Homeowners Insurance Versus Rental Property Insurance
Protecting property through contracting the proper insurance coverage is sound financial sense. Whether you are a homeowner living in your house or renting it to tenants or a tenant living in a home owned by another, proper insurance coverage is a necessity to protect your assets. Homeowners' insurance differs somewhat from rental property insurance in the types of possessions and property covered.
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Homeowners
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Generally, homeowners' insurance provides coverage for a structure and attached buildings. Unattached structures on the property are covered under many homeowners' policies. Homeowners' policies cover built-in features of the home, such as cabinetry, plumbing and electrical fixtures, as well as various other properties, depending on the terms of the specific policy. Homeowners who live in the structure need to maintain insurance policies that cover personal property, such as furniture, appliances, electronics, furnishings and clothing.
Landlords
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According to the Insurance Information Institute, a landlord's insurance policy covers the home, adjacent structures and contents belonging to the landlord, as well as rental income loss if the house is inhabitable due to a disaster. Many landlord policies also provide liability insurance, protection from legal responsibility for injuries to people or their property that results while on the landlord's property. The III states that a landlord's policy generally provides more coverage than a homeowner's policy due to the fact that rental property owners are subject to more loss than homeowners.
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Rental Property
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Depending on the policy, insurance coverage on rental property may be limited to the structure and attached fixtures in the landlord's policy. The tenants, however, may carry a separate policy on the contents, or their personal possessions. Tenants may mistakenly think their personal possessions are insured under the landlord's or owner's policy. This is not so. Renters need to purchase their own policies to have coverage on their personal possessions. In addition, tenants need liability insurance coverage for damage to the property that could result from an accident deemed their fault.
Tenants
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Renters' insurance generally comes in two variations. A replacement cost policy reimburses the policyholder for the full cost of replacing insured possessions, up to the limits of the policy. An actual cash value renters' insurance policy subtracts depreciation. For example, a personal computer you purchased two years prior for $700 is not considered worth $700 on the open market today, even if the current price of the same PC new is $850. If the current value of the now used and depreciated PC is determined to be $300, then that would be the amount the insurance company would pay under an actual cash value policy. Conversely, the replacement cost policy would pay you $850 to replace the PC. Replacement cost policies have higher premium rates than actual cash value policies.
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References
- Insurance Information Institute; Renters Insurance Remains a Cost-effective Purchase, Even in Tough Times; November 24, 2008
- Insurance Information Institute; A Vacant Home Still Needs Insurance - Don't Be Caught Without Coverage; November 19, 2009
- National Association of Insurance Commissioners: Consumer Alert: What You Need to Know About Renters Insurance
- National Association of Insurance Commissioners: A Consumer's Guide to Home Insurance
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