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What’s the Difference Between Renters and Homeowners Insurance?

July 10, 2015 | By

When a fire destroys, water floods, lightning strikes, or a tornado hits your home, will you be protected by your insurance policy?

It depends.

While the scenarios that threaten to damage or destroy owned and rented homes are identical, the policies protecting them can be significantly different. The Insurance Information Institute (III) names 16 disasters that policies typically cover. Floods and earthquakes are not on the list.

Every individual policy can also vary significantly. The III encourages both renters and owners to review individual policies regularly and be familiar with what’s covered if disaster strikes.

If You Rent Your Home

There is only one type of coverage for renters (HO-4). It protects your possessions and any parts of the space you own, such as a light fixture or cabinets you installed, from the 16 disasters. You get to choose what type of payments you receive for replacements.

If you are questioning what you should cover, think big. “Imagine your apartment or rental. Now take that and turn it upside down. What falls out? That’s what should be covered under your insurance policy,” says Michael Barry, a vice president at III.

If You Own Your Home

There are four main types of homeowners insurance: limited (HO-1), basic (HO-2), the most popular option (HO-03), and coverage for an older home (HO-8). “Big picture, we say homeowners insurance covers wind, fire, and theft,” Barry says.

III contrasts potential disasters and how different policies – from basic to complex – cover your dwelling and personal property.

All policies usually cover at least 10 of the 16 disasters, including tornadoes, windstorms, fire, lightning strikes, winter storms, and ice, he says.

While the standards are fairly consistent across the U.S., every state can customize policies. This is particularly true in Texas, which has a coverage system that varies from other states.

If You Own a Co-op or Condo

Co-ops and condos add a different level of complexity, generally requiring two policies. You purchase condo/co-op (HO-6), which, for all 16 disasters, covers belongings and structural parts of the building you own. The condo or co-op board provides a separate master policy to cover common areas and structural things such as roofs and elevators.

The Importance of Liability

Like auto insurance, coverage for your home is not just about protecting you. It protects your guests and can even protect you if you are responsible for something that damages somebody else’s home.

“Liability is something that not everybody fully appreciates,” says Barry. “I think most people when they think of their insurance policy think of only the dwelling coverage and their belongings. They don’t appreciate how important the liability protection provision of their policy can be when something happens to somebody else on their property, or if somebody else is harmed after leaving their property.”

Finding the Right Policy

Finding the right policy might seem daunting, but it doesn’t have to be. Start by talking to reputable companies about the different kinds of coverage and what works best for your situation. Be thorough when taking inventory of your personal belongings and photograph or videotape each room, especially valuable items.

Additional living expenses is one area of home insurance that is often overlooked, but extremely important, according to Barry.

“This kicks in if because of an insured event, your home is rendered uninhabitable,” he says. “You’ll have somewhere to go and something to eat.”  This provision comes standard with homeowners policies.

The III also recommends considering an umbrella liability policy to protect assets from lawsuits, in the event that coverage limits are reached. Additionally, it suggests bundling insurance coverage wherever possible, such as rental and auto policies. The institute also offers helpful checklists for homebuyers and renters on its website.

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