Home insurance policies protect homeowners against damage and losses that affect their property and belongings. The exact terms of coverage depend upon the policy; however, most insurance policies cover perils like hail, thunderstorms, fire, and theft. Home insurance also includes liability protection in the event that someone is injured on the homeowner’s property, and many policies also offer financial assistance if a homeowner must be temporarily displaced because their home has been damaged.
Is Home Insurance Required?
Home insurance is usually optional, allowing homeowners to choose their policy to fit their individual needs. However, individuals whose homes are under a mortgage loan are required by their lenders to obtain adequate coverage for the dwelling, as the lender has a vested interest in the home and wants assurance that any damages accrued by the home during disasters will be covered. Exact requirements vary based on the lender, the home’s geographic location, and the weather that frequently affects the area surrounding the home.
In addition, some condo and homeowner’s associations require members to purchase a certain level of homeowner’s insurance, as the associations’ policies often do not cover the whole home. The level varies across associations, but usually includes the interior structure. A common phrase used to describe coverage is “studs in,” which means everything in the walls from the studs inward must be covered by insurance. Though it is a rare occurrence, some associations may require individuals to insure the whole building. The amount of coverage required will be covered in the association agreements.
Some geographical areas are more at risk for damage than others, and the insurance level required by lenders and associations will reflect the threats of the home’s location. Homeowners who live in areas where there are frequent earthquakes may need to purchase earthquake insurance. Homes located in areas where hurricanes are common may need to purchase a separate wind insurance policy. Whether or not you will be required to purchase additional coverage is dependent upon your location and the agreement between yourself and your lender and/or homeowner’s association.
Though flood insurance is not legally required in areas of high flooding, it is highly recommended for homeowners. Flood insurance is always considered a separate policy from standard homeowner’s insurance policies and therefore adds to the overall cost of coverage. However, flooding can happen anywhere, according to the National Flood Insurance Protection Program, and all homes can therefore benefit from flood coverage. That said, there are some homes that are considered higher risks for floods than others. Homes in high risk areas are especially in need of flood insurance. To determine whether your home is in an area of high risk, visit FloodSmart.gov.
What Are the Differences and Similarities Between Homeowner’s Insurance and Renterís Insurance?
Homeowner’s insurance and renter’s insurance both exist to protect your personal property. They help prevent homeowners and renters from having to pay the full cost of damages and losses out of pocket. Both act as liability coverage in the event that someone is injured on your property, and both provide financial assistance if you are displaced from your home.
However, home insurance covers more than renter’s insurance. In particular, it covers the structure of the building, whereas renter’s insurance only covers belongings. This additional coverage is important for homeowners because in the event of a disaster, the structure of their home can become damaged. Renters do not need this coverage because their landlords are responsible for insuring the dwelling; renters just need to make sure they have adequate coverage for the possessions and for liability.
According to the Insurance Information Institute, the average cost of home insurance is $880, while the average cost of renter’s insurance is $184. The difference in price is due to the differing levels of coverage. Renter’s insurance only acts as liability and possession coverage, whereas home insurance provides coverage for the entire building. The more that is covered, the higher the average price for home insurance coverage will be.
Despite their differences, home insurance and renter’s insurance are both very important. They provide coverage that will protect you against any damage your personal belongings may accrue from fire, theft, or water damage, and ensure that you will not have to pay the full cost of replacing the losses that result from those events. This offers homeowners and renters the peace of mind that their homes and belongings will be repaired and replaced in the wake of disasters.