The bank is requiring us to secure a homeowner’s insurance policy before closing. The insurance companies will not insure the house under a traditional homeowner’s insurance policy because we will close and immediately begin construction. We will not move in until the construction is finished because we have children and we don’t want to live in a construction zone. This seems like a catch 22. Please help this first time homebuyer and first time renovator what I need to do.

  1. 447 POINTS
    Thad Bynum
    Owner/ Partner, Bynum Insurance Agency, Inc, Clayton, GA
    You definitely need to purchase a builders risk policy while remodeling. I would recommend purchasing a policy that covers the existing structure with an additional amount to cover the actual renovations. This is a policy that most if not all independent agents can handle and advise you on. Although this is not a homeowners policy, the bank should be completely fine with it as this is similar to what they see when they do a construction loan on a new home.
    Answered on June 24, 2015
  2. 1844 POINTS
    David W. Clausen
    Chief Executive Officer, Coastal Homeowners Insurance Solutions, Rocky Point, NY 11778
    Good Question. Yes you should purchase a builders risk policy while the home is under construction. The homeowners insurance policy has a 60 vacancy clause and is designed for an owner occupied primary residence. The homeowners insurance policy is not designed to cover the risks associated with a home during the course of construction. Some builders risk policies will "carve" out liability coverage. Be sure to purchase a policy that includes liability and also request a certificate of insurance naming you as an "additional insured" from the contractor(s).
    Answered on June 25, 2015
  3. 447 POINTS
    Thad Bynum
    Owner/ Partner, Bynum Insurance Agency, Inc, Clayton, GA
    I don't recommend using the builder to purchase the builders risk policy on a renovation project. You need coverage on the existing structure and most builders would not be covering anything but the renovation amount. They would only be covering the amount of the renovation. Purchasing the policy yourself puts you in control of the policy and allows you to make sure that you are adequately covered. In looking at David's response, I am in agreement that you should be named as additional insured on the contractors general liability policy and also get a certificate for their workers compensation.
    Answered on June 26, 2015
  4. 2777 POINTS
    Terry A. McCarthy, CLU, ChFC
    President, Insurance Associates Agency Inc., West Chester, OH
    Many carriers will issue a homeowner policy form to cover a home construction project when it is new construction. You may also use a "builders risk" dwelling policy form when a homeowner policy isn't permitted. Most carriers offer one option or the other. If a homeowner policy is used the "vacancy an unoccupancy" provisions cannot be enforced during construction or renovation. Make sure to ask these questions of your agent or carrier to make sure coverage applies while under construction.

    You should also control the insurance and you should not insure the builder in that process. The primary issue here is one of what we refer to as "insurable interest". Quite simply, you have the most to lose in a loss of the home and as a consequence you need to buy insurance to protect both your property interest and provide the lender with protection for the collateral (your dwelling) used in the loan. The building or contractor may have an interest in installed materials up to the point they make a draw for the installations, but their interest ends at that point because they don't have an ownership position in the home. They can purchase "installation" coverage in their insurance package that will protect them for the value of their work installed and it is not expensive coverage so they should have this already. Do not agree to assume responsibility for their liability either. If it is their construction site, it is their responsibility to maintain as best as possible to minimize the potential liability exposures. That said, you should make sure to purchase and maintain personal liability for the property too for any potential risk of loss that would be excluded by the building in the site management. Alternately, some carriers will amend current policies to add the new address for liability and then you wouldn't need to have this coverage added to your builders risk coverage.

    By the way, the dwelling policy form permits (in many instances) the addition of endorsements that provide coverage for the value of material delivery to the site that you might have purchased. These building materials are subject to theft and it is a good idea to know if the builder or you are responsible for materials delivered to the site. Also, a dwelling policy should be created to the new total value of the improvements and original structure on either a replacement cost or actual cash value basis. I suggest replacement cost. Insurance to value is important even on this type of policy. Carriers using the dwelling form of coverage will pro-rate valuation to an average state of completion for premium calculation, but valuation at the time of loss is also tricky so keep good records so you can rebuild the entire structure after a major loss.

    Cleaning up the concepts here also makes it necessary to make sure that the contractor has general liability and workers compensation insurance. If they have vehicles that operate on the property you should also insist that they provide evidence of vehicle insurance. In every instance above, you should be listed as an "additional insured" and "certificate holder" during the performance of the construction tasks. If possible, ask them to waive subrogation. Get evidence in writing. A commonly used form is the "Acord 25" Certification of Liability Insurance form and this is commonly provided ask for and get written evidence of coverage as noted above.
    Answered on July 6, 2015
  5. 14231 POINTS
    Tom Sheehan
    Agency Owner, The Thomas G Sheehan Agency, 27 Glen Road Sandy Hook, CT 06482
    That is entirely possible. It is a good idea to talk with your Insurance Professional about your specific situation and plans for the house in order to determine the best possible means of protection available tio you. If the work needed is extensive, requiring structural renovations or major upgrades in electrical, HVAC or plumbing systems for example, it is likely that it would be hard to find an insurance company that would offer a standard Homeowners' policy in that situation. A builders risk policy, covering you for the duration of the work, would in that case be the way to go.
    Answered on July 20, 2015
  6. 29 POINTS
    Igor Sekuloski, CIC, CPIA
    President / CEO, Insurox Group Inc, Garfield, New Jersey
    Really good question. If you plan to have major renovations to your primary home you MUST have Builders Risk policy, because your HO3 policy is good only if you live in the house. If the bank is giving you hard time for the closing and if they don't accept the Builders Risk policy then my suggestion to you is buy homeowners policy and shortly after the closing you can cancel. If you don't cancel they insurance company will after they do the home inspection.The policy will be prorated and you will loose few dollars.
    Answered on April 5, 2016
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