A Guide to Dwelling Under Construction Insurance Coverage

Are you renovating or building a new home? While transforming a space is exciting, the reality is that construction is prone to hazards. Even seemingly simple remodeling projects are not without potential risks. One recent incident in September 2024, where an under-construction home in Angleton, Texas, collapsed, tragically killing two people and injuring five others, highlights just how real these risks are.

That’s why, at this time, ensuring your investment is safeguarded must be your top priority. Proper safety measures, including the right insurance coverage, become non-negotiable. Since standard home insurance policies only cover completed structures, your home could be exposed to significant risks while it’s still in progress. This is where dwelling under construction insurance comes into play.

In this blog, we’ll explore dwelling under construction insurance in detail and break down what this coverage entails, what it protects against, its limitations, and why it’s essential for any construction project.

Understanding Dwelling Under Construction Insurance

Dwelling under construction insurance is an endorsement (or add-on) to a homeowners insurance policy. It modifies the current policy to offer temporary coverage designed to protect the property during its construction phase. Dwelling coverage addresses the unique risks associated with building or renovating a home, which standard homeowners policies typically do not cover.

Nature of the Coverage - Not Standalone

Unlike standalone homeowners insurance that can be purchased separately, dwelling under construction insurance is not a separate provision. It’s an extension that can be added (or may already be included) to the existing policy to ensure protection for the short-term construction project. This unique feature makes it both cost-effective and accessible for homeowners who already have an insurance provider.

With the basics being clear, let’s delve into the specific coverage details of dwelling under construction insurance to provide you with a comprehensive overview of its benefits.

What Dwelling Under Construction Insurance Covers

Dwelling under construction insurance provides protection against everything the homeowners policy covers, such as fire, theft, burst pipes, storm damages, and more. However, it also typically extends coverage for losses that are unique to a construction project:

1. Protection Against Common Construction Risks

• Theft and Vandalism - Construction sites are often targets for theft and vandalism since they house valuable materials and equipment. Reports state that $300 million to $1 billion worth of equipment is stolen each year from construction sites nationwide, with Texas being a regional hotspot for construction thefts. Dwelling insurance covers these theft-related losses, protecting you from any out-of-pocket costs.
• Fires - Fires pose a significant threat during construction due to various factors such as welding, electrical work, and storing flammable materials. The extreme heat and dry conditions in Texas further exacerbate fire risks. In case of fires, dwelling insurance can cover any losses you incur.
• Storm Damage - Texas is prone to severe weather events, including hurricanes, tornadoes, and hailstorms, which can cause substantial damage to structures under construction. Dwelling insurance protects against losses stemming from such storms and ensures your project isn’t derailed. 

2. Inclusion of Construction-Specific Risks

• Premises Liability - Construction sites can be hazardous, and you could be held liable if someone is injured on your property during the building process. Dwelling under construction insurance includes premises liability coverage that protects you from potential legal and medical expenses. 
• Building Materials and Supplies - Dwelling under construction insurance also covers the equipment, tools, materials, and building supplies used for on-site construction activities. It extends coverage to these tools and supplies when they are in transit or being stored at a third-party location.

3. Specialized Coverage for Soft Costs

• Licensing and Permit Fees - Delays caused by covered risks can lead to additional expenses, such as renewing permits or licenses. Dwelling under construction insurance can cover these unforeseen costs, ensuring your project remains compliant without extra financial burdens.
• Loan Interest - If a covered event delays your construction timeline, you may incur additional loan interest due to the extended period. This insurance can help cover the extra interest payments, preventing financial strain caused by circumstances beyond your control.
• Architectural or Engineering Fees - In the event of damage that requires redesign or additional professional services, dwelling under construction insurance can also cover the associated architectural or engineering fees. This ensures that necessary adjustments can be made without impacting your budget.

Even with such extensive coverage, dwelling under construction insurance has its limitations. That’s why, next, we will explore these limitations thoroughly.

‍Exclusions in Dwelling Under Construction Insurance

‍Overlooking the exclusions in dwelling under construction insurance can mean unexpected financial burdens. Let's discuss these specific exclusions in detail:

1. General Wear and Tear in Materials

Like all standard policies, dwelling under construction insurance also excludes damages resulting from general wear and tear, considering them part of the natural aging process of materials. For instance, if construction materials deteriorate due to prolonged exposure to the elements, the resulting damage is typically not covered.

2. Damage from Pest or Rodent Infestations

Damage caused by pests such as termites or rodents is a burning problem in Texas. In fact, termites are responsible for billions of dollars worth of structural damage in the U.S. each year. However, these issues are considered preventable and hence fall outside the scope of construction-related risks. Insurance providers generally expect builders to implement preventive measures against such risks.

3. Limitations on Losses from Settling

Settling is common in under-construction and newly constructed homes as the foundation and materials adjust over time. However, losses arising from damages due to settling, shrinking, cracking, bulging, or expansion are generally excluded from the policy’s coverage.

