Builders Risk Policy vs. Homeowners Insurance

If you are building a home, you may be confused about the type of insurance you need to protect it. Here is an explanation of the difference between a builders risk policy vs. homeowners insurance to help you understand which coverage is most appropriate for your situation.

Homeowners Insurance

Homeowners insurance is a policy that people purchase shortly after closing on a home. Mortgage companies require it, and the premium is often included in the monthly mortgage payment. It pays either the actual cash value or replacement cost of the following damaged or lost items:

  • The exterior of the house, including the roof and siding
  • Interior of the house
  • Landscaping plants
  • Outbuildings
  • Possessions inside the house

Builders Risk

Homeowner’s insurance does not apply to houses before they are completely built. During the time of construction, builder’s risk is the type of policy that covers them. Construction companies typically purchase this insurance to protect their materials and equipment from the following events:

  • Fire
  • Lightning strikes
  • Hail
  • Theft
  • Vandalism
  • Damage from vehicles, including aircraft

Builders risk and homeowners insurance both protect houses from similar types of hazards. The main differences between these two types of policies lie in the entities who generally purchase the policy and at what stage of construction they purchase it.