Both renter's and homeowner's insurance can protect your possession in case of a disaster that harms your belongings. But homeowner's insurance covers the costs of damage to the home itself, whereas renter's insurance only covers the cost of the possessions in the home -- making renter's insurance significantly less expensive than homeowner's insurance.
Renter's Insurance Coverage
Renter's insurance is designed to cover the costs of replacing your belongings if something goes wrong with the rental property. Like homeowner's insurance, it can also provide you some protection from liability if someone is injured on the rental property. Renter's insurance won't protect landlords if the home is damaged, so if you own a rental property, you'll need homeowner's insurance rather than liability insurance. However, some landlords require that renters purchase renter's insurance to help cover the costs associated with a renter's negligence if someone is injured on the property.
Homeowner's Insurance Coverage
Homeowner's insurance offers the same benefits of renter's insurance, including some liability protection and replacement of damaged possessions. It also covers all or most of the costs of repairing or replacing the property if it is damaged. Homeowner's insurance won't cover all damages. For example, if your home is damaged by a flood, you'll typically have to have flood insurance to cover the costs.
The cost of homeowner's insurance is determined by the value of your property and your liability risk. If you have an old, damaged property, if you have dangerous pets or if you engage in risky behavior on your property, your homeowner's insurance costs may be more. Renter's insurance policies are purchased for specific coverage amounts; your amount of coverage should be determined by the value of your possessions, and some insurance companies will alter the rate of coverage based on your perceived risk of someone being injured on the property. On average, this insurance can cost between $10 and $30 per month.
You shouldn't decide whether to rent or buy based solely on the cost of insurance. While renter's insurance is cheaper, you won't get the tax benefits such as a mortgage deduction that homeowner's get, and you won't be building equity in a home. Conversely, there are many costs to owning a home, including regular maintenance and repair, property insurance and the cost of interest on your mortgage.
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