Obtain Necessary Insurance and Bonding

It's essential to ensure that the appropriate insurance and bonding are in place to protect both you and your contractor.

Obtaining the necessary insurance coverage and bonding can provide financial security and peace of mind throughout the construction process. In this section, we'll discuss some of the various types of insurance and bonding that may be required and offer guidance on how to obtain them.

1. Builder's Risk Insurance¶

Builder's risk insurance, also known as course of construction insurance, is a type of property insurance that covers a building project while it's under construction. This coverage typically protects against damage caused by events such as fire, theft, vandalism, and certain natural disasters. As the homeowner, you should secure builder's risk insurance to protect your investment during the construction process.

When obtaining builder's risk insurance, be sure to:

• Work with an experienced insurance agent who understands the unique risks associated with custom home construction.
• Ensure the policy provides coverage for the full replacement value of the completed home, including materials and labor costs.
• Confirm that the policy covers any temporary structures, such as scaffolding or construction trailers, as well as materials stored on-site or in transit.

2. General Liability Insurance¶

General liability insurance protects against claims related to bodily injury or property damage that may occur during the construction process. Your contractor should carry general liability insurance to protect their business and provide coverage in the event of an accident or damage to your property.

Before hiring a contractor, verify that they have adequate general liability insurance by:

• Requesting a certificate of insurance (COI) as proof of coverage.
• Ensuring the coverage limits are sufficient for the size and scope of your project.
• Confirming that the policy will remain in effect throughout the duration of the construction process.

3. Workers' Compensation Insurance¶

Workers' compensation insurance provides benefits to employees who are injured or become ill as a result of their work. In most states, contractors are required to carry workers' compensation insurance for their employees. This coverage helps protect you from potential liability for injuries that occur on your property during construction.

Before hiring a contractor, confirm that they have workers' compensation insurance by:

• Requesting a certificate of insurance as proof of coverage.
• Verifying that the policy meets the minimum requirements in your state.
• Ensuring that the policy covers all employees who will be working on your project.

4. Performance and Payment Bonds¶

Performance and payment bonds are a type of surety bond that provides financial protection in the event your contractor fails to fulfill their contractual obligations or fails to pay subcontractors and suppliers. These bonds are typically required for large-scale projects, but you may also choose to request them for your custom home project as an added layer of security.

To obtain performance and payment bonds for your project:

• Work with your contractor to determine if these bonds are appropriate for your project and if they're willing to provide them.
• Contact a reputable surety bond agency to secure the bonds, with the cost typically borne by the contractor.
• Ensure the bond amounts are sufficient to cover the full contract price, including any potential cost overruns or delays.

By working with experienced professionals and verifying that the appropriate coverage is in place, you can minimize your financial risk and focus on bringing your dream home to life.