Homeowners Insurance vs Renters Insurance: What's the Difference?

Homeowners insurance and renters insurance both protect policyholders financially against property damage, legal liability costs, medical payments to others, and the costs of living away from home. The primary distinction between these two types of policies is the type of property damage covered. Homeowners insurance is for people who own their own home or apartment, and it protects both the structure and their personal belongings. Tenants purchase renters insurance, which covers damage or theft of their personal property but not damage to the building itself.

What Is the Difference Between Renters Insurance and Home Insurance Coverage?

The primary distinction between homeowners and renters insurance is that homeowners policies include dwelling coverage, whereas renters policies do not. Otherwise, the policies are essentially the same, so you don't need both renters insurance and homeowners insurance to cover your own property at the same address.

Dwelling, personal property, personal liability, additional living expenses, and medical payments are the five main types of coverage in homeowners insurance. Renters insurance includes all of these features except the first, making it similar to a type of low-cost home insurance for tenants.

What do Renters and Homeowners Insurance Coverages Actually Do?

In general, the coverage features of homeowners and renters insurance provide financial protection against damage caused by unexpected or sudden events. The events covered (also known as perils in insurance parlance) can vary, but they are generally quite similar across insurance companies. When a peril damages your property, you can file a claim with your insurance company; if your claim is accepted, the insurance company will pay you for the damage (minus your chosen deductible).

Dwelling Coverage: Only Included With Homeowners Insurance

The structure of a home is referred to as the dwelling, and dwelling coverage covers physical damage to the home itself (walls, roofs, floors, doors and other parts of the structure). If you own a home or a condo, you'll need home insurance or condo insurance to protect yourself from the financial consequences of these events. Renters insurance policies do not include dwelling coverage because tenants are not liable for building damage that is beyond their control.

The majority of homeowners insurance policies cover a standard set of common perils for your home. Wind and hail are two of the most common perils that homeowners face, while fire and lightning are two of the most costly.

Perils usually covered by a homeowners insurance policy...

• Fire
• Smoke
• Windstorm
• Hail
• Lightning
• Explosion
• Vehicles

• Civil unrest or riot
• Theft
• Vandalism or malicious mischief
• Trees and other falling objects
• Weight of ice, snow and sleet
• Water damage resulting from freezing, rupturing or sudden and accidental overflow of plumbing, heating, air conditioning, fire sprinkler system or household appliance

The specific homeowners insurance policy will determine whether or not all of these perils are covered. The most common type of policy sold by insurance companies, HO-3 policies, will generally cover all of these perils, whereas a more limited policy, such as a HO-1, will cover fewer.

However, certain perils, most notably floods and earthquakes, are almost always excluded from home insurance dwelling coverage. If you have an open-peril policy, these perils must be specifically listed as exclusions. If you have a named-peril policy, all perils that are not expressly listed as covered will be excluded from dwelling coverage.

Perils typically excluded from homeowners insurance dwelling coverage...

• Government seizure, demolition or requirement to rebuild to match building codes
• Flooding
• Earth movements, including earthquakes, sinkholes and landslides
• Power failure (if the source of failure is off-residence)
• Homeowner neglect
• War and nuclear hazards

Both Homeowners and Renters Insurance Include Personal Property, Personal Liability, Additional Living Expenses and Medical Payments Coverage

Four other types of coverage are included in both homeowners and renters insurance policies and work the same way.

Personal property coverage: Both homeowners and renters insurance cover policyholders for personal property damage or theft. Anything from your clothes to your furniture and television is considered personal property. Personal property coverage may be set as a percentage of your dwelling coverage by default, such as 50%, when you buy homeowners insurance, but it can usually be adjusted before you buy. When purchasing renters insurance, choosing your personal property coverage is the most important part of the process because it is the main coverage feature and the biggest driver of your policy's price.

Personal property coverage, like dwelling coverage, does not cover all perils. Many of the common exclusions from dwelling coverage, such as floods and earthquakes, will be treated the same way under this feature.

Both homeowners and tenants should be aware that certain high-value items may have a coverage sublimit and thus will be covered differently than more common items. For example, your jewelry may be subject to a $2,000 sublimit in your policy. This means that even if your overall personal property limit is $20,000, your insurance company will only reimburse you for $2,000 in stolen jewelry (less your deductible). These sublimits can usually be increased if you buy an endorsement, which is useful for those who own a large number of high-value items.

