insurance while building is under construction?

lori_inthenw_gwAugust 22, 2013

We've not had any success at getting an answer from our "regular" insurance agent. Must have mystified the woman who answers the phone, because we've called her 3 times on the topic, she says she'll call back, but never does (State Farm). So we're building our retirement home about 90 miles away. We are doing "pay as you go," with no construction loan, so no bank involvement. How do people insure a partially-built structure? Is there some other term I should use to help figure this out? I know people do this!

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Houseofsticks

We have Nationwide and they were very familiar with the process and wanted to assist us with our insurance needs. If your having a local agent issue I'd either go to a national contact or shop elsewhere. They asked that we notify them on construction start dates, and again after the build for a new assessment.

    Bookmark   August 23, 2013 at 12:05AM
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worthy

State Farm has insured my projects under construction. Try a different agent, or call the company direct.

    Bookmark   August 23, 2013 at 12:35AM
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Hoosierbred

You may have to shop around. Our homeowners insurance we had on our home we sold did not have policies for our new home construction. We settled on a policy with Erie Insurance. Good luck finding an insurance company that works for you.

    Bookmark   August 23, 2013 at 6:46AM
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Sophie Wheeler

An all cash build like that will have a much extended timeline. Regular insurance may not want to cover it. You already have a problem with the "attractive nuisance" issue and now it will be extended over years instead of months. You may have to substantially beef up security and limit access at the site to have a chance of obtaining coverage. You may also have to provide some type of timetable that you agree to achieve.

    Bookmark   August 23, 2013 at 7:51AM
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War_Eagle

You need construction insurance....I had no problem using my AllState agent.

    Bookmark   August 23, 2013 at 8:17AM
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DLM2000

hollysprings an all cash build does not necessarily mean "a much extended timeline" or any of the other issues you mention. I realize that cash may be unusual for a normal timeline build, but the OP gives no indication that their build is not on a normal timeline.

    Bookmark   August 23, 2013 at 8:39AM
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LOTO

FWIW....we paid cash for our build and I was the owner/builder and recently completed our home in just a little over 6 months...builders risk insurance (Farmers) was not an issue at all.

    Bookmark   August 23, 2013 at 9:02AM
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CamG

You need builder's risk insurance, not a complicated or rare thing at all. Just call around. This insurance will insure the progress on your house, so that if it burns down or is destroyed by weather, you can recover the cost to rebuild it to that point.

You also need to make sure you have liability insurance, which is usually not covered by builder's risk insurance. As hollypsprings mentioned, a construction site is an "attractive nuisance" which means it attracts minors to the site who might become injured, with you being liable for their injuries. If you currently own a home, your current homeowners insurance policy likely includes liability coverage for your build site, but you should check to make sure. Check your limits as well, and as I recommend to everyone, consider getting an umbrella policy--the paltry $100k coverage that is common is not nearly enough for most significant injuries.

    Bookmark   August 23, 2013 at 9:27AM
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lori_inthenw_gw

Thanks for the responses. I knew this was not a unique issue, which is why I can't understand why we are not gettng a response from State Farm. My husband has been contacting them, and he is way too patient (although I suppose I should be grateful for that, in general).

Our timeline for the house is months, not years, although it has been many years getting to this point. (Save money, build the road, save money, drill a well, save money, install a septic...) We built a detached garage a few years ago and that is somehow covered on our current homeowners policy, but obviously a new house is a different beast.

I assume when a bank is involved, they know just how much is invested in the project at different points, so how much of the assets to protect. The woman my husband talked to at SF seemed befuddled about how to insure anything without a conventional appraisal. But, sheesh! Houses are built every day and I doubt they are insured for the final value when the foundation is being poured. So I don't think this should be a big mystery, we just have to find the right person who has a clue. Because of where it is located, I'm not terribly worried about crime or vandalism, but you never know. That's why insurance was invented!

I'll see what I can find out directly from the company or try another one. (I really needed one more thing to research, don't you know!)

    Bookmark   August 23, 2013 at 10:55AM
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patriceny

I second the idea to maybe try a different agent, or a different office. I had no problems getting construction coverage through my State Farm office. The only thing I can add is that the bank ran an appraisal on the project, so I was able to give them an appraisal. But they ran their own computations too, and actually ended up with a different number. (There is a difference between what something costs to build vs what something appraises at....)

If the hold up is simply that they don't know how to value it because you don't have an appraisal....you can easily remedy that. Appraisals don't cost that much money. :)

    Bookmark   August 23, 2013 at 4:39PM
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lori_inthenw_gw

OK, here's what may be a dumb question: how does an appraisal work on a house that isn't done yet? Do they look at the plans, the estimated amount used for permitting or what? (One of the reasons we didn't want to have a construction loan was having the bank involved in our plans, i.e. their input on whether or not they think our house has "enough" bedrooms, and so on.)

