Homeowners Insurance For New Construction: Do You Need It?

Building a new home is exciting, but securing the right insurance can be a confusing process. During my 15 years of experience as a licensed insurance agent, I’ve seen how important it is to understand what new construction home insurance covers and what it costs. This article breaks it down for you.

New Home Insurance Vs New Construction Home Insurance

New home insurance generally refers to homeowners insurance for a home that has just been built but is fully finished and ready to live in. Once construction is complete and the home is move-in ready, homeowners insurance covers risks like fire, theft, and liability. It typically includes dwelling coverage, personal property coverage, and liability protection, just like any standard homeowners policy.

New construction home insurance is a bit different. It’s insurance specifically designed to cover the home while it’s still under construction. This might be called a builder’s risk policy or a course of construction policy. It protects the structure (and sometimes the materials) against risks like fire, theft, vandalism, or weather-related damage while the home is still being built.

What Is New Home Insurance?

New home insurance is a type of homeowners insurance policy that protects a newly built home that is fully finished and ready for occupancy. It offers financial protection against various risks that could damage or destroy your home or personal belongings, as well as liability coverage in case someone is injured on your property.

What Does It Cover?

Here’s what’s typically included in a new home insurance policy:

• Dwelling Coverage: Pays to repair or rebuild your home if it’s damaged by covered events such as fire, hail, windstorm, or vandalism.
• Other Structures: Covers detached structures like garages, fences, and sheds.
• Personal Property: Protects your belongings—furniture, electronics, and clothing—from risks like theft, fire, or certain natural disasters.
• Loss of Use: Covers additional living expenses if you can’t live in your home due to a covered loss (e.g., hotel costs, meals).
• Liability Protection: Pays for legal expenses and damages if you’re found liable for injuries or property damage to others.
• Medical Payments to Others: Covers minor medical bills if someone is injured on your property, regardless of fault.

What Does It Cost?

The cost of new home insurance varies by location, home value, and coverage choices. On average, you can expect to pay between $800 and $2,000 per year for a standard homeowners insurance policy on a new home. Factors like the size of the home, local weather risks, and the quality of building materials can influence premiums.

What Is New Construction Home Insurance?

New construction home insurance, often called builder’s risk insurance or course of construction insurance, is designed to protect a home that is still under construction. Unlike a standard homeowners policy that covers a completed home, this insurance focuses on the unique risks associated with building a new structure. It safeguards the structure itself as well as the materials and equipment being used during the build.

What Does It Cover?

Here’s what’s typically included in new construction home insurance:

• Structure Coverage: Protects the partially completed home from risks like fire, wind, vandalism, or theft.
• Materials and Supplies: Covers building materials stored on-site or temporarily off-site (like lumber or fixtures) that might be damaged or stolen.
• Equipment: Some policies can cover construction equipment (though this may sometimes require a separate endorsement).
• Soft Costs: Some policies may include coverage for indirect expenses like permit fees, architectural fees, and additional interest on construction loans if a delay occurs due to a covered loss.
• Liability (Optional): Although not always included, some builder’s risk policies offer liability protection for claims related to accidents on the construction site.

What Does It Cost?

The cost of new construction home insurance varies based on several factors, including the home’s total value, location, construction type, and the duration of the project. On average, expect to pay 1% to 4% of the total construction budget for a typical builder’s risk policy.

For example, if your new home construction costs $400,000, the insurance might run between $4,000 and $16,000 for the entire build.

How Much Does Home Insurance Cost For New Construction?

When it comes to insuring a new construction home, costs depend largely on the scale and quality of the build, like total insured value, materials, local risks, and coverage levels. On average, homeowners pay 1% to 1.2% of construction cost annually. For a typical $300K home built recently, annual premiums run around $2,138.

Sample 2025 Annual Premiums For A $250,000 New Construction Home

Who Needs New Construction Home Insurance?

New construction home insurance is a crucial safeguard for homeowners who are building a new home from the ground up. While it’s easy to assume that insurance is only necessary once you move in, there are key scenarios when securing coverage during the construction phase makes sense.

Scenarios That Require New Construction Home Insurance:

• When You’re Acting as the Owner-Builder: If you’re managing the construction project yourself—hiring subcontractors, overseeing the work, and controlling the budget—you’ll typically need to purchase new construction home insurance. This policy covers risks like fire, theft, vandalism, and certain weather-related damage that could occur during construction.
• When a Lender Requires It: Most mortgage lenders or construction loan providers require proof of insurance before approving or disbursing funds. They want to make sure their investment is protected if something goes wrong before the home is complete.
• When Local Regulations Demand It: Some municipalities may require proof of insurance before issuing certain permits or conducting inspections. This varies by location, but it’s always wise to check with your local building department.
• When You Want Peace of Mind: Even if it’s not strictly required, new construction home insurance can offer valuable peace of mind. Imagine if a fire, flood, or theft struck your half-finished dream home—this coverage helps cover the costs of repair or replacement so you can continue building without financial disaster.

What About Builder’s Risk Insurance?

