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Homeowners vs. Builders Risk: What’s Best During Home Construction?

Is the use of a homeowners policy to provide coverage on single-family home under construction, renovation or reconstruction common? What problems are presented by using homeowners instead of builders risk policies? 
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homeowners vs. builders risk: what’s best during home construction?

The ACORD homeowner and dwelling application forms include provisions to provide coverage on a house under construction, renovation or reconstruction. The application also includes provisions to add theft of personal property coverage through the course of construction. ISO rules expressly permit coverage for the homeowner to insure the house from inception of the project through the course of work. 

This process simplifies continuity of coverage—in particular, a smooth transition for the homeowner to move into the dwelling before the construction is complete. There is no builders risk policy to cancel nor a new homeowners policy to issue. 

Q: Is the use of a homeowners policy during the course of construction common? What percent of homeowners insurance companies use their homeowners policies on new homes under construction? What problems are presented by using homeowners versus builders risk policies for a single-family home under construction? 

Response 1: The homeowners policy has been used in this manner for many years. You are correct in that it provides a smooth transition without having to rewrite a policy later. 

However, from an errors & omissions perspective, we encourage agents instead to write a true builders risk policy. A builders risk on an inland marine form provides much broader coverage than the ISO homeowners policy. When it comes to liability, you can extend coverage from the insured's existing homeowners policy to that location, which is very inexpensive to do.

Response 2: When we built our house, we did a homeowners policy for the smooth transition. The issues that come up with that include the fact that many carriers have their own endorsements—some of which limit the amount of coverage. Look for those giving 100% contents coverage.

Response 3: I'm not aware of anyone that tracks data on utilization of homeowners forms versus builders risk forms for homes through the course of construction. One problem with the ISO program is that it does not have a way to cover theft of building materials or parts of the structure itself—only an endorsement to insure personal property in the building, which doesn't include building materials. 

Many companies that insure homes in the course of construction will offer an option to cover theft of building materials. Fewer insurers are willing to write homeowners for homes in the course of construction. Of the seven companies I represent, only one does.

Builders risk policies do provide better coverage for the property exposure, as they typically have fewer exclusions and include other coverages tailored to the construction exposure. They can also allow for the interests of the builder to be protected as well as that of the homeowner. 

Response 4: Many companies will use a homeowners policy for a dwelling under construction. The ISO form does not cover theft in or to a dwelling under construction, or of materials or supplies for use in the construction until the dwelling is finished and occupied. Some companies will cover materials and supplies but end coverage once they are installed. The same limitation applies to personal property

Is the insured supervising the construction themselves? Hiring contractors? If a contractor is building the dwelling my recommendation is to have the contractor provide the builders risk.

Often, what is easiest is not the best. Use caution.

This question was originally submitted by an agent through the Big “I" Virtual University's (VU) Ask an Expert service, with responses curated from multiple VU faculty members. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.