Updated: Apr 24, 2022
What is a Homeowners Insurance?
Homeowners Insurance is an insurance policy that you buy from an insurance provider which helps protect your home and family from unexpected events or disasters. It generally provides coverage to both your interior and exterior parts of your home. Though it is not mandatory to have Homeowners insurance by law, it is wise to invest in an insurance to protect your home and family and have peace of mind from unexpected events and disasters. If you have a mortgage for your home, then Lenders may require you to have Homeowners Insurance or Hazard Insurance as a mandatory element before closing to provide financial protection against losses or unexpected events.
What is a Renters Insurance?
It is also referred as a Tenant Insurance or HO-4 insurance policy. Many renters think that their landlord's insurance policy will cover all their belongings, which is not really true. If you are currently renting an apartment or home and for any reason, your home is destroyed by catastrophic events or affected by theft, vandalism etc, it helps protect your Personal property. It may also provide protection to you if someone gets hurt in your apartment, condo or home against any claims. It protects you against liabilities.
Similarities of Homeowners and Renters Insurance
What does Homeowners and renters Insurance Cover?
Typically, a Standard Home Owners Policy and Renters Policy cover Personal Property, Liability and Living Expenses.
Personal Property coverage
These are the following perils that are usually covered by the policy, coverage may vary upon the policy, policy provider and coverage limit.
Fire or lightning
Windstorm or hail
Weight of ice or snow
Water overflow discharge
This coverage helps cover the contents or personal belongings of your home such as clothes, furniture, electronics etc. If the damage is caused by the named peril outlined in your insurance policy. If your home is prone to any perils that are not outlined in your policy, it may be added as an additional coverage to your policy. The insurance does not cover all the items you own and certain valuables such as Jewelry, art work, paintings etc may be beyond the coverage limit.
In this case, if you want those items to be covered under your policy, you may add an additional coverage called as the Scheduled Personal Property Coverage. The coverage for the damaged items may be compensated as the actual cash value or replacement cost depending on the policy.
Actual cash value = The amount needed to fix your home - Depreciated amount (Value of your home reduced because of age or use)
Replacement Cost = The amount needed to replace the home into its original new condition.
This is another coverage that is usually included in the home owners and renters policy which helps you from paying out of pocket for the damage caused. It provides coverage in cases where you are legally responsible for the damage.
For example, if a guest trips on your home ( own or rental ), falls and gets hurt, this may cover the medical bills. If your child accidentally breaks your neighbors window, this may cover the cost for the damage. The amount of coverage obtained is purely based on the type of policy, policy provider, coverage limit etc.
If your dog caused some serious injury to your visitor, it may also help you cover the costs against any lawsuits, legal fees, court costs, medical expenses. The typical coverage limit in Standard Renters Policy is usually $100,000. This coverage limit can be extended to higher limits through Umbrella Insurance Policy. If the damage caused is $150,000, then the excess $50,000 may be covered by your Umbrella policy.
Additional Living Expenses
If your home ( rental or own) becomes unlivable by the damage of any covered peril, then the insurance may help cover the costs of the living expenses until your rental home or unit is being repaired and livable. This is also called as Loss of use Coverage.
You may have additional expense to get a similar kind of home with same number of bedrooms or you may have additional food expenses above your normal spend, the amount of loss of use coverage you get compensated depends on the policy.
These coverage can be added on to the standard insurance policy as an endorsement to increase the coverage and better protect your rental home. These additions depends on the specific needs of an individual renter. They vary depending on a number of factors. Some of these coverage may not be available under your policy or you may not be eligible for receiving the coverage. Mold damage, Pet damage, Water backup coverage, Food spoilage, Identity theft, Yard and Garden, Wear and tear, negligence, Pest infestation, Sinkholes, Bed bugs coverage etc.
Endorsements and Floaters
Endorsement and floaters are an additional insurance coverage for a specific high priced item for which the coverage limit under the standard policy is way below. In this type of coverage, the specific item such as jewelry, art work etc must be taken to be appraised, Once appraised, the insurance company will determine a premium based on appraisal value.
Damages caused by floods are not covered by the standard home owners and renters insurance policy. Depending on the location and chances of getting flood damage, it is advisable to get a separate Flood Insurance Policy. You may also have an option to add on the flood insurance to your policy.
Damages caused by Earthquakes are not covered by the standard home owners and renters insurance policy. Depending on the location and chances of getting earthquakes, it is advisable to get a separate Earthquake Insurance Policy. You may also have an option to add on the Earthquake insurance to your policy.
Differences between Home owners and Renters Insurance
The difference between Homeowners and Renters Insurance are Ownership, Cost, Coverage.
Ownership & Coverage
Home owners insurance covers you for your home both owned and occupied by the same person and the coverage includes structure of the home, personal property, liability, medical expenses and additional living expenses.
Renters insurance covers you when you don't own the home and the coverage is same as the Home owners insurance except for the structure of the home. The Landlord is responsible for the coverage of structure of the home which may be covered by Landlord Insurance.
Factors that influence the cost of Home owners and Renters Insurance are
Personal property coverage needed
Proximity to fire hydrant and fire station
Maintenance of the property
In addition to these Home owners Insurance costs are also determined by the factors relating to the structure of your home.
Age of the building or home
Other structures ( buildings) in the property
Quality of construction materials
Remodels done to weather proof from natural hazards etc.
The cost of the Home owners insurance is much higher compared to the cost of Renters policy, because
They cover more area of the property and are more prone to damage by the perils.
Higher claims to be paid to Home owners than renters, thus Home owners insurance is higher.
Choosing the right Insurance
Owning a home and renting rooms
If you are living in the home you own, then Homeowner's policy will cover the entire structure of your home except for the rooms that are rented. In which case, the renters may get their own insurance policy for coverage. If you own a home and you don't live in it, then you may consider Landlord Policy to cover the structure of your home and the renters may get their own rental policy.
Living in Rent to Own Space
If you live in a rent to own space, you are considered as a tenant until you own the space. When you are renting, you will be needing Renters Insurance and once you own, Home owners Insurance may provide the coverage.
Living in Co-Op or Condo
In Condos, the HOAs usually have an insurance policy to provide coverage for the external structure of the home such as outer walls, roof. They also provide coverage to the areas surrounding the home. Condo owners may need policy to only cover the inside structure of the home and personal property, liability etc. In Co-Ops, only a percentage of the home or building is owned, so Renters Insurance may be sufficient.
The events and items covered by your insurance policy differs based on your policy and insurance provider. The conditions and limitations of the coverage vary upon your specific policy. Inform insurance company ahead of time if you have any expensive structures in your property. This will act as a documentation for coverage in case any mishap happens.