Being aware of dwelling insurance coverage and exclusions can help you plan and budget for your construction project. It's also important to consider how these factors affect the overall cost of your insurance coverage.

‍Costs Associated With Dwelling Under Construction Insurance

‍The average cost of home insurance needed during the construction period determines the premium amount for the dwelling under construction endorsement. For instance, if you’re carrying out renovations in your home worth $200,000 and the construction is estimated to last four months, the insurance carrier will provide you the premium quote after assessing the average costs incurred during construction.

Factors That Influence Insurance Costs

‍Several factors influence the cost of dwelling under construction coverage, and being aware of them enables you to make informed decisions to protect your investment.

• Project Scope - The size and complexity level of your construction project significantly impact insurance premiums. Larger projects with intricate designs or custom features often carry higher risks, increasing costs. For instance, constructing a multi-story home may result in higher premiums than building a standard single-family residence.
• Duration - The length of the construction period also plays a vital role. Extended timelines expose the project to potential risks for a longer duration, directly increasing the likelihood of incidents. Consequently, insurers may charge higher premiums for projects with prolonged schedules.
• Materials Used - The choice of construction materials affects both the risk profile and the replacement costs. Utilizing high-end or imported materials can elevate the project's value, leading to higher insurance costs. For example, opting for rare hardwood flooring or custom stonework increases the replacement value, prompting insurers to set higher premiums.
• Location - Building in areas prone to natural disasters such as hurricanes, floods, or wildfires can substantially increase premiums. In Texas, regions along the Gulf Coast are particularly susceptible to hurricanes, making insurance more expensive in these areas. 
• Contractor Experience - Your chosen contractor's experience and track record can influence insurance costs. Insurers may offer lower premiums if reputable, licensed contractors with a history of successful projects and adherence to safety protocols handle the construction. Conversely, employing less experienced or unlicensed workers can increase premiums due to increased perceived risks.

To gain a comprehensive understanding of dwelling under construction insurance, it's important to examine how it compares to other construction policies, namely, builders’ risk insurance.

Dwelling Under Construction Insurance vs. Builders’ Risk Insurance

‍While both policies offer protection during construction, they cater to different needs and scopes. Below is a detailed comparison to help you determine which coverage aligns best with your project requirements.

With this crucial distinction covered, it's essential to consider specific factors that can influence your coverage choices and ensure comprehensive protection during construction.

‍Important Considerations for Insurance Coverage

‍When securing a dwelling under construction insurance, it's important to be aware of the specific requirements and potential pitfalls that could affect your coverage. Let’s see what they are:

‍Requirement for a Licensed Builder

‍Hiring a licensed contractor for your project guarantees quality workmanship and fulfills insurance policy stipulations. Insurance companies often require licensed professionals to carry out the construction to mitigate risks associated with unqualified work.

Potential Rejection of Insurance Claims 

‍It’s important for you to be aware of the key reasons why claims under dwelling insurance can be rejected:

• Failure to Follow Local Building Codes - Construction projects must comply with ordinances and local building codes. Failure to adhere to these regulations, such as improper electrical wiring or inadequate structural reinforcement, can lead to claim denials.
• Misrepresented Construction Details - Providing inaccurate information to your insurer about the scope of the project or the timeline can void your policy. Claims may also be rejected if critical details are omitted.
• Lack of Proper Security Measures - Many policies require you to take basic precautions to secure the construction site, such as fencing and locks. Failure to implement these measures could result in a denial if theft or vandalism occurs.
• Use of Unlicensed Contractors - If claims arise due to defective work or construction-related incidents, insurers may deny them if unlicensed contractors were involved. 

Impact on Existing Insurance Premiums Due to the Endorsement

‍Adding a dwelling under construction endorsement can temporarily increase your home insurance premium for the duration of the extension. However, this increase is minor compared to the potential financial loss of an uninsured construction project. It is best to discuss these factors with your insurance provider to understand how the endorsement will affect your overall policy cost.

Protect Your Construction Projects with TWFG Khan Insurance

‍Building or renovating a home is a considerable investment, and ensuring it’s protected during construction is crucial. Dwelling under construction insurance bridges the gap between your dream project and unforeseen risks, offering peace of mind during this vulnerable phase. However, an even greater thing to consider here is that having the right insurance partner can make all the difference.

At TWFG Khan Insurance, our expertise in providing tailored policies for high-risk industries like maritime, oil & gas, and construction speaks volumes about our commitment to helping businesses safeguard their investments. Our seasoned experts work closely with you to understand the unique risks your construction project faces. With 24/7 claims support and direct access to top-rated insurance carriers, we ensure you’re always covered, even when the unexpected happens.

Ready to protect what matters most? Get a quote with us today and discover how we can help safeguard your investments with our custom insurance solutions. Or, contact us for more guidance and insights for your construction projects.