Homeowner's and Renter's Insurance

For most people, the home they live in and the things that occupy it are their most valuable assets. And just like any valuable asset, protecting it from harm or destruction is important, because recovering from a loss of that magnitude would be challenging if not beyond the capacity of most to endure financially.

Enter homeowners and renters insurance. Homeowners insurance is meant to protect the actual home as well as the things inside of it, while renter’s insurance is only meant to protect personal property. We’ll cover each below.

Renter’s Insurance

Renter’s insurance is what most folks start with when they’re renting an apartment or home. It’s designed to cover your valuables up to a certain dollar amount. Finding a policy with a coverage amount comparable to what you would need to replace all of your stuff in the event of a disaster like a fire is what you should look for here.

In addition, if you have any high dollar items like engagement rings, fancy bikes, musical equipment, art, or shoe collections, you may need additional coverage or “riders” to ensure that those items are also covered. This is because the insurance may have caps for categories those items fall into.

Another key thing to consider is whether you’ll get the actual cash value of property you lose or if you’ll get the replacement value of your property if you were to go out and buy a new replacement today. For instance, if you bought a bike 10 years ago for $1,000, an “actual cash value policy” takes into account the depreciation of that item over time and would reduce the payout accordingly, just like if you were to resell an old car you would expect to get less for it now than you paid to drive it off the lot. On the other hand, a “replacement cost policy” looks at what replacing that bike with a new version of the same bike would cost you, and pays you that amount, even if you rode it every day and it was showing significant wear. In short, you’ll get paid out more with a replacement cost policy, but you’ll also spend more in premiums for it.

How do you ensure you get what you’re owed in the event of disaster? Well, there’s a bit of work involved. Ideally, you inventoried your assets when you were deciding how much coverage you needed. That list along with any additions that came afterwards is the best way to ensure you get your due. Not many people have that list ready when disaster strikes, so the quicker you can put on paper what you recollect about every thing in your possession, the less likely you are to forget something important. Be extremely specific - the 2015 Havana plate set from Anthropologie for instance. That leaves less room for interpretation in the valuation process. And don’t forget that most policies will cover your stuff if it is stolen or damaged even outside of your home.

There are handful of other things that are typically covered in renter’s insurance policies including additional expenses if you need to leave your abode due to perils like weather, fire, or vandalism (called “loss of use coverage”), personal liability in case someone is injured at your place sues you, or even unintentional damage you do to someone else’s home. You’ll want to check what your specific policy covers, but generally, “all risk” policies will cover perils that are not specifically called out as exclusions. If there’s a specific common exclusion that you feel you're at particular risk for (like say, earthquakes in San Francisco) then you can buy riders to cover you for that risk as well.

Homeowners’s Insurance

Homeowner’s insurance takes everything about renter’s insurance above - the protection for your personal property in and out of the home, the personal liability coverage, expenses associated with leaving your home due to covered perils - and adds coverage for the actual structure of the home itself.

Your home is likely one of your biggest assets, so making sure it is covered should be one of your highest priorities, and it is certainly a high priority for your mortgage lender. After all, they want to ensure they get paid back on the full value of your property even if they worst happens. That’s why proof of insurance is a critical step in the mortgage process.

Homeowner’s policies typically cover the replacement cost of the property at today’s prices rather than what you paid for it. To be more specific, your “dwelling coverage” includes reimbursement for damage to interior and exterior walls, cabinets and built-in features, the foundation, floors, roof, plumbing, water heaters, electrical, and pretty much anything else that’s a part of the house. Detached structures like garages, sheds, or fences are also generally covered up to 10% of the value of the main structure.

There are exceptions for cases of neglect. Generally, if you could have reasonably been expected to take care of a problem, but you didn’t and it got worse over time until it caused significant damage, it’s not going to be covered. Here are two examples to illustrate cases that likely wouldn’t be covered under a standard policy: 1) over time, your roof grew old, fell into disrepair, and eventually collapsed not due to a specific peril; or 2) your kitchen sink has been leaking for years and eventually the pipe burst because the problem was never addressed. As a rule, it’s likely cheaper to address the issue rather than wait until something bad happens and attempt to collect on insurance for repairs.

To summarize, here’s a handy table to reference for typical coverage.

What does homeowner’s insurance cover?

In addition to the standard coverage listed and discussed above, you can also add additional endorsements that expand your protections or protect you in the event of normal exclusions like earthquake or flood damage. You’ll want to review your policy to understand exactly what is and is not covered to see if you would benefit from these additional endorsements.

At the end of the day, you need an insurance policy that fits your situation - your home, your belongings, and your risks. Farther does not sell insurance, but we can point you in the right direction by suggesting honest brokers that do.