And then do you insure the whole thing, or just as much as you have completed at a time? (This is why I was hoping our insurance agent would have a clue-- I think we need a new one-- at least one that returns phone calls. I think it is the lack of an existing appraisal that has her stymied. I would expect that she could look into it and call back, though!)

I am glad to know from your input that this should not be a big deal.

    Bookmark   August 23, 2013 at 7:51PM
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worthy

I've never needed an appraisal with State Farm as the value of what's going up is constantly changing.

As important as covering the building, perhaps moreso, is liability coverage for third parties, invitees and trespassers.

    Bookmark   August 23, 2013 at 9:16PM
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GreenDesigns

Yes, the appraiser looks at the neighborhood that the home is being built, and looks at how many legal bedrooms, baths, etc., and the proposed level of finishes and assigns a value. Value is all about location first. A home that costs a million dollars to build but is located in the country with lots of 150K homes around won't be "worth" a million when it's finished building. It might be only worth 500K because of the location. Take the same house and plunk it down in an expensive metro area like Seattle, and that home might be worth 1.2 when it's done. (Of course, the land there might also cost you a million dollars as well!)

A builder's risk policy will take both numbers into account, as well as the % of completion. The liability policy protects you in case someone is injured on the site. Neither policy is a guarantee that you can obtain homeowner's insurance once the project is completed though. There are a whole other set of issues that that brings up to an insurance company.

Your company may want to see the permits for the project, and may want to have someone on job periodically for their own inspections beyond the code inspections. This will be for the end user insurability though, not the builder's risk insurance. A lot of insurance companies are backing away from homes with DIY electrical or plumbing in lightly regulated areas due to later claims on the homes.

You simply cannot get away from having others be involved in your build, even on a cash build.

    Bookmark   August 23, 2013 at 9:18PM
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Oaktown

Our regular insurer did not offer this type of coverage. We are using Zurich, they did not need an appraisal but based the quote and coverage on the sq footage of the house.

    Bookmark   August 24, 2013 at 12:10AM
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vwtyler

We had a difficult time getting builder's risk insurance, as well. In the end, we found that the difficulties for us were due to an extended timeline on the build (it will be about 18 months) and the anticipated value of the house. We also don't have a lender involved; we're going to borrow against our investments (basically, a line of credit loan) once we use up the money we've set aside for the house build. It was the insurance broker department of our bank that found us insurance; another provider (Geico) gave us a quote, but it was much higher than the other.

    Bookmark   August 24, 2013 at 10:43AM
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lori_inthenw_gw

Wow, quite a diversity of experiences reported here. This makes sense to me: no conventional appraisal required because "the value of what's going up is constantly changing," but then I wonder how the insurance company decides how much insurance to sell you and what to charge for it. The value of what is on site changes with every wood delivery, and every day the plumber shows up and puts in another day of work. So even though I sort of understand what goes into a conventional appraisal, this still seems different to me.

We have the final construction amount the architect estimated to go along with the permit application, and then at any point, we know how much we've spent on labor and materials, but I don't know how the insurance company would use that info. It seems that the cost for "replacement" of a destroyed or damaged structure would be different from "market value" which is what a bank would want to know for lending purposes. But perhaps I over-think!

For what it's worth, the house is in a remote, but not inexpensive area (a ferry-served island). Comps are always hard to do there since inventory is always low and prices range from sort-of-low (200Ks for a lot with a shack) to insanely expensive (many millions) with no two alike. The two extremes may not be far apart in terms of distance, but the high end will be waterfront. So "neighborhood" is hard to pin down. The population is small and most people do not lock their cars or houses routinely (not sure I'll get to that point after so many years of urban life, though). We are doing every thing with permits and qualified subs and GC, no DIY other than simple stuff.

(I don't know if any of that matters for my question on the insurance process, but some readers seemed to assume we were doing something funky, owner-builder, long time-frame, and in a rural area that might be inexpensive and/or crime-prone.)

We'll see what response we can get out of State Farm on Monday-- even Mr Overly Patient has had enough of the "no response" routine. Will let you know how it turns out.

    Bookmark   August 24, 2013 at 1:36PM
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lori_inthenw_gw

I could never figure out what the hold up was, but State Farm finally came through. No appraisal needed, just the estimate of the building costs and some photos of the existing buildings on the property (garage and tiny cabin). I know zilch about insurance, but this is somehow connectede to our existing policy on our current house. It does even list some coverage for contents, though there are none. The amount doesn't change as the building progresses, either-- I guess if we had a claim, we'd then document what we'd spent. I don't know-- it's unlikely, but I do feel better now. Thanks for the help-- I didn't even know what "builder's risk insurance" was when I asked the original question.

    Bookmark   August 28, 2013 at 4:21PM
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