If you are going to build a home in one of our master planned communities, you will need to purchase home construction insurance. There are generally three different types of home construction insurance. All lenders require that you carry the first two types of home construction insurance, "Course of Construction" insurance, and General Liability insurance. Worker's Compensation insurance is generally only needed if your home builder has employees. Let's delve deeper into these three types of insurance. They will definitely come up at some point during the planning phase of the home building process.
Course of Construction insurance is an "all risk" policy that typically includes fire, extended coverage, builder's risk, replacement cost, vandalism, and "malicious mischief" coverage. Builders risk insurance is typically covers buildings and other structures while being built, including all of the building materials and the equipment that is to become part of the building or structure. Builders Risk coverage also applies to property while at the job site, off site in storage, and in transit. A Builders Risk policy will typically cover the project owner (the person who owns the building or the person having the building constructed), the architects and engineers, the general contractor and their contractors and subcontractors, the lenders, and the construction contract itself. While the construction contract is not a party, it's an important part of the entire construction project.
When it comes to General Liability insurance, either you or the home builder can provide (pay for) this insurance policy. General Liability insurance is a comprehensive general insurance policy. Typically, the minimum amount is $300,000 for each occurrence. The minimum amount of coverage that is required will be up to the lender. If the home builder provides a policy of General Liability insurance, it may cover up to $1,000,000 of coverage for each occurrence. It's important to ask your home builder in the beginning if they provide the general liability insurance coverage that you need; talk to your lender about the requirements. If the home builder won't provide General Liability insurance, then you may have to pay for a policy.
As someone who is building a home, you need to be aware that there could be potential issues with insurance coverag if you have a separate builders risk insurance policy. You might have a problem getting permanent insurance coverage in place when the builder's risk insurance policy expires. Builders risk insurance policies will typically include a provision that states when the insurance coverage will end, and it will vary by the policy. Make sure that you know exactly when the builders risk insurance policy ends so that your permanent insurance can take effect when necessary.
Worker's Compensation insurance may also be needed. If your home builder owns his own company and has employees who are building the home then worker's compensation (also referred to as "worker's comp") might be required. If the home builder simply outsources or subcontracts the work and doesn't have his own employees then the home builder may not be required to carry Worker's Compensation insurance. If that's the case, then the home builder might need to provide a letter stating that they are not required to carry Worker's Compensation insurance.
The cost of home construction insurance will vary depending on the type of insurance that you'll need, and whether or not the home builder themselves will carry the required insurance policies or not. Whatever the case, the limit of insurance is going to typically be equal to the full value of your home construction project.