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Insight:

Your new build home needs home insurance, but the good news is there are significant cost savings for new home insurance. Find out what you need to know about insuring your new build.

new-home-insurance

Similar to buying an existing house, a newly-constructed home needs home insurance. You’ll likely wind up paying less for coverage — home insurance companies typically like newly-built homes and often provide discounts and lower rates for new construction home insurance. 

This guide shares everything you need to know about new home construction home insurance, the average home construction insurance cost and how you can save.

Key Takeaways

  • New home insurance covers a house under construction or one that was built in the last two years and not lived in yet.
  • Insurers offer lower rates for new home insurance due to a lower risk of claims.
  • Home insurance for new construction in process is called builder’s risk insurance and has different coverages than standard new home insurance.
  • The average discount for new home insurance is around 40%.

What is new home insurance?

New home insurance specifically covers a house under construction or one that was built in the last two years and not lived in yet. You’ll probably have better luck getting affordable new home building insurance than you would if you were trying to insure an existing home. 

“Nearly every home insurance company is going to welcome a brand-new home with open arms,” said John Espenschied, owner of Insurance Brokers Group. “Because everything is new, the likelihood of having a (peril) claim, other than with weather, is very low.”

Besides the lower risks of claims, there are other differences between standard and new construction home insurance. 

What standard home insurance covers

Before diving deeper into homeowners insurance on new construction, let’s review what regular home insurance covers to compare. A standard homeowners insurance policy includes:

  • Dwelling Coverage: This portion concerns your home and attached structures, such as a garage. This part of insurance handles covered perils, such as fire and smoke damage, windstorms, hail, lightning strikes, vandalism and malicious destruction. Beyond the physical structure, dwelling coverage takes care of issues related to wiring, plumbing and heating and cooling systems.
  • Other Property: This part covers structures that aren’t attached to your home, such as a detached garage, a shed or a fence.
  • Personal Property/Contents Coverage: As the name “contents” implies, this covers the property inside the home, including electronics, furniture, clothing and appliances. You can choose replacement value coverage of actual cash value. The former pays you to fully replace damaged and stolen contents. The latter reimburses for what the contents were worth at the time of the loss.
  • Home Liability: Home liability coverage takes care of visitor injuries on your property. This coverage can extend to taking care of you should an incident happen away from the home.
  • Additional Living Expenses: This covers you should your home become uninhabitable and you’ve got to find a new living situation. It’s sometimes called “loss of use coverage.” ALE coverage steps in to cover you should your home get damaged and you have to live somewhere else (such as a hotel) during the repair time. You can make a claim for ALE, too, if a fire damages your home.

There are many additional coverages, such as sewer backup, identity theft and earthquake protection, that are available to add to the home policy.

How much coverage do you need? There are many factors when calculating a home’s replacement cost.

“The age and the type of construction material used will have a significant influence in determining the final premium,” said Espenschied. “Factors, such as the age of the roof, updated utilities or plaster versus drywall, all will have an impact on the premium.”

What do new homeowners insurance policies cover?

Home insurance on new construction depends on the phase the new home is in. If the home is under construction, builders risk or course of construction insurance protects the building site, materials and work in progress against the same perils a standard home policy would include. Coverage includes:

  • Dwellings and structures
  • Building materials and supplies
  • Machinery and equipment

Once the home is completed, standard home insurance applies. However, home insurance on a new build (typically two years or less) can be cheaper if you take advantage of carrier discounts for new construction. 

How much is homeowners insurance on a new home?

To find out how much you can expect to pay for coverage, you can get a new home insurance quote from several carriers to compare or estimate based on averages. The average cost of home insurance is $2,305 per year based on $300,000/$1,000/$100,000 in coverage. The average new home insurance discount is 40%. If your home falls within the coverage limits mentioned, expect to pay roughly $1,383 per year, which is $115.25 per month.

Is homeowners insurance cheaper on new construction?

Home insurance on a new build is considerably cheaper than standard coverage. When it comes to determining how much insurance you need, Loretta Worters, Vice President of Media Relations for Insurance Information Institute explains, “The coverage depends on what it would cost to rebuild your home. It doesn’t differ from an older home.” Therefore, you’ll need to estimate the labor, materials and equipment costs for your home and other structures as well as the value of all your contents.

When should I insure my new build house?

Buying insurance depends on whether you own the land before the home is under construction, and if the contractor is responsible, Espenschied explained. The timing of when to insure your house depends on the phase.

New home construction insurance or builder’s risk insurance

You’re going to need a builder’s risk policy to cover you during construction even if you’re hiring all the trades, buying the building material and acting as the new home’s general contractor. 

Worters stressed to “make sure you purchase builder’s risk insurance” if you are the one in charge of “building” the home.

“It’s specifically designed to cover homes while they are under construction, typically covers theft and vandalism of the tools and equipment being used to build the house and materials, including in some cases materials being held off-site for future use,” she said. “The insurance doesn’t provide liability coverage or any protection for the home’s contents since there typically won’t be any personal possessions at the construction site.”