In some cases, the general contractor or builder may carry what’s known as builder’s risk insurance. This policy typically covers the structure, materials, and equipment during the construction process.

If your contractor carries a builder’s risk policy that’s broad enough, you might not need to purchase your own new construction home insurance—at least until the home is complete and you move in. However, it’s essential to verify what’s covered (and what’s not) under the contractor’s policy so you’re not left exposed.

When To Buy New Construction Home Insurance

One of the most common questions homeowners face when building a new home is: When should I purchase new construction home insurance? The timing can significantly impact your financial protection and your ability to secure loans or permits.

Start Early — Before Groundbreaking

Experts recommend purchasing new construction home insurance before construction begins. Once you’ve signed contracts and secured financing, you’re financially tied to the project. At this point, your investment is exposed to a range of risks—such as fire, theft, vandalism, or even severe weather events.

Why So Early?

• Lender Requirements: If you’re financing your construction with a construction loan, your lender will likely require proof of insurance before releasing funds. Without this coverage in place, the project might stall.
• Permits and Inspections: Some local authorities may require proof of insurance before issuing building permits or conducting inspections. This ensures that any damage or accidents during construction are covered.
• Material Deliveries: Once materials are delivered to the site, they’re at risk of theft or damage. Early coverage ensures these valuable assets are protected even before the foundation is poured.

Coordinate With Your Builder

Before buying your own policy, talk to your contractor or builder about builder’s risk insurance. Many contractors carry this type of policy, which may protect your investment during construction. However, coverage can vary in scope and limits. It’s wise to:

• Ask for a copy of the builder’s risk policy.
• Review coverage details carefully, paying special attention to exclusions and deductibles.
• Consider gaps in coverage that might warrant purchasing a separate policy or endorsement.

Don’t Wait Until Completion

Waiting until construction is complete to buy a standard homeowners insurance policy is risky. Many standard homeowners policies won’t cover damage that occurs during construction, leaving you financially vulnerable.

When Does A New Construction Home Insurance Policy End?

New construction home insurance typically remains in place until your home is completed and ready for occupancy. That’s because the policy is designed to protect the structure—and sometimes materials on-site—during the construction phase. But the definition of “completion” can vary depending on the insurance company’s rules and the language in your specific policy.

When Should The Policy Remain In Place?

In most cases, the policy should stay in effect until:

• The construction work is 100% complete (including electrical, plumbing, and any final inspections).
• A certificate of occupancy is issued by your local building department, signifying that the home is safe and ready to live in.

What Happens When Construction Is Complete?

Once the home is finished and you’re ready to move in:

1. Transition to a Standard Homeowners Insurance Policy: A new construction home insurance policy doesn’t cover the risks associated with living in the home, such as liability claims or personal property damage. You’ll need to convert to a standard homeowners insurance policy that includes coverage for your belongings, liability, and ongoing protection against perils like fire, wind, or theft.
2. Coordinate With Your Lender: If you have a mortgage or construction loan, your lender may require proof of homeowners insurance before they’ll approve final disbursement or allow you to move in. Make sure you have the new policy in place before the certificate of occupancy is issued.

Steps To Take When Construction Ends:

• Notify Your Insurance Agent: Let them know the home is complete so they can help you transition from a construction policy to a homeowners policy seamlessly.
• Review Coverage Details: Make sure your new homeowners policy reflects the final value of the home, any special features, and includes the necessary personal property and liability coverage.
• Cancel the Builder’s Risk or New Construction Policy: If you carried your own builder’s risk policy, notify the insurer to cancel it once the home is occupied.

Types Of Insurance For New Constructions

Building a new home or overseeing a construction project involves multiple risks—and different types of insurance policies can help protect your investment, your workers, and your peace of mind.

Here’s a look at the most common types of insurance you’ll encounter during the construction phase:

Builder’s Risk Insurance

This is the most essential policy for protecting a new construction project. Builder’s risk insurance (also known as course of construction insurance) covers the building itself, materials on site, and sometimes equipment used in construction against perils like:

• Fire
• Vandalism
• Theft
• Certain weather-related damage

It’s typically purchased by the homeowner, general contractor, or developer—depending on the project’s structure. Policies can vary, so it’s important to understand what’s covered (and what’s not) to ensure there are no gaps in protection.

General Liability Insurance

General liability insurance is often carried by the contractor and protects against third-party claims of bodily injury or property damage. For example, if a delivery driver trips over construction debris and is injured, general liability coverage helps pay for medical costs and legal fees.

While this coverage primarily protects the contractor, it also protects homeowners indirectly by ensuring that any injuries or damages resulting from the contractor’s work are covered, reducing the chance of lawsuits against the homeowner.

Workers’ Compensation Insurance

Workers’ compensation insurance provides benefits to employees who are injured on the job, including medical expenses and lost wages. This coverage is usually required by state law for any business with employees.

If your contractor hires employees or subcontractors, they should carry this coverage. As a homeowner, it’s wise to confirm that the contractor’s workers’ comp policy is active, so you’re not potentially held liable for injuries on your property.