When Chonce Maddox and her husband bought their home near Chicago in May 2018, shopping for home insurance was the last thing the couple felt like doing.
“We already had renter’s insurance and knew the company offered home insurance as well, so we decided to stick with them after getting a quote.”
Maddox is a financial blogger and knows they could have shopped around to see if there was a better option. “But the home buying process was stressful, and we didn’t want to add more to our plate,” she says.
Finding the right home and getting your offer accepted can be difficult. Then you still have to deal with the closing process, repairs or renovations and the actual move. Oh, and somewhere in there, you’ll likely have to purchase homeowners insurance too.
Knowing the details
You may stick with the same company like the Maddoxes did or have the time to compare options and potentially save money. Either way, knowing how your insurance coverage and costs can change as you go from renter to homeowner could be important to protecting your possessions and finances.
Homeowners owners and renters insurance share a lot of the same principles – but are some big differences, not least the price.
Homeowners insurance vs renters insurance
If you’ve had renters insurance before, you may already be familiar with many of the protections that homeowners insurance offers. Here’s a general overview of the two types of insurance, although specifics may vary depending on the policy:
|Av. annual cost||$188||$1,173|
|Covers structural damage||No||Yes|
|Covers additional structures||No||Yes|
|Covers stolen/damaged/lost possessions||Yes||Yes|
|Lose of use coverage||Yes||Yes|
|Earthquake or flood damage||No||No|
You’ll likely be required to purchase homeowners insurance
Some landlords may require tenants to purchase renters insurance, but it’s not a given. However, you’ll almost certainly be required to buy homeowners insurance as long as you have a mortgage.
Since your mortgage is secured against the value of your home, this makes coverage a requirement for most borrowers.
The mortgage lender may refer to hazard insurance during the home-buying process. Don’t worry, that’s not an additional insurance you need. This is just a reference to the part of your homeowners insurance that covers specific hazards, also known as perils.
Now, your home and additional structures are covered
As you make the move from renter to homeowner there’s one really big difference to consider — you now have a giant asset to protect. That’s why you purchase homeowners insurance. Your insurer will reimburse your costs to repair your home if it’s vandalized, damaged or destroyed.
“The policy also covers a lot of stuff I wouldn’t have thought about, like our drywall, crawl space, heating and cooling, siding, and our exterior doors. Plus, personal property like our wedding rings,” says Maddox. Plus, your policy could cover the landscaping on your property, as well as other structures, such as a detached shed or garage.
The rest of the coverage may be similar to what you can find with renters insurance, including theft or damage to your belongings, additional living expenses (ALE) if you have to temporarily move out of your home, and liability protection in case someone or something is hurt or damaged on your property.
You’ll pay more for a homeowners policy
Because homeowners insurance covers additional situations, and generally has higher limits, one of the significant differences between renters and homeowners insurance is the cost.
Averages only tell part of the story, as costs can vary greatly depending on where you live, the home, and your coverage. Even so, you’ll almost certainly pay more for homeowners insurance than renters insurance.
Exclusions and limits still apply
While your homeowners policy offers more coverage than a renters policy, there are still exclusions and limits to consider. Neither policy usually covers damage or destruction from floods or earthquakes.
You may be able to buy separate coverage if you want to protect your home for either type of disasters. Coverage could be mandatory if you have a mortgage and your home is in an area prone to flooding or earthquakes.
Your homeowners policy will still have coverages limits as well. Different limits may apply to different types of claims, such as a limit for home repairs, personal possession, liability and additional living expenses. There may also be lower limits for specific types of items, such as jewelry, although you can increase this by purchasing a rider.
Additionally, as a homeowner, you’re responsible for regular upkeep and maintenance of your home and property. If there’s damage due to a lack of maintenance on your part, the insurer may deny your claim.
And so will discounts
As with renters insurance, you may be able to save money by asking about and qualifying for discounts. The Maddoxes got $400 worth of savings because they received a multi-line discount for having auto insurance from the same company. They also have a home alarm system and were new home buyers.
The amount you can save can depend on where you live, the home and the insurance company. This is why it’s important to compare your option before buying insurance.
You might not want to file a claim as often
Filing an insurance claim can lead to higher premiums with either renters or homeowners policies. But due to their higher deductibles and premiums, you may not want to file small claims once you have homeowners insurance.
For example, if someone steals a bag with your laptop in, you may be able to file a claim (let’s say for $1,250) and get reimbursed.
With either type of insurance, you’ll only receive the difference between your policy’s deductible and the value of your stolen possessions. (How the insurer determines the “value” can depend on whether your policy uses the actual cash value or replacement cost method — you’ll probably want a policy that uses the latter.)
If your renters insurance policy has a $500 deductible, you’ll receive $750 to replace your possessions. Homeowners policies often have a higher deductible, and you might only receive $250 if your policy has a $1,000 deductible.
A lower payout is only part of the issue, though. A 2014 Insurance Quotes study found that homeowners premiums rose by an average of 9 per cent after a claim.
Say your premium went up 10 percent. That could mean an increase from $98 to about $108 – or about $10 more every month.
Your higher rate will equal the $250 payment you in about two years. But your increased rate could continue for longer than that. If you make another claim in the meantime, your rates could climb even higher.
On the other hand, even if your renters insurance increases by 20 percent, your premium might only jump from $15 to $18 a month. Since you received $750 from your claim, it’d take about 12 years for the higher premiums to equal the reimbursement.
Additional home-related insurance policies
Keep in mind, the coverage and policies can vary depending on the type of home you buy.
For example, HO-3 policies are the most common home insurance policies, but HO-6 policies are for condo or co-op owners.
The condo or co-op insurance may cover your unit, possessions, and liability, but a policy bought by the homeowner’s association covers the rest of the building (including the bare walls, floor and ceiling in your unit). HO-6 policies may also have some special provisions that are specific to condo or co-op owners, such coverage if you have to pay to help repair a shared space.
Another consideration is if you become a landlord. If you have a duplex you might rent one unit while living in the other. In this situation your homeowners insurance might cover the entire building, but only the contents of your unit.
However, if you’re renting out both units, or an entire home, you may want to buy a landlord insurance policy. This could cover the structure, other structures on the property, liability and your items in the unit (such as appliances). You may also be able to claim for lost rental income if the unit is uninhabitable.
Understandably, comparing homeowners insurance options may not be a top priority when you’re buying a new home. But it can be an important part of the decision-making process.
For a more in-depth look overview of homeowners insurance – we have the essentials covered in this article.