Do I need homeowners insurance during construction?
No, standard homeowners insurance does not cover a property during active construction. You instead need a specialized policy like Builder’s Risk Insurance or a Dwelling Under Construction endorsement.
💡 Why Standard Policies Fail
- Exclusions: Standard policies exclude unoccupied or partially built structures.
- Gaps: They will not pay to rebuild framing, stolen materials, or vandalized site property.
- Contractor limits: A contractor's liability policy only protects their business, not your physical building investment.
📊 Construction Insurance Options
| Option | What It Covers | When It Applies |
|---|---|---|
| Builder’s Risk | Physical structure, on-site materials, theft, fire, wind | Ground-up new builds or major open-renovations |
| Under Construction Endorsement | Short-term building, materials, and limited liability | Minor additions or short remodeling projects (< 2 months) |
| Standard Homeowners | Complete personal property, liability, and dwelling | Only after completion and occupancy (closing date) |
🗓️ Action Phase Checklist
- Verify Responsibility: Check your construction contract to see if your builder provides builder's risk coverage or if you must buy it yourself.
- Confirm Liability: Ensure your general contractor has active general liability and worker’s compensation, and name yourself as an additional insured.
- Transition to Homeowners: Line up a standard homeowners policy to begin the exact day construction finishes or ownership closes.
Who insures a house during construction?
A house under construction is typically insured by the property owner or the general contractor through a specialized policy called builder's risk insurance (or course of construction insurance).
Who Buys the Policy?
- The Property Owner: Most users on Reddit agree that obtaining an owner's builder's risk policy is the recommended method. As the homeowner, you bear the ultimate financial risk and have an insurable interest in the property.
- The General Contractor: A builder or contractor may purchase the policy if specified in your construction contract. However, the cost is usually built into the overall project budget, meaning the homeowner ultimately pays for it.
What You Need to Know
- Standard Policies Do Not Apply: Standard homeowners insurance policies only cover completed, occupied homes and will deny claims for damage occurring during active construction.
- Contractor's Insurance Is Not Enough: A contractor carries general liability and workers' compensation insurance, which protects their business and employees. It does not pay to rebuild your physical property if a storm or fire destroys the uncompleted structure.
- Who Should Be Named: The homeowner should be listed as the primary insured, with the general contractor and your mortgage lender included as additional interested parties.
What two events are not covered under homeowners insurance?
Standard homeowners insurance policies do not cover floods and earthquakes.
Major Exclusions
- Floods: Rising water from outside—such as heavy rain, storm surges, or overflowing rivers—requires a separate flood insurance policy.
- Earthquakes: Earth movement, including earthquakes, sinkholes, and landslides, is excluded and requires a separate endorsement or standalone policy.
Is homeowners insurance cheaper on a new construction home?
Yes, homeowners insurance is generally cheaper for a new construction home because new materials, updated electrical and plumbing systems, and modern building codes present a lower risk to insurance companies.
Data from sources like Realtor.com indicates that newly built homes can cost 35% to 38% less to insure than older, 20-year-old properties. Many insurers also offer specific "new home construction" discounts.
Why New Construction Costs Less
- Lower Risk Profile: New roofs, HVAC equipment, and plumbing reduce the likelihood of sudden leaks, electrical fires, or wear-and-tear claims.
- Modern Building Codes: Newer properties are built to withstand severe weather, wind, and fire hazards better than older housing stock.
- Fewer Prior Claims: New homes have a clean claims history, meaning you won't inherit past structural or neighborhood claim penalties.
Important Caveats
- Higher Rebuild Costs: While the rate per dollar of coverage is lower, building a larger or high-end home might raise your total dwelling coverage limit.
- Builder's Risk Phase: Keep in mind that standard homeowners insurance does not cover a home while it is actively under construction; you will need a separate builder's risk insurance policy during that phase.
What is the 80% rule in homeowners insurance?
