Homeowners and renters insurance both provide essential protection against unexpected events, but there are some differences between the two types of policies. Knowing these differences can save you time, money, and hassle if you ever need coverage.
What Is Homeowners Insurance?
Homeowners insurance is for those who own a property. It typically covers five general areas:
- Structure and Dwelling
Dwelling protection covers the structural elements of the home (i.e., walls, roof, foundation, etc.). Dwelling coverage may also include attached structures, such as a deck or shed. Many policies, however, don’t cover damages incurred from natural disasters such as floods and earthquakes. Homes in disaster-prone areas usually purchase add-on policies known as riders to cover some of these exclusions.
- Personal Property
Homeowners insurance policies usually cover ordinary personal belongings like clothing, but certain high-value items like jewelry may have a coverage limit. For example, your policy may include a personal property limit of $20,000, but your jewelry may only have a limit of $2,000. In the event of loss, this means that your policy will only cover $2,000 worth of jewelry, minus any deductible. People who own many high-value items usually purchase endorsements to increase coverage.
- Liability Protection
If someone injures themself on your property, liability coverage can offer some protection. Most policies have a personal liability maximum of $100,000, but you can increase this amount before purchasing the policy.
- Additional Living Expenses (ALE)
Also known as loss of use coverage, ALE protects you if your space becomes uninhabitable. If your home suffers smoke damage after a fire, ALE coverage would include the cost of a hotel while your home is begin treated. ALE coverage usually has a time limit, so it would be a good idea to verify this while shopping for insurance.
- Medical Coverage
Unlike personal liability coverage, medical coverage does not require legal liability. This portion of the insurance will cover a set amount of medical bills for injuries sustained in the home. Coverage usually starts at $2,000, but you can increase the limits for an additional cost.
What Is Renters Insurance?
Renters insurance, on the other hand, is for those who rent their home as tenants. At the most basic level, renters insurance covers personal belongings, personal liability, and medical coverage. The policies also cover additional living expenses if you cannot occupy the dwelling.
The primary difference between renters and homeowners insurance is that renters insurance does not cover structural damage to the building itself. It does, however, cover the loss of personal property within a structure. The building owner usually has a separate policy for the structure. In a fire, for example, renters insurance wouldn’t cover smoke damage to the walls of an apartment, but it would cover clothing damaged by smoke. In a burglary, the renters insurance wouldn’t cover the broken window, but it would usually include the stolen personal property.
Personal property coverage is one of the main features of renters insurance, but some policies also have exclusions. Like homeowners insurance, some renters insurance policies also exclude personal property loss incurred from natural disasters. Renters insurance may also have coverage limits for personal property with a high value. In this case, add-on coverage may be available. Furthermore, renters insurance may cover your belongings, but another resident in your dwelling may not have coverage unless they are also on your policy.
What Is the Cost of Homeowners Insurance vs. Renters Insurance?
Homeowners insurance is typically more expensive than renters insurance. According to Bankrate, the average annual cost of homeowners insurance in 2021 is $1,312 for a $250,000 home. In contrast, the average renters insurance policy costs $509 per year.
Insurance companies partially base rates on the average insurance claim for a particular type of insurance. Since homeowners insurance covers both the structure and personal belongings, insurance companies naturally expect to pay higher claims for homeowners. In the case of a fire, the total loss of an entire building would be much more costly than the average cost of a renter’s personal belongings.
Other factors that determine insurance premiums for both types of insurances include location, the amount of coverage, and in some cases, credit scores. Sometimes, you can get a discount on either type of insurance if you also have auto insurance with your provider.
Both homeowners and renters insurance can help mitigate financial loss in unexpected situations. Besides the primary difference in coverage and cost, the policies are essentially the same, and both types of insurances are relatively easy to obtain. With both types of insurance, thorough research will give you a better understanding of coverage options and costs.