Construction Loan Insurance

You’ve decided to build your own dream home. You’ve picked out a plot of land, found a house design that you like, and have secured your bank loans. Did you know that you also need three types of insurance in order to get started?

Never fear, your bank requires two of those types before the building process begins! The three types of insurance you will need are:

• Course of Construction

• General Liability

• Workers’ Compensation

The first two types of insurance are required by the bank, while the third type, workers’ compensation, is required only if the builder has employees. Let’s go over the first two types of insurance in a little more detail, so you’ll understand exactly how you are protected.

Course of Construction. Course of Construction is an all risk policy that includes fire, extended coverage, builder’s risk, replacement cost, vandalism, and malicious mischief. If you are wondering what builder’s risk covers, this provision all buildings and structures as well as all equipment used in the building of the home, whether it is on the job site, on route, or in storage.

General Liability. This type of insurance can be provided either by your or your builder. It is a comprehensive general policy or broad form liability endorsement. If you provide the policy there is a minimum of $300,000 for each occurrence required. If the builder provides it, a general policy of $1,000,000 or broad form liability endorsement is required.

You can usually roll the cost of your insurance into your construction loan. Insurance is considered a soft cost, which means it is something non-physical in nature. Hard costs, by comparison, would include things like the materials needed to build the home. This type of insurance can be provided either by your or your builder.

The many risks of construction mean that choosing the right policy is of utmost importance. Finding an insurance agent who is familiar with the construction industry will help ensure that you are properly covered.

You can usually roll the cost of your insurance into your construction loan. Insurance is considered a soft cost, which means it is something non-physical in nature. Hard costs, by comparison, would include things like the materials needed to build the home.