Building a custom home allows you to have the house of your dreams, with every aspect of the construction completely in your hands. From the square footage to the layout, the design, and the overall look of the home, it is all to your desired specifications and tastes.
Building a custom home in Canada can take up to 10 months to complete (with the financing and planning stages taking a few months). You’ll need to have the land to build on, all the architectural plans and designs as well as the necessary permits and approvals before construction can even begin.
If you’re planning to buy land to build a custom home, then there are a few things you may want to consider.
Buying Land for Your Custom-Built Home:
If you’re purchasing the land for your custom home, title insurance can ensure you are protected against specific actions and issues related to real estate transactions, such as ownership disputes, liens, or other legal issues related to the property’s title.
Title Insurance:
This type of coverage will cover you if there is a title dispute after the sale. It is designed to protect the owners and lenders of commercial or residential properties against losses related to property ownership or title.
Ownership of a property is legally referred to as a ‘title’. As soon as you sign the transfer document from the owner, you obtain the title – it is your legal proof of ownership.
- Read: Canadian Real Estate Month in Review: August 2023 – Housing Market Insights and Home Affordability
Do I Need Insurance on an Empty Lot Before Construction Begins?
Yes, when you purchase land to build your future house on, insurance is required. This is called vacant land insurance and you need it before construction begins. The liability-only coverage is important as it protects against injuries, property damage, and accidents on your property.
It can be extended from your current home insurance policy if your property has a lot of land where you want to build, otherwise, you can purchase a separate liability-only policy for land that is anywhere else within the same province.
Vacant lot insurance is exactly how it sounds, it is for vacant land that has no structures on the property. Once that changes, however, the liability insurance no longer applies.
What Insurance Do I Need Once Construction Starts?
Once construction has begun, and the foundation has been dug, that is when you will need to get builders risk insurance. This coverage will protect against any injuries during construction, damages to a neighbouring property, and any materials lost from theft or vandalism. It is important to confirm with your broker if this is read into your policy or if it needs to be purchased as an endorsement.
Even though contractors have their own insurance – for the replacement of tools and costs for potential litigation – homeowners want to insure the cost of rebuilding a home that may be damaged before completion. Remember, the homeowner and contractor have different risks and insurable interests that they need to consider.
The homeowner will need to provide the estimated final replacement cost of the home to their insurance broker, and the policy premium will be based on that final cost.
How Does Builder’s Risk Insurance Work?
Builders’ risk insurance, also known as ‘course of construction’ insurance, is coverage for the building, onsite construction materials, and liability. It covers you from the beginning to the end of the project.
It covers damage or loss to the structure and materials of your home during the construction process. This includes risks like fire, vandalism, theft, and weather-related damage. It is the responsibility of the property owner to carry this insurance.
This is a stand-alone policy that is written on a month-to-month basis. The policy can be purchased upfront for as many months as the homeowners think it will be required. For example, if you think it will take 12 months to build your house, then you would buy a policy for a year.
Other Important Factors to Consider:
Most insurance carriers that offer builders risk insurance policies require the hired contractors to also have their own insurance policies, including Workplace Safety and Insurance Board (WSIB) insurance.
Workers’ Compensation:
This insurance provides benefits to workers who are injured or become ill as a result of their work on your project.
If you hire employees or subcontractors to work on your custom home, you may be required by law to provide Workers’ Compensation coverage. It is the homeowner’s responsibility to obtain that information and ensure the insurance is valid and active.
After Completion of Your Custom Home:
Once your custom home is complete and you move in, you’ll need a standard Homeowner’s Insurance policy to protect your property, possessions, and liability. This type of insurance covers risks like fire, theft, liability claims, and certain natural disasters. Although home insurance is not mandatory in Canada (unless you have a mortgage) it is highly recommended.
Talk to your advisor at any time during the building process to find out what home insurance coverage (and price) will best suit your needs.
Are you looking for a home this fall? Give us a call! Our real estate experts are ready to help you navigate the ever-changing market.
