For a certain type of person, building your own house can be an enticing idea. Imagine being able to customize every aspect of your home, from the building materials to the direction the living room windows face, all to your exact preferences. Those handy with a hammer might seriously pursue this DIY dream, especially since the price of an existing home in Canada is so high.
However, building your own home goes beyond floor plans and choosing floor tiles — you also have to consider the insurance, permits, and costs that accompany it.
Before starting your project, chat with an insurance broker to see what kind of coverage you’ll need. Depending on what you’re building and where the property is, you may also want to consider additional coverage.
Building insurance vs. course of construction insurance
If you buy a home that’s already constructed, you need “building insurance,” which covers not only the structure itself but the house’s contents.
However, if you’re building the home yourself, whether from a floorplan you created from scratch or assembling one from a prefabricated kit, you need a course of construction insurance — otherwise known as new build insurance or builder’s risk insurance policy.
This kind of coverage — purchased by the project owner (you) or your general contractor — is designed to protect against construction risks, losses, and property damage as you construct your dwelling. The project owner (you!) or your general contractor would have to purchase this insurance. The insurance term should cover however long it will take you to complete the project, which might be years.
Read more: How to hire the right contractor for your home renovations
What does course of construction insurance cover?
It depends on which provider you choose, but generally, course of construction insurance covers everything you need to build your home, plus any damages or losses that can occur along the way. Of course, what’s covered in your specific policy will be determined by the provider you choose and how comprehensive your plan is, but very generally, your policy may cover:
- Damage from nature, like hail, lightning, and wind
- Theft and vandalism
- Fire and explosions!
- Building materials and tools
- Additional costs due to construction delays (this may be optional)
It also covers your liability.
“Let's say you accidentally leave a bucket on the sidewalk, someone doesn't see it,” he says Daniel Mirkovic, co-founder and CEO of Square One. “They trip and fall and injure themselves, and they sue you because of their injuries. It would cover you against that.”
What doesn’t course of construction insurance cover?
Your insurance is not likely to cover improper workmanship, material defects, wear and tear, or war or terrorism. In some parts of the country, coastal flooding and landslide coverage may not be available, says Mirkovic, but for most other types of loss, you can buy extra coverage.
Fortunately, many insurance plans are customizable, so you can simply add on additional insurance coverage depending on what you think you might need.
Related: Renovations and home insurance: is your policy enough?
Other types of custom home insurance worth considering:
Beyond course of construction insurance, you may consider other aspects of your home and home-building journey to safeguard.
Workman’s compensation insurance
Generally, if you’re hiring trades to do work on your behalf, you won’t need workers’ comp.
“It's a good practice for you to ensure that the trades you hire have their own insurance,” advises Mirkovic. “Both workers’ comp as well as insurance for any liabilities that they might have arisen from building your home and for their workers and their tools.”
Title insurance
You also might want to consider title insurance, which protects property owners and lenders from losses due to property title defects, such as liens, unpaid taxes, easements, property line disputes, and other issues.
When the title insurance is issued, the insurance company will ensure there aren’t any problems with the property. Then, the insurance will be in place in case any unforeseen issues arise.
While this insurance isn’t mandatory, it can give you peace of mind.
Title insurance is more critical in some provinces than others, explains Mirkovic.
“In a province like Ontario, it would be more critical than in a province like B.C. because of the way that the land titles registry operates,” he adds.
He goes on to say that title insurance is always a good thing to have, but whether you get it or not depends on your budget.
What do I need to provide to the insurance company to be insured?
When you apply for a quote, you should have all your information about the project handy, such as the type of project, value of the building, and cost of the entire project (everything from materials and labour to loans and legal costs.)
You’ll also have to have an estimate of how long the project will take to complete. You’ll use all the information you gathered to fill out an application.
When the underwriters consider your application, they’ll consider if you’ve hired licensed trades and contractors and if these parties are insured (including Workers’ comp and liability insurance), who is doing the work– yourself or a general contractor.
“Typically, for some of the more major components of the home with a course of construction policy, they'll want licensed trades to be completing that work,” explains Mirkovic. “If you decide you're going to tackle something like plumbing or electrical, they'll want to know your qualifications to do that, and some may not be willing to insure the home if you are taking on some of those more complex activities.”
Above all, be detailed and transparent with the information you give the insurance company in your application. “Err on the side of oversharing,” urges Mirkovic. “There's nothing worse than paying for a policy only to find out that when a claim arises, there's no coverage because incorrect information was provided.”
Insuring your custom home after construction is complete
While some insurers might do a property inspection after a home is complete and it has occupancy permits in place, most will treat the new home like any other home built by a developer and offer a standard home insurance policy.
“That's not going to affect your insurance going forward unless there are major issues with the home with its structure or with its building systems or it's had lots of claims,” says Mirkovic.
If you’re building a cottage that you only plan on living in part-time, consider a seasonal or vacation property insurance policy. According to Mirkovic, these policies typically don't include coverage for additional living expenses because if the cottage were damaged and needed repairs, you could live at your primary residence. However, if you get rental income from your cottage, you may be able to put coverage in place in case it’s out of commission during repairs.
