In the past year, there has been a lot of discussion about the rising costs of in-home construction. This has made homeowners realize the importance of reviewing and potentially updating their homeowner’s insurance to ensure they have sufficient coverage. However, there is another tool that is equally significant but less talked about for those looking to build a new home or undertake a home renovation project: builder’s risk insurance.
Typically, when you apply for a loan to fund a home construction project, lenders require you to have builder’s risk insurance. However, when homeowners use their own funds or tap into home equity lines of credit (HELOC), they often overlook the importance of this risk reduction tool.
Fills the Void of Homeowner’s Insurance
Many people who are starting a home remodel often assume their existing homeowner’s insurance policy will provide enough protection if something goes seriously wrong. The reality is that homeowner’s insurance falls short when it comes to covering the potential increased value of your home during construction and the various risks associated with building work, such as theft of materials, vandalism, fires, damage to property in storage or transport, and debris removal, among others.
Builders risk insurance is designed to address these critical gaps in coverage. It can potentially save homeowners hundreds of thousands of dollars in case of a major loss during a construction project.
Offers More Favorable Premiums
When you are in the process of building a home, it is important to consider your insurance needs. While you will eventually need to update your homeowner’s insurance once the construction is complete, builder’s risk insurance can often provide more cost-effective rates throughout the project’s duration. This is because Builder’s Risk Insurance is temporary, usually lasting for 6, 9, or 12 months, in contrast to homeowner’s insurance, which must remain in effect for as long as you own the home.
Helps Avoid a Homeowner’s Insurance Claim
If a loss does occur during your home renovation or new home construction, it is better to make a claim under your builder’s risk insurance policy rather than your homeowner’s policy. This choice can save you a substantial amount of money because these policies are separate. Having a temporary and separate policy allows you to avoid the possibility of your homeowner’s insurance premiums going up permanently as a result of the claim.
It is recommended that you consult with a financial professional before you start your construction project. They can help make sure you have the right coverage for what you are planning to do.
For more helpful content delivered directly to your inbox, sign up for our newsletter at the bottom of the page.
Marshall Clay CFP, J.D., is a Partner and Senior Advisor at The Welch Group, LLC, specializing in providing Fee-Only investment management and financial advice to families throughout the United States. Marshall is a graduate of the United States Military Academy in West Point, New York, the Cumberland School of Law in Birmingham, Alabama, and is a CERTIFIED FINANCIAL PLANNER™. In addition, Marshall is a frequent guest on local television stations as an expert on various financial planning matters.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by The Welch Group, LLC [“Welch”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Welch. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Welch is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of Welch’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.welchgroup.com. Please Note: Welch does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Welch’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.