Why would you insure a home for its completed value if it is still under construction?

Question

Well, I work for an insurance agency and this question came up. One of my insureds built his house in 2003. It is still not completed! Apparently there are unfinished rooms in the house, and the two-story back porch doesn't have railing or a floor - just crossbeams. He filled out a questionnaire the insurance company sent him with the specs of the home at completion and they raised his dwelling coverage about $150,000. He was very upset and said "it's almost illegal" to charge him for parts of a house that he hasn't finished yet. I really didn't know how to respond and I needed a better reason to give him than "that's just how it works!"

Answer 1

The policy probably also covers the materials that are at the site but not yet installed. It can be very expensive is someone pulls up in the dead of night and makes off with a load of your lumber and all your copper pipe. Just because they are not installed in the house does not mean the materials are not subject to loss (such as theft).

Answer 2

Less paperwork and hassle.  Do you want to have to update your policy every time a new 2x4 is slapped up, and then have to write a check every time for the 37¢ extra your premium will go up?  And who's going to keep track of the "actual value" of your structure on a daily basis?  Unless construction on your house is going to be dormant for an extended period of time (i.e. months), I doubt you'd be able to win that battle with your insurance company.

Answer 3

Well that's a good question. I'd think an insurance company would want to do the full amount from the beginning,  What value can you put on it today? tomorrow it will be worth more if it's being built. I'd think it would be hard to value a house in mid construction.  make sure they're not adding all of your personal contents  and all the other stuff they add on to a home policy, and then when you occupy the house , then you can tell them to add contents etc.   I'm curious to see some more answer about this issue.