• Borrowers must carry specific hazard insurance for construction loans.Hard working construction worker at a construction scene. image by Andy Dean from Fotolia.com
  
  Construction loans are loans extended to new homeowners who wish to construct their loans from scratch. These loans are often revolving--meaning that a line of credit can be accessed as a consumer needs funds to pay contractors, buy supplies and finance furnishings. These loans usually come with a temporary-to-permanent clause that gives consumers a fixed mortgage upon completion. There are specific insurance coverages required for these loans.
  
  

Hazard Insurance

• Hazard insurance is standard coverage for all homeowner loans. This coverage protects the homeowner, contractor and lender against natural disasters and accidents. Typical hazard insurance requirements include theft, fire and natural disaster provisions (such as storms). Hazard insurance usually must cover at least 100 or 110 percent of the value of the home or the value of the total credit line on a construction loan. Most hazard insurance coverage can be extended once a home is completed; it is required not only on construction loans, but on completed homes as well. No lender will finance your home without this coverage.
  
  

Workers' Compensation Insurance

• This coverage will protect the contractor and the workers who are building a property. This protection is normally provided by the contractor or the contracting company. However, homeowners must verify (and usually sign off on) the coverage as provided. This is important for liability issues. If a worker is injured during the construction of a home and proper workers' compensation insurance wasn't funded, a worker can potentially come after both a contractor and a homeowner for damages.
  
  

General Liability Insurance

• General liability is a blanket policy that further protects the workers, the contractor and the homeowner. This policy is normally at least double the size of the construction loan or the value of the property. The arrangement as to who provides this coverage must be worked out between the homeowner and the builder. This coverage strengthens a homeowner's position if an accident (especially a serious one) takes place during the construction of the house. Builders usually provide a policy that covers up to $1 million in coverage for all potential accidents.