Module 3: Insuring Your Uninhabitable Home and New Rental

Moving into a rental and starting repairs on your home is a huge milestone, but it also changes how your home needs to be insured. Since the house is uninhabitable and the utilities are off, you need to carry different insurance while it is under construction.

The First Step - Call Your Agent: Before the first hammer swings, tell your insurance agent that your home is vacant and under construction. You will likely need to:

1. Maintain Liability Coverage: Protects you if someone is injured on the property.

2. Maintain Personal Property Coverage: Keep your personal property coverage active to protect your items in storage. A quick tip: because this coverage is tied to your dwelling limit, make sure you don't reduce your dwelling coverage so low that it leaves your belongings under-insured.

3. For partial rebuilds: Your insurer will likely ask for a professional engineer to sign off on the home's structure. Be prepared: partial rebuild policies can be more expensive and harder to find because the insurance company has to account for both the old structure and the new repairs.

Add Builder’s Risk Insurance: This is a specialized policy that covers the structure and building materials from fire, theft, and weather damage during construction. It typically costs 1-4% of the total construction cost.

Who should buy the policy?

1. Option A: The Contractor. They know the exact limits needed for the project. Crucial: You must be listed as an "Additional Insured," and your mortgage company must be listed as well. Warning: If you fire the contractor, this coverage ends immediately. It is likely the contractor will pass this cost on to you.

2. Option B: The Homeowner (Recommended for control). If you hold the policy and the contractor walks away or is fired, your home remains protected. Pro Tip: Ask your agent if any "excess premiums" from your Builder's Risk policy can be rolled into your new homeowners policy to save money.

What should it cover?

1. Materials On-Site: Lumber, shingles, and fixtures waiting to be installed.

2. Materials Off-Site: If your custom cabinets are finished but sitting in a warehouse that burns down, a policy should cover that loss.

3. The Duration: Policies are typically offered for a 12-month window or shorter timeframes that then go month-to-month. Ensure it has a way to be renewed or extended in case of construction delays.

The Transition - Moving Back In: Timing is everything when the project finishes.

A Builder’s Risk policy typically ends the moment you move in or even start storing furniture in the house or garage. You must have your new Homeowners Policy active the exact day you begin moving items back in. If items are stolen and you haven't switched yet, you may not be covered.