Renters and homeowners alike can benefit from insuring their homes. However, there can be some confusion as to which type of insurance should be taken out. After a quick search, customers will find an array of real estate insurance options available.
Two of the most common types are renters’ insurance and homeowners’ insurance. Choosing the right one depends mostly on circumstances, and knowing the differences between the two is essential. In this guide, we’ll take an in-depth look at both types of insurance policies and determine which is the right choice for house renters.
What is Renters’ Insurance?
Renters’ insurance is designed to protect renters and their personal belongings. It’s easy for renters to assume that landlords’ insurance will cover their belongings, but that isn’t often the case. If a renter’s possessions are destroyed in a fire, for example, and they don’t have renters’ insurance, they’ll need to cover the cost of replacing the damaged items themselves. However, with renters’ insurance, their possessions will be covered in case of damage, theft, or vandalism.
A standard renters’ insurance policy will generally cover the following points.
1. Personal Property Protection
Any of the renter’s belongings within the rental property are protected by renters’ insurance. If they become damaged, destroyed, or stolen, the insurer will pay out. There are two main types of personal property policies: actual cash value (ACV) and replacement cost value (RCV).
ACV policies cover the cost of the items at the time of the claim, taking depreciation into account. As such, most payouts won’t cover the cost of completely replacing the items. Meanwhile, RCV policies cover the cost of replacing the damaged or stolen items with equivalents of a similar quality and specification. RCV policies offer the most peace of mind, but do tend to be a little more expensive than ACV policies.
The items typically covered by renters’ insurance include:
- Electronic devices,
- Furniture,
- Clothes,
- Valuables and art—usually up to a capped limit, though this can often be increased for an additional fee,
- Cell phones,
- Bedding and towels,
- Kitchen utensils,
- Sports equipment, including bicycles,
- Musical instruments,
- Rental items on the property at the time of the covered event.
In most cases, these items are covered in the event of certain perils, listed by the insurance companies.
Ordinarily, this includes the following:
- Fire and smoke damage,
- Theft,
- Vandalism,
- Storms, including wind and hail,
- Sudden damage caused by a fault in the property, such as a burst pipe.
Some perils aren’t covered as standard, typically flood or earthquake damage, as well as sinkhole damage. Damage caused by things like pests and bed bugs also aren’t normally covered by renters’ insurance.
It’s also worth noting that renters’ insurance covers only the possessions of the policyholder and any relatives who also live in the property. Roommates will either need to be added to the policy or should take out their own. Likewise, any possessions within the rental house belonging to the landlord won’t be covered by renters’ insurance, though they should be covered by landlords’ insurance.
2. Renters’ Personal Liability
Renters’ insurance also covers the renter against legal action should anything happen to a guest at their home and the renter is found responsible. This coverage will pay out for court and attorney fees, as well as any damages the renter is required to pay. Personal liability coverage also protects the renter against property damage claims.
In addition to personal liability, most renters’ insurance policies offer a no-fault medical expenses coverage for guests. This enables guests to submit their medical bills to the renter’s insurance, even if no one is found to be at fault. This coverage does not extend to the policy holder or anyone who lives at the property, however.
3. Additional Living Expenses
If the rental house is damaged to the point that it’s uninhabitable, renters’ insurance will cover the additional living costs of living elsewhere until repairs are complete. The costs that are typically covered include hotel or short-term rental fees, food costs (such as eating out), and additional travel costs. The reimbursement is calculated by subtracting the regular living costs from the costs incurred by not being able to live at home. There is usually a cap, however, though it can often be increased if desired.
How Much Should Renters’ Insurance Usually Cost?
Several factors contribute to the price of renters’ insurance, such as location, age, the number and value of belongings, the type of coverage required (ACV or RCV), and the amount of deductible the renter is willing to pay. Increasing the standard caps and adding extra protections will also bring costs up.
Generally, renters can expect to pay between $15 and $20 a month in the U.S. for a standard renters’ insurance policy. This tends to be far lower than homeowners’ insurance.
Is Renters’ Insurance Necessary?
Renters’ insurance is not required by law, however, some landlords will require their tenants to take out a policy as part of the terms of the lease agreement. Even if it’s not required, it’s never a bad idea to take out renters’ insurance, as it can offer fantastic peace of mind for a relatively low price.
What is Homeowners’ Insurance?
While renters’ insurance offers protection to renters, homeowners’ insurance is designed to protect homeowners. Like renters’ insurance, it covers the cost of replacing personal property in the home, but also covers the cost of the home itself in the event of total loss.
There are policy limits, however, and homeowners are also required to pay a portion of the costs out of their own pocket. This is called a deductible, and denotes the value of the costs that the homeowner agrees to pay before the insurer will cover the rest.
What Does Homeowners’ Insurance Normally Cover?
Homeowners’ insurance will cover all the same belongings as renters’ insurance, provided they belong to the policyholder and any other relatives or named parties. However, the caps tend to be higher, as most homeowners own more possessions than typical renters, with things like appliances, furniture, fittings, and fixtures to consider.
Other things that homeowners’ insurance will usually cover include:
- Structural damage to the home and surrounding structures,
- Personal liability,
- Additional living expenses,
- Sewer and other plumbing problems.
Homeowners’ insurance tends to offer coverage in the event of the same perils as renters’ insurance, with a few extras.
These extras include:
- Fire and smoke damage,
- Wind,
- Hail,
- Vandalism,
- Theft,
- Civil unrest,
- Broken glass,
- Water damage caused by an issue that is not the homeowner’s fault.
Additional coverage can also be taken out to offer a wider array of protections, and homeowners are advised to check their policy thoroughly to ensure the most important perils are covered.
How Much Should Homeowners’ Insurance Usually Cost?
The price of homeowners’ insurance varies widely and is largely dependent on the value of the home. For example, if a home is expected to cost $200,000 to rebuild after a total loss, and contains $100,000 worth of belongings, the home should be insured for at least $300,000. The average price for this amount of coverage at the time of writing is around $2,200 a year in the U.S., though prices vary by location.
Is Homeowners’ Insurance Necessary?
Like renters’ insurance, homeowners’ insurance isn’t a legal requirement, but the majority of mortgage lenders will require borrowers to take out a policy. This protects their investment and the fee is often rolled into the monthly mortgage payment.
Both renters’ and homeowners’ insurance offer protection and peace of mind for their intended markets. Renters only need to take out renters’ insurance and don’t need to worry about insuring the property itself, as that is down to their landlord to cover. Likewise, if a homeowner rents their property out, they won’t need to take out renters’ insurance to cover their tenants. They should, however, look into landlords’ insurance.
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