Homeowners Insurance vs. Renters Insurance
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UPDATED: Jan 26, 2021
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If one thing’s for sure, it’s that homeowners insurance and renters insurance are both smart investments in protecting dwellings and the personal property inside. However, while both offer coverage, they’re not the same.
Most obviously, homeowners insurance is meant for someone who owns the home, while renters insurance is an option for someone who resides in a building but doesn’t own it. Other major differences stem from premium pricing, coverage limits, legality required by lenders, and more.
Let’s take a closer look at what each type of insurance policy entails, plus the core factors that set the two options apart.
What is Homeowners Insurance?
A standard homeowners insurance policy is defined as the coverage that insures the structure of the home as well as all of the personal belongings inside of the house if a disaster occurs, such as a fire or other event caused by a covered peril. Insurance Information Institute
Most homeowners insurance policies cover any damage done to the property, as well as liability which provides coverage when any injury or certain amount of property damage is caused by you or a family member who resides in the house.
Homeowners insurance policies don’t cover everything. Flood and earthquake damage is only covered when you purchase specialized additional coverage, for example. Another common peril that isn’t covered by homeowners insurance includes maintenance-related issues caused by negligence.
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What is Renters Insurance?
Renters insurance is the type of coverage you would obtain while living in an apartment or another type of building that you don’t own. Sometimes referred to as tenants insurance, renters insurance generally includes three types of protection: personal possessions, liability, and additional living expenses.
Many renters assume that their landlord has insurance to cover the building in the event of a disaster, but that doesn’t mean the policy will cover the personal possessions within the dwelling.
A standard renters insurance policy geared toward personal possessions generally protects all belongings that may have been damaged by fire, smoke, lightning, vandalism, theft, explosion, windstorm, water, or other perils listed under the policy.
Liability provides protection when bodily injury or property damage is caused by you or a family member living in the building as a tenant. It can also cover any issues caused by animals or pets.
Additional living expenses provides funding to reside elsewhere if a disaster keeps you from living in your building. This can cover hotel bills, temporary rental properties, meals, and other expenses that may be necessary while in limbo.
4 Critical Differences Between Home & Renters Insurance
Homeowners insurance and renters insurance are designed differently to accommodate those who own a home and those who reside as a tenant in a dwelling owned by someone else. Beyond this obvious difference, there are various factors that make these two policy options dissimilar. Here are four of the most critical differences to consider:
When it comes to what’s covered under homeowners insurance, your home (as well as the other structures on the property) are likely covered, which can include small attached and detached dwellings like a garage or shed. Rental insurance is different because it doesn’t necessarily cover the entire building, rather the unit of the apartment or portion of home in which you are residing. The landlord will have the coverage over the entire property, which may be homeowners insurance or perhaps landowners insurance, which can include liability or property protection, according to Allstate.
Consider the following scenario: A thunderstorm causes an electrical short, which then leads to a small house fire in your building. Because this was out of your control, this situation would be covered by your landlord’s insurance. On the other hand, if a fire started in your unit and causes damage to your personal property and the structure of your living space, your renters insurance would cover the repairs.
Price plays a major role in differentiating homeowners insurance from a renter’s policy. According to the National Association of Insurance Commissioners, the HO-3 homeowners premium cost in 2015 was about $1,173 per year, which amounts to about $97 per month. When it comes to renters insurance, Nationwide reported that the average cost per month is about $20. The price difference makes sense; insuring an entire house compared to protecting a unit in an apartment building should be more expensive because there’s more at stake in the event of a disaster.
It’s important to keep in mind, however, that costs can vary or fluctuate. Pricing is influenced by numerous factors, including coverage limits and deductibles. Other factors that impact homeowners insurance and renters insurance according to Policy Genius, include the state and neighborhood in which you reside, insurance provider, and amount of coverage needed.
Specifically, a homeowners insurance premium may be affected by the proximity in which your home is located near a fire hydrant, materials the home is made of, age and condition of the house, the size of the house and your own history of making claims.
Because so many different factors influence prices of premiums, it’s smart for homeowners and renters to shop around before investing in a policy. Renters can get away with doing less research since it’s going to cost them less to gain that insurance, but it’s still wise to ask for quotes before settling on an insurance policy.
Homeowners insurance and renters insurance are both similar in the sense that they have exclusions, but what those exclusions entail is much different. According to Insure.com, the exclusions of a standard HO-3 policy include:
These exclusions are important for anyone to understand regardless of whether you own a home or live as a tenant, so keep them in mind while shopping around for a policy.
The purchasing process
In terms of what goes into gaining each policy, purchasing renters insurance is much easier than gaining coverage as a homeowner. In fact, renters just need to provide an address and estimate of what their belongings are worth. After sharing this information with a policy provider, you can likely get a fast quote upfront.
Purchasing homeowners insurance is much more of a process. The insurance company will ask more questions to get a better idea of how much coverage you need. Your insurer needs to know the year the house was built, whether there’s a basement and how much is finished, the material and age of the roof, the age of the plumbing, and age of the heating, the foundation type, size of porches, and more.