The 80% rule in homeowners insurance requires you to insure your home for at least 80% of its total replacement cost to receive full payouts on partial claims.
💡 How the Rule Works
- Replacement Cost Only: Based on rebuilding costs, not market or land value.
- Minimum Coverage: Must equal 80% (or more) of that rebuild value.
- Coinsurance Penalty: Falling below triggers reduced claim payouts.
📊 Penalty Example
- Rebuild Cost: $500,000
- Required 80% Limit: $400,000
- Actual Coverage Carried: $300,000 (Underinsured)
- Storm Repair Claim: $50,000
- Math Ratio: $300,000 ÷ $400,000 = 75% covered
- Final Payout: $37,500 minus deductible (leaving you to pay $12,500 out-of-pocket).
✅ How to Stay Protected
- Review After Upgrades: Remodeling kitchens or adding rooms increases replacement costs.
- Account for Inflation: Rising material and labor prices lower your coverage ratio over time.
- Aim for 100%: Insuring for full replacement cost eliminates coinsurance risks entirely.
What Do Homeowners Need To Know About Insurance During Renovations? | Pro2Pro | This Old House
9 related questions found
How much is a $1 million insurance policy per month for construction?
A $1 million general liability insurance policy for a construction business typically costs between $68 and $162 per month (or roughly $800 to $2,000 annually).
However, because construction includes vastly different risk levels depending on the specific trade, your costs will vary heavily.
Average Monthly Costs by Trade
The exact premium is largely driven by your trade classification, payroll size, and revenue. High-risk trades that work at height or with dangerous elements pay significantly more:
| Construction Specialty | Median Monthly Premium | Source |
|---|---|---|
| Landscaping / Excavation | $32 – $63 | Simply Business / TechInsurance |
| Electrician | $36 – $61 | Simply Business / ConstructionLeadPro |
| Painter | $45 | Simply Business |
| Handyperson | $51 | Simply Business |
| General Contractor | $69 – $142 | The Hartford / Relay |
| Remodeling / Residential Building | $85 – $107 | Simply Business |
| Roofing | $200 – $317 | Simply Business / ConstructionLeadPro |
Key Cost Drivers
- Your Trade Risk: A roofer or structural contractor has a much higher risk of causing catastrophic property damage or bodily injury than an interior painter.
- Business Size (Revenue & Payroll): Larger construction companies with higher revenue and more hands on deck face greater exposure, which scales up the premium.
- Location: Rates are higher in highly populated, highly litigious states like California and New York compared to lower-cost states.
- Claims History: A clean track record without prior claims helps lock in the lowest rates.
Policy Structure Note
When seeking a "$1 million policy," you will usually be quoted a $1M/$2M policy. This means the insurer covers up to $1 million per individual claim (occurrence) and up to $2 million total over the life of the 1-year policy term. Shifting from a $1M/$1M limit to a $1M/$2M limit usually only adds about $15 to $20 a month to your premium but doubles your overall protection.
What are three things that are not covered by homeowners insurance?
Standard homeowners insurance policies typically do not cover Floods, earthquakes, and general wear and tear.
Common Exclusions
- Floods: Water rising from the outside (like heavy rain or overflowing rivers) requires a separate flood policy.
- Earthquakes: Ground shaking and cracks from earthquakes require a separate policy or endorsement.
- Wear and Tear: Gradual damage, aging roofs, and regular maintenance issues are the responsibility of the homeowner.
What homeowners insurance to avoid?
Avoid policies and coverage traps that leave you unprotected or financially exposed when buying homeowners insurance.
Policies and Plan Types to Avoid
- Actual Cash Value (ACV) Policies: Avoid policies that pay out based on ACV instead of replacement cost. ACV subtracts depreciation for age and wear, meaning you will receive far less than what it actually costs to rebuild your home or replace items today.
- The Cheapest Policy Available: Do not automatically pick the lowest-cost premium. Rock-bottom prices usually hide high deductibles, low coverage caps, and severe structural exclusions.
