What Types of Insurance Do I Need for a Custom or New Home Build in San Diego?
When building a custom home in San Diego, it's important to consider various types of insurance to protect your investment and manage potential risks. The following are some types of insurance you may need or consider during a custom home build.
Types of Insurance to Consider During a Home Build
When building a custom home in San Diego, the following insurance types may be considered:
Builder's Risk Insurance: Builder's risk insurance, also known as construction or course of construction insurance, provides coverage for damage to the building and materials during construction. It typically covers risks such as fire, vandalism, theft, and certain weather-related damage. This insurance is crucial during the construction phase and will likely be required by your lender. The cost may range between 0.05% of the total construction cost on average.
General Liability Insurance: General liability insurance protects against claims for bodily injury or property damage that may occur during construction. It provides coverage for legal fees, medical expenses, and damages if someone is injured on the construction site. This type of insurance will likely be covered by the general contractor and subcontractors.
Workers' Compensation Insurance: Workers compensation insurance covers medical expenses and lost wages for employees who are injured or become ill while working on the project. The cost varies based on state laws and number of employees. This type of insurance will likely be covered by the general contractor and subcontractors.
Umbrella Insurance: Umbrella insurance provides additional liability coverage that goes beyond the limits of your other policies. It can offer extra protection in case a claim exceeds the limits of your builder's risk insurance. The cost may range between $200 to $1,000 per year on average.
Professional Liability Insurance (PLI) for Design Professionals: If you hire architects, engineers, or other design professionals, professional liability insurance can protect against claims related to errors or omissions in their work that may lead to financial losses. The cost will be carried by the design professional – and could be a good question to ask your designer before engaging. This is not required by the designer.
Homeowner's Insurance (Post-Construction): Once construction is complete and you move into the custom home, you will need homeowner's insurance. This insurance typically covers the structure, personal property, liability, and additional living expenses in case you need to temporarily relocate. The cost may vary based on coverage, fire severity zone, deductible, and other personal financial details. A lender will require this type of insurance.
Post Construction Fire Insurance (Standalone): In regions prone to wildfires where coverage can be challenging, obtaining comprehensive fire insurance can be challenging. The California FAIR (Fair Access to Insurance Requirements) Plan is a valuable resource for homeowners in high-risk areas who may struggle to find coverage through traditional insurance providers. The FAIR Plan offers basic fire insurance coverage, ensuring that homeowners have essential protection for their properties. While the FAIR Plan provides crucial support, it is often recommended to supplement it with additional coverage for broader protection.
Title Insurance: Title insurance protects against potential issues with the property title, such as liens, encumbrances, or defects. It ensures that you have clear ownership of the property. The cost may vary by location and property value.
Flood Insurance: Depending on the location of your custom home, you may want to consider flood insurance, especially if it's in an area prone to flooding. Standard homeowner's insurance policies typically do not cover flood damage. The cost may vary based on flood risk.
Earthquake Insurance: San Diego is in a seismically active region, and earthquake insurance can provide coverage for damage caused by earthquakes. It's a separate policy, as it is not typically included in standard homeowner's insurance.
Benefits of Insurance for a Custom Home Build
Benefits of obtaining insurance and partners having insurance during and before the home building process may include:
Property Protection during Construction: Builder's Risk Insurance: This type of insurance protects the structure and materials of your custom home during the construction phase. It covers risks such as fire, theft, vandalism, and certain weather-related damage. Without this coverage, you would be financially responsible for any damage to the building or materials.
Liability Coverage: General Liability Insurance: Liability insurance is crucial during the construction phase. It provides coverage for bodily injury or property damage that may occur on the construction site. Without liability coverage, you could be personally responsible for medical expenses, legal fees, and damages in case of an accident.
Worker Protection: Workers' Compensation Insurance: If you have hired workers or contractors for the construction project, workers' compensation insurance is essential. It covers medical expenses and lost wages for employees who are injured or become ill while working on the project.
Coverage for Title Issues: Title Insurance: Title insurance protects against potential issues with the property title, such as liens, encumbrances, or defects. It ensures that you have clear ownership of the property.
Protection against Natural Disasters: Specialty Coverages (Flood Insurance, Earthquake Insurance): Depending on your location and local risks, you may need specialty coverages such as flood insurance or earthquake insurance. These policies provide additional protection against specific natural disasters.
