existing home, with a few exceptions. Let’s check it out.
Step 1- Determining the amount of coverage for the home
Insurance companies use the replacement cost as the amount of coverage for the home (commonly referred to as Coverage A- Dwelling). Replacement cost is the cost to rebuild or replace at today’s cost.
If you’re building a brand new home, the replacement cost is super simple to figure out- it’s the cost to build it. You won’t get any more current than that.
So, if your house costs $300,000 to build, then the Coverage A amount is $300,000.
Since the homeowners insurance is a package policy, once you plug in the $300,000 the other amounts populate as they are based on a percentage of the dwelling coverage. For example:
- Coverage A- $300,000
- Coverage B (detached outbuildings)- $30,000 which equals 10% of Coverage A.
- Coverage C (personal property)- $150,000- 50% of Coverage A.
- Coverage D (additional living expenses)- $60,000- 20% of Coverage A.
Liability and medical payments are also part of the policy, however these are not based on the property coverage, so you have a choice of coverage limits.
Step 2- Writing the standard homeowners insurance
The process for writing a homeowners insurance policy for new home construction is similar to an existing home.
- Lender will require proof of insurance in advance of the closing to take effect on your closing date.
- Insurance agent prepares proof of insurance and either collects homeowners insurance premium OR lender collects at closing.
- Somewhere in the middle, the homeowners insurance application is completed and signed.
This is a bit of an oversimplification, but you get the point.
Step 3- Adding extras common for new home construction
Besides the standard homeowners insurance, you may also need to consider the following extras. These are pretty common when building a new home.
- Theft of building materials endorsement- This may actually be required in your builder’s contract. What does it cover? Building materials that are awaiting installation. Here’s a few examples: windows, siding, roofing material, plumbing/piping, you get the idea. Often times, builders will have materials delivered to the job site and those materials just wait until time to install. And yes, there’s a very good chance those materials could be stolen. Various limits are available and the endorsement usually stays on the policy for the entire year. Your builder doesn’t want to be on the hook for these (since technically you paid for the materials and they belong to you).
- Removing or Reducing Coverage C- Personal Property- Some homeowners insurance companies will allow you to reduce the amount of personal property or remove altogether. Since no one is occupying the house, there is no personal property there. So reducing or removing the amount offers a premium credit. Just remember to adjust that coverage when you move in!
Don’t forget- when the home is completed, you’ll need to contact your insurance company. The company can note it’s completed and take some exterior photographs (if requested). You can also add personal property/increase amount of personal property if you made these changes when the policy was issued.