- Poorly Rated Insurers: Research financial stability and customer satisfaction. Companies with low A.M. Best ratings, excessive NAIC complaint ratios, or a reputation for slow claims processing (such as certain low-tier or high-complaint regional providers) can make post-disaster recovery painful.
Coverage Gaps and Exclusions to Watch For
- Standard Flood and Earthquake Exclusions: Standard policies never cover rising natural floodwaters or ground movement. If you skip separate flood or earthquake endorsements, you carry 100% of the risk.
- Sewer and Drain Backups: Water backup from overloaded municipal sewers or failing sump pumps is excluded by default. Always add an endorsement if your basement contains finished living space.
- Unscheduled High-Value Valuables: Standard limits for jewelry, fine art, firearms, and collectibles are very low. Avoid leaving these items unlisted; purchase a scheduled personal property rider.
Common Mistakes During the Buying Process
- Insuring for Market Value vs. Rebuilding Costs: Never base your policy limit on your mortgage balance or original purchase price. Insure your home for current local construction and labor replacement costs.
- Neglecting a Home Inventory: Failing to document your belongings with photos or videos before a loss makes the claims process slow and difficult.
- Failing to Disclose High-Risk Features: Forgetting to mention trampolines, aggressive dog breeds, or unpermitted renovations can lead an insurer to deny a claim or cancel your policy entirely.
How much should homeowners insurance be on a $400,000 house?
Homeowners insurance for a $400,000 house costs an average of $3,158 per year (about $263 a month) nationally, though averages range from roughly $1,500 to over $5,500 depending on your state and risk level.
Cost Breakdown & Averages
- National Average: $3,158 annually ($263/month) for $400,000 in dwelling coverage, a $1,000 deductible, and $300,000 in liability.
- Cheapest States: States like Hawaii ($844/year) and Vermont ($1,311/year) have much lower average rates.
- Highest-Risk States: States prone to severe weather or natural disasters, such as Florida ($5,516 to $9,283/year) or Oklahoma, see significantly higher costs.
- Affordable Providers: Major carriers like Amica average around $1,803 per year for a $400,000 policy. You can also review regional options using the Insurify Home Insurance Guide.
Key Factors That Change the Price
- Replacement Cost vs. Market Value: Insurance covers what it costs to rebuild your physical house from the ground up, not what you paid for the land or the home's market value.
- Location & Weather Risk: Areas with high risks of hurricanes, tornadoes, or wildfires cost more to insure.
- Deductibles & Limits: Choosing a higher deductible (like $2,500 instead of $1,000) lowers your monthly payment.
- Home Condition: Older roofs, outdated plumbing, or aging electrical systems can increase your premium.
What makes a home uninsurable?
A home becomes uninsurable when private insurance companies view the property as too high risk or damaged to cover.
Outdated or Faulty Systems
- Old roofs: Roofs older than 20 years, or roofs with missing and curling shingles, often cause denials because they lead to water damage.
- Outdated wiring: Knob-and-tube wiring or hazardous electrical panels (like Federal Pacific or Zinsco) greatly increase fire risk.
- Defective plumbing: Polybutylene pipes or heavily corroded systems prone to bursting can disqualify a home.
Structural and Maintenance Issues
- Foundation damage: Large cracks, uneven floors, or shifting structures signal major instability that worsens over time.
- Unpermitted work: Major home additions or electrical changes done without proper municipal permits create unknown safety hazards.
- Poor upkeep: Rotting wood, broken stairs, severe mold, or active pest infestations show a lack of basic maintenance.
High-Risk Features and Location
- Attractive nuisances: Unfenced swimming pools, trampolines, or old treehouses pose severe liability risks if someone gets hurt.
- Disaster-prone zones: Properties located in high-risk wildfire areas or frequent flood zones are increasingly denied standard coverage.
- Claims history: A home with a frequent history of prior insurance claims (like multiple water or fire losses) can be blacklisted by underwriters.