How to Protect Your Home Construction Project

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.


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certified financial planner Marshall Clay wears a gray jacket and white shirt while posing for professional photo in office

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.




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