Insuring your home is one of the essentials of financial security. But there are actually several types of home insurance, though they share many common features. And knowing which type of coverage you need is crucial both in terms of scope and your budget.
The biggest distinction depends on whether you own (or are in the process of buying) or rent your home. And the major difference between these two is that while homeowners insurance covers the structure of your building, renters insurance does not.
That obviously means that renters insurance doesn’t cost as much. Typically, renters coverage only costs less than one-fifth that of a homeowners policy for a similarly-sized home.
But it may still be a crucial coverage to have in place.
Why? Because you are still vulnerable to costly risks that include damage or loss to your personal property and liability for injury or damage suffered by a visitor to your home.
Let’s take a closer look.
Understanding Liability Coverage
Liability insurance, sometimes known as third party insurance, is a key feature of both homeowners and renters insurance.
The most common type of liability claim is when someone injures themselves in your home, say by tripping and falling. It’s your home, so it’s your fault.
Other examples would be if your pet (usually a dog) injures someone, or your washing machine springs a leak and causes damage to someone else’s apartment.
Third party liability can be expensive if the claim ends up in court. The liability insurance component of your homeowners or renters policy covers this, including defense costs, up to the limits specified in your policy.
In addition, your policy should also cover medical costs for people injured in a home accident.
For renters, liability usually doesn’t extend into the common parts of the building (unless your dog bites someone there). The common parts are the responsibility of the landlord.
Understanding Contents Insurance
Contents or personal property insurance is also part of both major types of home insurance because, whether you own or rent your home, you almost certainly own or borrowed everything inside it.
You may not think those items add up to a great deal but the value of your furniture, electronic devices, appliances and jewelry can pretty easily add up to quite a sum. In fact, valuable items may need to be insured separately.
When you take out home insurance, your agent and/or the insurance company may recommend a certain level of coverage, but it’s perfectly okay for you to estimate the value of your possessions.
To do this accurately though, you would need to build an inventory of your personal property. But that’s important to have anyway, in case you need to make a claim.
Depending on the insurer, you may have a choice of coverage — between either the full replacement cost (or a fixed percentage of these) of items that are damaged or lost, or receiving what the items were actually worth at the time of the incident.
Understanding Structural Insurance
If you don’t own the building you live in, you usually don’t need the structural insurance protection that is a vital element of a homeowners insurance policy. If you rent, the structure of the building is the landlord’s responsibility.
For owners, structural coverage, or dwelling insurance as it’s sometimes called, can be pretty wide-ranging, protecting your home against a range of perils. Usually, these include fire and windstorm damage, vandalism and snow/ice weight, but not floods (unless caused by a leakage in or into your home) or earthquakes.
These perils can be insured separately. In Reno, and Washoe County generally, there are certainly some flood risks but you would need to speak to your agent to access flood risk maps and gain advice on your coverage needs.
Our state is also at risk of earthquakes, so this too is something to discuss with your agent.
Note that insurance protection for the structure of your home is based on how much it would cost to rebuild, not its market value. These figures can be significantly different from each other.
Important Issues and Differences
As with many aspects of insurance, covering your home and its contents is not always straightforward and should be discussed and clarified with a competent agent like Park Family Insurance.
Here are some important issues to note:
- Before arranging renters insurance, you should establish the level of coverage your landlord already has. Some landlord insurance policies do cover elements of tenants’ personal property, for example if building security is an issue. However they’re unlikely to provide liability protection unless they’re to blame when a visitor is injured.
- Although renters are not responsible for the main structure of the building or, usually, the common parts used by all tenants, you may be accountable for any structural modifications you have made and paid for inside your home. This should be made clear in your lease and, again, is something to be discussed with your agent. Your coverage will likely be limited to a percentage (15% is typical) of the overall contents coverage specified in the policy.
- Both homeowners and renters insurance should provide coverage of additional living expenses if you have to move out of your home temporarily while damage is repaired.
- Likewise, personal possessions are also covered in both policies when you take it out of your home, for example when you go on vacation.
- If you own a condo or vacation home, you may need a different type of policy specially designed for the risks associated with these buildings, especially if you rent it out. If you do rent out, you will need a landlords insurance policy.
- When you rent a home, your lease may stipulate that you have renters insurance. And if you’re buying, your lender will almost certainly insist you have a homeowners policy — and they’ll want proof.
We’ve outlined the key differences between homeowners and renters insurance, but within each category of coverage there are also a number of variations.
It’s also important that your policy keeps up with changes in costs and the value of personal possessions.
That’s why it’s important to work with an agent who can save you time and money in the type of policy you need and by keeping it under regular review.
If you’d like to discuss the home insurance that’s right for you, please contact us at Park Family Insurance for friendly, no-cost advice.