Continuity of Project: Having insurance in place ensures that the construction project can proceed smoothly even in the face of unforeseen events. It helps avoid delays and financial setbacks that can occur in the absence of adequate coverage.
Compliance with Lender Requirements: Many lenders require certain insurance coverages to protect their interests in the property. Complying with these requirements is necessary to secure financing for the construction project.
Peace of Mind: Insurance provides peace of mind throughout the construction process. Knowing that your investment is protected against various risks allows you to focus on the project with confidence.
Post-Construction Homeowner's Insurance: Transitioning to homeowner's insurance after construction ensures that your completed custom home is adequately covered against property damage, liability, and other risks.
Who is Responsible for Insurance on a New Home Build?
The responsibility for insurance on a new home build can vary depending on the stage of construction, the contractual agreements in place, and local regulations. Here are common scenarios.
Builder’s Responsibility: Typically, the general contractor and subcontractors are responsible for carrying general liability insurance, which covers property damage and bodily injury that might occur during the construction process. Additionally, contractors are required to have workers' compensation insurance to cover medical expenses and lost wages for workers injured on the job. However, it’s important for homeowners to verify that their contractor has these insurances in place.
Homeowner’s Responsibility: During the construction phase, the builder is typically responsible for obtaining Builder's Risk Insurance. This insurance protects against damage to the structure and materials during construction. It is the builder's responsibility to ensure that the construction site and the project are adequately insured. Once the construction is complete, the responsibility for insurance transitions to the homeowner. The homeowner is typically responsible for obtaining homeowner's insurance, which covers the completed structure, personal property, liability, and additional living expenses.
Contractual Agreements: The specifics of insurance responsibilities can be outlined in the construction contract between the homeowner and the builder. It's important for both parties to clearly understand who is responsible for obtaining and maintaining insurance during each phase of the project.
Homeowner's Association (HOA): If the new home is part of a planned community with a homeowners association, there may be additional insurance requirements or shared insurance responsibilities outlined in the HOA agreements.
Title Insurance: Title insurance, which protects against issues with the property title, is typically the responsibility of the lot buyer. It is often purchased during the closing process.
Home Warranty: In some cases, builders may provide a home warranty that covers certain aspects of the home for a specified period after construction. This is different from insurance but can provide additional protection for the homeowner.
What Happens if I Don’t Get Insurance on a New Home Build?
Not obtaining insurance on a new home build can expose you to significant financial risks and legal liabilities. The following are some potential consequences of not getting insurance on a new home build.
No Coverage for Property Damage: Without insurance, you have no financial protection against potential damages to the property during the construction phase. This includes risks such as fire, theft, vandalism, or natural disasters.
Financial Responsibility for Damages: If damage occurs to the construction site or materials, you may be personally responsible for covering the costs of repair or replacement. This can be a substantial financial burden, potentially jeopardizing the completion of the project.
Liability Exposure: If someone is injured on the construction site, you may be held liable for medical expenses, legal fees, and other related costs. Liability insurance helps cover these expenses and protects you from potential lawsuits.
Contractual Violations: The absence of insurance may violate contractual agreements with builders, contractors, or lenders. Many construction contracts require the homeowner to maintain insurance to protect all parties involved in the project.
Difficulty Obtaining Financing: Lenders typically require insurance coverage during the construction phase. Without insurance, you may face challenges securing financing for the project.
Homeownership Risks: Once the construction is complete, not having homeowner's insurance exposes you to risks associated with property damage, liability, and loss of personal belongings. Mortgage lenders often require homeowners to have insurance coverage.
Title Issues: Lack of title insurance could result in potential issues with the property's title, such as undisclosed liens or ownership disputes. Title insurance helps protect your ownership rights.
It's crucial to obtain the necessary insurance coverage at each stage of the construction process to mitigate these risks and ensure that you, your investment, and all parties involved are adequately protected. Consult with insurance professionals, builders, and legal advisors to understand the specific insurance requirements for your new home build.
Buildable is Your One Stop Shop for Home Building
At Buildable, we specialize in demystifying the complex and often opaque process of land development in San Diego, CA. Our mission is to guide our clients smoothly through their projects, helping to avoid common pitfalls while saving both time and money. From the outset, Buildable takes the lead, leveraging our network of reliable partners to ensure your project is not only completed within budget but also meets your timeline. To learn more about how we can assist you and to discuss your specific project needs, schedule a consultation with us here.
Read More About:
