The difference between Homeowner’s Insurance and Renter’s Insurance is quite simple: homeowner’s insurance covers the structure and everything in it, while renter’s insurance only covers possessions within the building. However, there are plenty of other similarities between the two types of insurance, along with important differences. This post will break those down and provide a few tips for deciding on either type of plan. To start, here are some of the main similarities between renter’s insurance and homeowner’s insurance:
Liability coverage: Both can be defined as liability coverage or risk financing. This essentially means that you consistently pay smaller sums of money so that you won’t have to pay out of pocket in the case of unexpected loss or damage. While repeatedly paying a company that has yet to provide you with a service can be frustrating, insuring your possessions is important in case of disaster.
Premium arrangement: The arrangement of your premiums can be monthly, annually, or something between that. For homeowners who are paying a mortgage, some lenders will actually include the insurance in the loan. While it is convenient to consolidate your bills, it generally worsens the terms of the loan.
Good Standing: To receive compensation in the case of lost possessions or property, it is important that your payments are up to date. If you missed a payment or for some reason, your policy is not in good standing, you could be turned down in the event of a disaster.
Here are two of the main differences between renter’s insurance and homeowner’s insurance:
Premium Prices: The premiums that come with homeowner’s insurance are almost always significantly more expensive than renter’s insurance. In the event of a catastrophe that destroys a home, an insurance company would need to provide significantly more compensation to a client with homeowner’s insurance. Not only would they insure many of the possessions inside the house, but also the house itself. On the other hand, a company providing renter’s insurance would only insure the designated possessions within the house. The cost of an actual house with possessions easily surpasses just possessions, so it makes sense that the premiums would vary in price.
Required: For someone who is still paying a mortgage on their home, homeowner’s insurance is generally required. Since the lender at least partially owns the house at that point, they want to ensure that there will be compensation in case of a disaster. For someone who has finished paying off their house, homeowner’s insurance is not legally required. Of course, it is still recommended, because losing everything you own without any compensation would be difficult to recover from. While it is a smart option, renter’s insurance is not a requirement for renting. The owner of the building is required to have homeowner’s insurance, so the structure itself is insured regardless of whether the renter has insurance for his possessions. However, not having renter’s insurance can be devastating in the case of disaster, as you would simultaneously lose the place you live along with your possessions.
Understanding the differences between renter’s or homeowner’s policies and choosing one that works for you can be difficult and tedious. Here are a few areas we recommend thinking about as you choose:
Cash or replacement Value: Whether we are talking about homeowner’s or renter’s insurance, this is an important distinction to consider. With a policy that includes replacement value, the premiums can be very pricey. For actual cash value, you pay much smaller premiums, but you would receive less in the case of a loss. Instead of providing you the money it would take to replace your possessions, the company would compensate you with the value of your possessions. Essentially, for actual cash value, you receive a quantity of money equal to what you would receive if you sold it. So, if it has significant wear and tear, the insurance company will give you significantly less, whether that be a certain possession or the house itself. Either way, the company provides you with money to replace your property, but in actual cash value there are deductions for wear, tear, and age.
Think about everything you own: With the option to choose between actual cash value and replacement value, this step is essential. When deciding how extensive your policy should be, consider everything you own—not just the ultra-expensive electronics, but also the everyday items like your clothes. If your house was destroyed in a disaster, you would lose everything, so you want to make sure that your coverage would be adequate to replace what you need and not leave you in a financial bind.
Read the fine print: Insurance policies can have important exclusions that are hidden when casually reading basic coverages. It is important that you understand exactly what your coverage does and does not entail. You don’t want the unpleasant surprise of finding out your policy doesn’t cover a certain type of damage after you experience that exact type of damage. Comb through all details with your agent to ensure you receive the precise coverage you need. This is also why customizable plans are advantageous, the amount of coverage you seek will be largely determined by the amount of possessions you have in your rental.
A disaster that damages or destroys your possessions can be a devastating blow. The right insurance policy can help soften the blow, providing you with the compensation you need to get back on your feet. Whether you need renter’s insurance or homeowner’s insurance, allow our team at Olson Insurance to assist you in finding a plan that meets your criteria.