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Mortgage lenders require home insurance when buying a home, whether the home is an existing property or a new construction. New construction home insurance typically costs less than coverage for older homes, but you may also need builders risk insurance while your home is being built.
Key Points
• New construction home insurance generally costs less than coverage for older homes because newer homes carry less risk of structural issues or property claims.
• Homeowners may need temporary builders risk insurance while a home is under construction to cover physical structures, building materials, and equipment against risks like theft or vandalism.
• Insurance coverage limits for a new build should be based on its actual rebuild cost—calculated using square footage, local construction costs, and materials—rather than its market value.
• The average cost of homeowners insurance for a new build in the U.S. is $2,379 per year, though pricing varies depending on policy limits and coverage choices.
• Homeowners can lower their rates by shopping around for policy quotes, bundling home and auto insurance, or qualifying for claim-free and new homebuyer discounts.
Why New Construction Homes Cost Less to Insure
The newer the home, the less it costs to insure. This is because insurance companies prefer new homes because everything is new, and therefore has less risk of having issues. Older homes tend to have issues like broken roofs or leaking pipes. These issues are likely to cause damage that would warrant insurance involvement. New homes are less likely to need to file a property claim with their insurance providers, except for weather-related claims or emergency claims.
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Builders Risk Insurance for Homes Under Construction
Building a new home does come with additional risks while it is under construction. Standard homeowners insurance policies may exclude coverage for damages incurred while the home is being built. However, construction sites can face theft, accidents, or vandalism. Unlike hazard insurance vs homeowners insurance, where hazard insurance is a part of your standard homeowners insurance policy, builders risk insurance is a policy add-on.
What Builders Risk Insurance Covers
When purchasing insurance, you need to know what homeowners insurance covers. Builders risk insurance is also known as course of construction insurance. It is a policy add-on to your homeowners insurance to cover your dwelling under construction or during a major construction project or remodel. Builders risk insurance is intended to be temporary, so it covers less than a typical homeowners insurance policy. Builders risk insurance provides protection for dwelling coverage for the home’s physical structure, building materials, and on-site and off-site equipment.
What Builders Risk Insurance Does Not Cover
Builders risk insurance does not include coverage for personal property, medical payments to others, liability protection, or additional living expenses. You can purchase a home warranty if you want additional coverage on home systems (like the HVAC system), home appliances (like the washer or refrigerator), pool equipment or other items that are not included in your homeowners insurance. Home warranties are optional, so you should do your research to decide are home warranties worth it.
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Homeowners Insurance for New Construction: What to Look For
Knowing what to look for when learning how to buy homeowners insurance is important. You should compare different insurance companies to find one that meets your needs and budget. It is good to get quotes from multiple companies before choosing one. Some things to consider include price, coverage, terms of the policy, bundling options, and customer service of the insurance company.
How Much Does New Construction Home Insurance Cost?
If you are buying a home, you might be wondering how much is homeowners insurance? The average cost of homeowners insurance for new construction in the United States is $2,379 per year. Having higher or lower limits can affect the home insurance premiums.
Calculating the right coverage amount for a new build should be based on your rebuild cost, not on market value. Rebuild cost is the cost to rebuild the structure if it is destroyed by a covered peril, not what the house sells for.
To figure out the amount, first determine the square footage of the home. Then determine the construction type and quality, as different materials and finishes will affect the rebuild cost. Figure out your local rebuilding cost per square foot. Add an inflation increase buffer for costs increasing over time. Don’t forget to add other structures or features like garages or solar panels.
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How to Save on New Build Insurance
One of the best ways to save on insurance is to shop around for the best-priced policy. Insurers charge different insurance prices. However, you need to compare insurance coverage options as well. Bundling multiple insurance policies (like auto insurance, car insurance and/or home insurance) can also save you money.
Some insurance companies also offer discounts for things like being claims-free, for paying in full, or for new homebuyers.
The Takeaway
You should get home insurance, whether you are purchasing an older home or a new build. Although buying homeowners insurance can be confusing, the homeowners insurance glossary can help you understand basic homeowners insurance terms before you choose a policy.
If you’re a new homebuyer, SoFi Protect can help you look into your insurance options. SoFi and Lemonade offer homeowners insurance that requires no brokers and no paperwork. Secure the coverage that works best for you and your home.
SoFi brings you real rates, with no bait and switch.
FAQ
When should I get homeowners insurance for a new construction home?
You should get homeowners insurance as soon as you have an accepted offer on the house. The homeowners insurance policy should be active no later than your closing date, since homeowners insurance is required to buy a home. Mortgage lenders require proof of homeowners insurance to close.
Does my builder’s insurance cover my new construction home?
Builder’s insurance covers the physical structure of a new construction home, including its permanent fixtures, from unexpected events like fire, flood, storms, and accidental damage.
Does new construction homeowners insurance cover landscaping or detached structures?
Most new construction homeowners insurance policies cover the dwelling, personal property, and other structures. This means that they do not cover landscaping, since it is considered a non-structural improvement. However, detached structures, like detached garages and sheds, will typically be covered.
Can I bundle new construction home insurance with auto insurance?
You can usually bundle new construction home insurance with auto insurance, but it will depend on the insurance provider.
How do I calculate the right coverage amount for a new build?
Calculating the right coverage amount for a new build should be based on your rebuild cost, not on market value. Rebuild cost is the cost to rebuild the structure if it is destroyed by a covered peril, not what the house sells for. To figure out the amount, first determine the square footage of the home. Then determine the construction type and quality, as different materials and finishes will affect the rebuild cost. Figure out your local rebuilding cost per square foot. Add an inflation increase buffer for costs increasing over time. Don’t forget to add other structures or features like garages or solar panels.
Photo credit: iStock/HABesen
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