Insure.com Managing Editor, Ashlee Tilford shared from her own home building experience, “One of the things we needed, in order to close the construction loan with a lender, was proof of builder’s risk insurance. In some cases, like ours, the builder wants to get the builder’s risk policy through their own insurer even though the homeowners pay for it. As the homeowner and the person paying for the policy, you have the right to compare quotes before you agree to use their insurer.”

New home insurance

Once the build is complete or you’re buying a property from a builder’s inventory, you’ll need a homeowners insurance policy in place at the time that you take possession of the home.

“Make sure to have home insurance lined up before closing on the new home; premiums can vary from company to company,” said Espenschied. “You may own the property, but you’ve contracted with a general contractor to complete the project from start to finish. They will be responsible for delivering a completed home, and the general contractor would be liable for buying a builder’s risk policy. You are paying for a completed home.”

Whether it’s an older home or a new home, you may want to consider umbrella insurance. An umbrella policy is a liability insurance policy that protects you and your assets from larger lawsuit judgments against you. Umbrella insurance benefits include protection against significant property damage, serious bodily injury liability, landlord liability, libel or slander or malicious prosecution.

If your home and possessions are worth more than $500,000, umbrella insurance can protect your home if you’re sued.

Discounts for newly constructed homes

You can often save between 20% and 25% on homeowners insurance for insuring a newly-constructed home. Those discounts dissipate over the years, but they can save you right off the bat.

Insure.com found a newly-constructed home can earn you an average decrease of 35.5%. That’s an average $547 savings.

The building materials used for your newly-constructed home also play a role in the discounts and savings. Homes with metal roofs, fire-resistant materials and fire-suppression systems can lead to savings on insurance. Specifically, Espenschied said tile, slate, concrete, metal and even architectural shingles can result in discounts because of quality, durability and fire-resistance factors.

“New homes usually have some discounts or lower pricing on insurance because you have new plumbing and electrical,” said Worters.

Discounts differ by insurer. In many states, Allstate offers a “home buyer discount” that reduces premiums for up to five years for customers who purchase a newly-built home. The discount amount varies depending on the home and its location.

“Most new homes are constructed with protective devices, such as deadbolt locks, sprinkler systems or other burglary and fire alarm systems,” said Ben Tobias, National Media Spokesperson for Allstate. “Therefore, we also provide a protective device discount. Homes built with storm shutters may also qualify for a storm shutter discount, as would homes constructed with hail-resistant roofs qualify for the hail-resistant roof discount.”

In addition to discounts for new homes, homeowners are eligible for the same discounts as any other person. One of the biggest discounts is to bundle your home and auto insurance. We found that the average savings for bundling policies is 19.16%.

Insurers provide other smaller discounts for other reasons, such as loyalty and paying in full.

New home construction insurance companies

Some insurance companies provide larger discounts for new homes than others. The following companies are great options when you need homeowners insurance on new construction.

Nationwide

Nationwide offers an average of 76% off homeowners insurance for new homes. The carrier ranks well (812 out of 1,000 points) in J.D. Power’s Home Insurance Study, based on responses from policyholders regarding claims, communication, policy offerings and more. Nationwide has a strong digital presence, making it easy to manage your policy online or through the mobile app. 

Citizens

Citizens is the best option when you’re in search of affordable, no-frills new home insurance and can’t find coverage elsewhere. However, policies are only available to Florida homeowners. Citizens doesn’t have enough market share to land a place in the J.D. Power customer satisfaction study but Insurance.com’s findings show you can save an average of 65% on your premiums.

Travelers

You can save if you bundle home insurance and vehicle coverage — and Travelers Insurance is one of the best choices around. Even if you don’t opt for multi-line coverage, you may be surprised at the savings. New home policyholders save an average of 63%. In addition, Travelers makes the J.D. Power home insurance list with a score of 800 out of 1,000.

Grange

A new homeowners insurance quote from Grange could take 58% off your premiums. And if you prefer personal attention over a DIY approach when it comes to managing your policy, you’ll be happy to hear that you need to speak with a local agent to sign up for coverage.

Georgia Farm Bureau

Georgia Farm Bureau is only available to members. It’s worth the small cost of $35 per year — your dedicated agent can help you along every step of the way from buying coverage to filing a claim. Plus, you’ll have access to affordable coverage that’s 55% off on average and special discounts at participating retailers that easily offset the annual membership fee.

Do I need homeowners insurance for new construction?

When you’re insuring any home, new or old, make sure you get enough homeowners insurance to cover you if the unthinkable happens. If your home is being built, you’ll need home construction insurance. If it’s move-in ready and brand new, choose a standard homeowners insurance policy. Don’t forget to apply discounts based on the new build to significantly save you money.

author image
Cynthia Bowman
Contributing Researcher

 
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Cynthia Paez Bowman is a personal finance writer with degrees from American University in International Business and Journalism. Her work has been featured in MSN, Brex, Bankrate, Freshome, The Simple Dollar, GOBankingRates, and more. Cynthia is based between Las Vegas and Europe. In her spare time, she travels throughout Africa and the Middle East helping women entrepreneurs develop and grow their businesses.

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