You’ve found your dream home, and now you need to protect that dream with home insurance. Maybe you couldn’t find the perfect home you had envisioned, so you are building it. That investment also needs protection, either through builder’s risk coverage or home insurance. How are these two types of homes and home insurance protections the same, and how do they differ? Most importantly, why does it matter?
Who Needs Home Insurance or Builder’s Risk Coverage?
Home Insurance
If you are the owner of a fully constructed home and you and your family reside in the home, home insurance is the right choice for you. Home insurance provides coverage for your dwelling, personal property, and liability you might incur as a homeowner, among other optional coverages. Home insurance is not for rental homes (when you’re the renter), commercial properties, or homes in the construction process.
Builder’s Risk Coverage
Coverage for buildings in the process of being built requires specialty coverage to meet the unique risks associated with a building that is changing daily. The building may be residential or commercial, and coverage may be needed by a variety of individuals, such as:
- Homeowners
- Property Owners
- Contractors
- Subcontractors
Ultimately, the individual named on the construction loan, or the person who retains the deed to the property, needs the builder’s risk coverage. They are the one taking on the risk of a loss until ownership changes hands.
When Should You Begin Coverage?
A home insurance policy should begin immediately upon ownership, effective on the date of the home closing. If you change insurance providers, it is imperative that there is no gap in coverage from one insurance company to the other. Make sure you understand the date and the time coverage will cease with the current company and coordinate coverage with your new insurance company to prevent any unprotected gap in time.
A builder’s risk policy provides coverage from the time construction begins until the project’s completion. Because the construction phase is constantly changing, the coverage and premium are designed with this in mind. Most insurers require a builder’s risk policy at the beginning phase of construction. They will not provide a policy mid-construction. It’s just as important to convert your builder’s risk policy to a home or commercial insurance policy once completed for coverage more appropriate for a completed and occupied building.
Now you know who needs home insurance versus builder’s risk coverage and when coverage should begin. For further explanation on how these two policies differ and why it matters to you, see the second part of our series on What’s the Difference Between Builder’s Risk Coverage and a Home Insurance Policy?
Vargas and Vargas Insurance understands the importance of having the right insurance for every stage of your journey. We are an independent insurance agency that works for our clients, not the insurance company. We will customize your coverage for your unique needs at the right price. Give us a call today.
