What Kind of Home Construction Insurance Do We Need?

Reader Contribution by Jennifer Kongs
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The Small Home, Big Decisions series follows Jennifer and her husband, Tyler, as they build a self-reliant homestead on a piece of country property in northeastern Kansas. The series will delve into questions that arise during their building process and the decisions they make along the way. The posts are a work in progress, written as their home-building adventure unfolds.

We believe in precaution. Similar to how the sandbags we placed in the drainage ditches that were dug alongside our driveway (see evidence above), preparing for and preventing damage is a part of our mindset as we construct our home. The sandbags (and soon-to-be planted wildflower and native grass seed!) will help prevent erosion of our precious soil and any sedimentation of the waterway to which rainfall flows from our property. Homeowners’ liability insurance will prevent any financial loss should building materials get stolen, someone get hurt while working on our property, or any property damage occur while our home is being built.

Most of the coverage for the subcontractors is handled by our contractor’s construction liability insurance policy. However, this doesn’t cover the physical building itself. If you are building a home, you’ll want to check what coverage your contractor has and what is or isn’t covered by that policy. In our case, if the house were to catch fire in a freak accident, for example, we would be responsible for paying to replace the materials and would have to pay for the labor time to repair and re-do any lost work. Needless to say, we wanted to have more security than that as we started building.

We had two insurance options for our home construction. The first was a more basic construction policy that covers any materials being used for the home — lumber, plumbing pieces and the like. The second was full-blown homeowners’ liability insurance, which covers the building materials, anyone who gets hurt while visiting the land, and any major accidents or damages to the house as its being constructed. The latter option covers the land and home construction to the full appraised value of the home, meaning we can get reimbursed for damages as if our home was already totally built instead of basing the value of our damages reimbursement on the value of the land or just the construction materials alone. It will also roll into our permanent home insurance policy after the construction is complete.

Why wouldn’t you just immediately opt for the full policy? Cost. Construction liability insurance would cost less than the homeowners’ policy would. But, as mentioned earlier, we believe in precaution, and so we opted for the comprehensive coverage.  

If you took out a mortgage loan, having some sort of additional insurance will likely be required by your bank. That was the case for us. Our next decision was whether to cover the cost of the insurance with our mortgage (pay for it with our home construction loan), or go ahead and pay it outright. If able, the cheaper option is to pay it all upfront, otherwise you’ll pay interest through your mortgage payments on your insurance payments. If you’re anything like me, this isn’t fun and leaves your head spinning a bit. At times like this, Tyler has to remind me that all of these monetary and tedious details are worth the fuzzy donkeys we’ll have to pet and enjoy in the end of the home-building process. (So worth it.)

Next in the series:An Educational Visit to Four Season Farm
Previously in the series:Basement Construction: Choosing a Concrete Foundation

­­­Jennifer Kongs is the Managing Editor at MOTHER EARTH NEWS magazine. When she’s not working at the magazine, she’s likely in her garden, on the local running trails or in her kitchen instead. You can connect directly with Jennifer and Tyler by leaving a comment below!