Personal liability coverage: Both homeowners' and renters' policies will include liability coverage, which protects them from legal liability for bodily harm or property damage caused to others. For example, if someone sues you for accidentally spilling hot coffee on their lap, you'll be reimbursed for your legal fees as well as any damages incurred as a result of the legal proceedings. Both homeowners and renters insurance policies include $100,000 in personal liability coverage by default, but coverage limits can usually be increased for a small fee.

Additional living expenses (ALE) coverage: Also known as loss of use coverage, ALE protects you against the financial impact of living in a place other than your own or a rented home. If a covered peril renders your living space uninhabitable, both homeowners and renters insurance policies will cover you for additional living expenses. For example, if your apartment is being cleaned after smoke damage, ALE will cover the costs of staying in a hotel. ALE will cover you up to a certain dollar amount or for a set period of time, such as three months.

Medical payments coverage: Unlike personal liability coverage, medical payments coverage is provided on a no-fault basis, which means that legal liability is not required to be established. Both homeowners and renters insurance will cover a certain amount of medical bills if someone is injured in your home or rental property. Typically, coverage is set at around $2,000.

What is the Cost of Homeowners Insurance vs Renters Insurance?

Renters insurance is significantly less expensive than homeowners insurance. This is due to the fact that home policies cover everything that renters insurance does, as well as the cost of repairing or replacing a home structure. The average annual cost of homeowners insurance in the United States is $1,083, while the average annual cost of renters insurance is $187.

Why is Homeowners Insurance More Expensive Than Renters Insurance?

Simply put, homeowners insurance costs more than renters insurance because it covers more property, property that is more vulnerable to perils, and property with a higher monetary value. Only homeowners insurance covers the structure of a house. The dwelling is much more vulnerable to perils than the personal belongings protected within the home, and it usually costs much more to rebuild than personal property would cost to replace.

According to the National Association of Home Builders, the average cost to build a single-family home is more than $235,000, while the average renter's possessions are worth around $30,000, according to Allstate. As a result, the total loss of an average home in a covered event is much more expensive than the total loss of an average person's personal belongings. Furthermore, unlike renters insurance, homeowners insurance covers both your home and your belongings.

When an insurance company determines policy premiums, it bases its decision on the amount of money it expects to pay out in claims to its entire customer base. Given that companies expect homeowners to file far more claims than tenants, homeowners insurance policies typically cost far more than renters insurance policies.

Shopping for Homeowners and Renters Insurance

Whether you're looking for homeowners or renters insurance, you'll need to know the value of your belongings to ensure you get a policy that fully protects you. Property coverage levels are the most important factor influencing the cost of your insurance policy, and choosing appropriate dwelling and personal property coverage levels is an important step toward achieving the right balance of coverage and value.

Dwelling coverage levels for homeowners insurance should be set at or above the replacement cost of your home. This ensures that you are protected in the event of a total loss. When deciding on this figure, it's critical to understand the difference between market value and replacement cost. The market value of your home is the selling price, but it also includes the value of the land on which it sits and other sales costs. The replacement cost is the estimated cost of constructing a new home of comparable quality to your existing home. There are several methods for estimating your home replacement cost, and shoppers should use their best judgement to obtain an accurate calculation.

Personal property coverage should be adequate to cover the value of your possessions, protecting you in the event of a total loss. Making a personal inventory of the value of your possessions and estimating their total worth is the best way to determine this number. Customers who are less risk-averse may choose coverage limits that are less than the value of their possessions, as long as they understand that they will only be covered for damage or theft up to the personal property coverage limit they chose.

Renters Insurance vs Landlord Insurance: Are They the Same?

Landlord insurance, also known as rental property insurance, is not the same as renters' or homeowners' insurance. Because a homeowner's insurance policy does not cover the risks posed by renters, a landlord policy is required to cover dwelling damage, a limited amount of property damage, and the legal liability exposure associated with being a property owner.

Because landlords own their properties, they are liable for any unexpected damage to their property, not their tenants. However, tenants are liable for any damage to their personal belongings. Due to this dynamic, landlords who frequently rent out their property must obtain a separate landlord insurance policy. A landlord policy will cover damage to the dwelling, but only personal property owned by the landlord that is used to service the apartment, such as a lawn mower or snowblower. Tenants should purchase renters insurance to protect their personal belongings.