Whether you rent or own your home, the property and its contents should be protected with insurance. For those who own homes, homeowners insurance can cover the home and its contents. If the home is a rental, the landlord would insure the property, while the renter would be responsible for insuring the contents of the home.
Key Takeaways
- Homeowners insurance covers the building you live in and associated structures such as garages.
- Most lenders will require you to take out homeowners insurance when taking out a mortgage.
- Renter’s insurance is for tenants to cover liability and their personal property.
- The landlord is expected to have coverage for the building.
Homeowners Insurance vs. Renter’s Insurance
Both homeowners and renter’s insurance require regular payments, usually either monthly or as one lump-sum annual payment, and a policy must be in good standing in order to pay out on a claim. Both may require the payment of a deductible for claims unless otherwise specified in the policy.
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Homeowners Insurance
The owner of the home takes out the homeowners insurance policy. The policy generally covers the cost of replacing the home and the personal property in it in the event of a total loss.
For example, if a home costs $200,000 to rebuild and the items inside the home cost $150,000 to replace, a homeowner who wants to cover everything would need to insure the property for at least $350,000.
However, the insurance company will only cover up to the policy limit, and you may need to pay a portion of the cost—called a deductible. Typically, homeowners insurance policies cover the following types of issues:
- Damage to the structure of the home and surrounding structures
- Personal property, including furniture, appliances, clothing, jewelry, and dishes
- Living expenses due to loss of use while repairing the property following a covered event
- Sewer or water issues
- Liability coverage for people who get injured
Examples of covered events might include fire, wind, hail, civil unrest, theft, broken glass, and vandalism. However, it's important to check your policy because it might provide basic or core coverage, and extended coverage may need to be purchased for additional coverage.
You may need to pay your homeowner's insurance policy premium to your mortgage lender as part of your monthly mortgage payment. The lender may hold a portion of your payment in an escrow account and pay the insurance company on your behalf when the premium is due.
Renter’s Insurance
Renter’s insurance is for occupants who do not own the property but want to protect their personal belongings that are in the home or on the property. It is important for renters to note that the property owner’s insurance policy does not cover the tenant's personal property if it is damaged or destroyed.
A renter's insurance policy may cover the replacement cost of your personal property, meaning you get a new replacement item regardless of the age of the original item. However, some policies cover the actual cash value, meaning the item's current value. In other words, the item's value is discounted—called depreciation—to reflect its age. The reimbursem*nt amount can be far less with actual cash value if the item being covered is a few years old.
Renter’s insurance policies typically cover the following:
Personal Property
Renter's insurance covers the cost of property stolen or damaged by storms, fire, smoke, vandalism, and sudden damage due to a fault in the property. Personal belongings that are typically covered include:
- Computers
- Electronics
- Furniture
- Clothes
- Jewelry
- Rugs
It can also extend to means of transportation, covering items stolen from your car or a bike stolen while you were at work.
Additional Living Expenses
If your rental unit is damaged or uninhabitable by a covered event and you must live elsewhere while it's being repaired, rental insurance can cover the cost of your living expenses, including food. However, check the policy to ensure this coverage is included.
Personal Liability
If someone is injured due to a slip or fall and you are found at fault, renter's insurance can cover up to the policy limit if you are sued including legal fees.
Renters should never assume that a landlord’s insurance will cover anything they own in their rental.
What Are the Major Issues that Homeowners Insurance Covers?
The three major areas that homeowners insurance covers include damage or destruction of the home's interior or exterior, theft of possessions, and liability for personal injury.
What Is the Main Reason Someone Would Get Renter's Insurance?
Renter's insurance can help protect a tenant from financial loss due to theft or damage to personal items.
What's the Difference Between Renter's Insurance and Landlord's Insurance?
Renter's insurance covers personal property and liability for the tenant, while landlord's insurance covers the property owner for damage to the property, personal liability, and loss of rental income.
The Bottom Line
A property owner is not obligated to insure their property unless there are special circ*mstances. One such circ*mstance is a homeowner who has a mortgage. Usually, these owners are required to take out an insurance policy that protects the home that is mortgaged. Lenders are protected through the mortgagee clause in these policies.
Landlords often stipulate that tenants obtain renter’s insurance in the lease agreement. As you are insuring a more substantial asset with homeowners insurance, the cost will likely be higher than for rental insurance. Most homeowners' and renters' insurance policies also have liability coverage associated with them.
