What kind of insurance do you get when building a house?

You need specialized Builder's Risk Insurance (also called course-of-construction insurance) while building a house, because standard homeowners insurance does not cover structures under active construction.

Main Insurance Types Needed

• Builder's Risk Insurance: Protects the physical structure, building materials on-site, fixtures, and equipment against fire, wind, theft, and vandalism.
• General Liability Insurance: Covers on-site accidents, bodily injury, or property damage claims. Note that builder's risk policies usually exclude liability, so you must verify your general contractor carries this or purchase a separate liability policy if you act as your own general contractor.
• Workers' Compensation Insurance: Covers medical expenses and lost wages if a construction worker gets injured on your property. Always verify that your builder or subcontractors have active coverage.

Key Details

• Cost: Typically costs between 1% and 4% of the total construction project cost.
• Duration: Temporary policies usually last 3, 6, or 12 months and expire once the home is complete and ready for occupancy.
• Responsibility: Check your construction contract to see if you or your general contractor are responsible for purchasing the builder's risk policy.

The four essential types of insurance recommended by financial experts to protect your personal foundation are health, life, disability, and auto insurance.

🩺 Health Insurance

• Purpose: Offsets catastrophic medical bills and routine care costs.
• How it works: You pay a monthly premium; the insurer covers a major share of doctor visits, hospital stays, and prescriptions after deductibles.
• Hidden costs: High deductibles, copays, and out-of-network provider fees.

🛡️ Life Insurance

• Purpose: Replaces lost income and covers final expenses for your dependents if you die.
• How it works: Term life offers fixed coverage for a set period; whole/permanent life lasts your lifetime and builds cash value.
• Hidden costs: Permanent policies carry high administrative and investment fees compared to affordable term policies.

📉 Disability Insurance

• Purpose: Replaces a percentage of your salary if an illness or injury prevents you from working.
• How it works: Long-term disability typically covers 50% to 60% of your gross income after an initial waiting period.
• Hidden costs: Elimination periods (waiting times before payouts start) and policy caps on duration.

🚗 Auto Insurance

• Purpose: Protects against financial loss from traffic collisions, vehicle theft, and third-party liabilities.
• How it works: Mandatory in most regions, covering bodily injury, property damage, and collision repair depending on your tier.
• Hidden costs: Surcharges following accidents or traffic violations and rising repair inflation premiums.

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.

Building insurance covers the physical structure of a property and its permanent fixtures against unexpected damage or loss.

What is Included in Building Insurance

The Structure

• Walls, roof, and floors
• Windows and doors
• Permanent fixtures like fitted kitchens, built-in cabinets, and bathroom suites
• Outbuildings such as garages, garden sheds, and private greenhouses
• External structures including fences, gates, driveways, and permanent swimming pools
• Underground pipes, cables, and drains

Covered Perils and Events

• Fire, explosions, and smoke damage
• Storms and floods
• Vandalism and malicious damage
• Theft or attempted theft
• Burst or frozen pipes and water damage
• Subsidence, landslip, or heave (in many standard plans)
• Falling objects like trees, lampposts, or satellite dishes

What is Typically Excluded

• Personal belongings and contents (furniture, electronics, and clothing require separate contents insurance)
• General wear and tear or gradual deterioration
• Damage from poor maintenance or rot/pest infestations
• Precious collectibles or cash left on-site
• Damage caused by war or intentional acts

You can lower your homeowners insurance by bundling policies, raising your deductible, and upgrading your home safety features.

Policy Adjustments

• Bundle policies: Buy your home and auto insurance from the Liberty Mutual or another same company to save up to 30%.
• Raise your deductible: Move your deductible from $500 to $1,000 or $2,500 to cut your yearly premium. Make sure you have enough cash saved to pay that higher amount if you need to file a claim.
• Shop around: Compare quotes from multiple insurers every few years instead of auto-renewing.
• Review coverage: Remove extra coverages for items you no longer own or value at high amounts.

Home Improvements and Safety

• Upgrade your roof: Install damage-resistant materials or replace an old roof to avoid surcharges.
• Improve security: Install smoke alarms, burglar alarms, deadbolt locks, or monitored security systems.
• Add smart tech: Install smart water leak detectors or automatic shut-off valves to prevent costly water damage.
• Remove hazards: Take out high-risk items like trampolines, old treehouses, or in-ground pools that raise liability.

Financial and Personal Habits

• Improve your credit score: Pay down debts and keep your credit score high, as insurers use it to set rates.
• Avoid small claims: Pay for minor repairs out of pocket rather than filing small claims that raise your risk tier.