Whether you rent or own, it’s important to protect the place you call home. (And everything inside it.)
That’s where renters and homeowners insurance come into play. These policies cover damages to your property and possessions.
If you are in the market for your first home, you will need to upgrade from renters to homeowners insurance. Although both are important to have, there are a number of differences to be aware of.
Here is a side-by-side comparison of renters and homeowners insurance.
What does renters insurance cover?
Renters insurance will reimburse you for the cost of possessions lost or damaged while on a rented property.
This includes damage resulting from:
- Severe winds.
- Water leaks.
You are also covered for theft.
Property covered by renters insurance includes your:
- Computers and other electronics.
- Other valuables.
If you own the appliances within the rental property, your policy will cover those as well.
Renters insurance can also cover the cost of renting elsewhere until your property is either repaired or you move to a new one.
What does homeowners insurance cover?
As you may expect, homeowners insurance offers much more complete coverage.
Since you own the property, your homeowners policy will also cover any external damage to it. Standard homeowners policies cover the cost of repairing or replacing damaged property, including:
- The main residence.
- Detached garages.
Since you don’t own the home or apartment you rent, renters insurance does not cover the structure.
Your homeowners policies will also cover loss or damage to the contents of your home, including:
In fact, your policy may even cover possessions not stored in your home at the time of loss lost or damage. This may apply to:
- Items in a storage unit.
- Your children’s possessions while they’re away at college.
- Jewelry lost or stolen while on vacation.
- The set of golf clubs stolen from your car while it parked at your office.
More likely than not, renters insurance policies will not cover these type of losses.
Your homeowners policy will typically pay some of the cost for temporary housing and living expenses if you’re displaced from your home by a covered event.
Because of the additional items it covers, homeowners insurance costs much more than renters. Adding to the cost is that homeowners typically have more personal belongings than renters do.
For a deeper dive, check out: What Is and Isn't Covered by Homeowners Insurance.
Is coverage an option or a requirement?
If you borrow on a mortgage to buy your house, your lender will require homeowners insurance. The home is securing the loan, which means the lender has a vested interest in insuring it against major losses.
While some landlords may require renters insurance, it’s rarely required. However, it’s still a smart investment if you live in an area prone to:
- Inclement weather.
- Natural disasters.
- Higher crime.
Similarities between renters and homeowners insurance
Although there are no shortage of differences between the two, renters and homeowners insurance do possess several basic similarities.
- The liability component.
- Actual cash value vs. replacement value.
- Exclusions and deductibles.
One of the key components of both renters and homeowners insurance is the liability component. This protects you against large losses due to accidents or negligence. For example, it can cover your liability if someone suffers an injury in your residence.
Another commonality is how they assess the value of your belongings. Under renters and homeowners insurance, the two options are:
- Actual cash value.
- Replacement value.
Under an actual cash value policy, the insurer reimburses you based on the value of the items at the time of the loss. On the other hand, a replacement value policy will cover the cost to fully restore your belongings. Replacement value policies are more expensive than actual cash value policies. But you also get a lot more coverage, whether it is renters or homeowners.
Another similarity is that there are exclusions to what both types of policy will cover. Neither renters or homeowners provide coverage for floods or earthquakes. (This requires a separate flood insurance or earthquake insurance policy.)
Furthermore, standard homeowners policies will typically not cover:
- Mudslides and landslides.
- Sinkholes and other ground movement.
- Sewer backups and sump pump failure.
- Termite damage.
- Mold damage.
- Nuclear accidents
Both types of policies will also probably have deductibles. This is the amount you must pay for any damages or claims before your insurance coverage kicks in.
For example, say your policy has a $500 deductible. If you file a claim for $1,500, you will pay the first $500. Then the insurance company will cover the remaining $1,000.
If you resident-in-training, chances are you still rent. When it's time to upgrade from renters to homeowners insurance, it helps to understand:
- What renters covers vs. what homeowners covers.
- When it is optional vs. when it is a requirement.
- What they have in common.
Homeowners insurance is a must-have for a reason. But as you can see, renters insurance is definitely worth considering as well.