Rent or Own, Here’s How to Insure Your Home

photo: alancleaver_2000

Whether you rent or own, you’ll need insurance to protect you and your belongings in the case of a calamity.  

The prospect of shopping for a policy can be daunting, especially if it’s your first time — but the good news is that finding out your options can be as easy as making a local phone call. The insurance market is still very local, so speaking with an independent agent who works in your area is a good place to start, says Ben Schaum, a product manager at Progressive Insurance.

How much you’ll pay will vary from state to state and even neighborhood to neighborhood — and will obviously be based on how much coverage you want, the deductible you can afford to pay and the actual cash value or replacement cost of your belongings. The nature and location of your property — and what’s in it can also play a big role. Homeowners who have a pool, certain breeds of dogs and those who live in a flood zone, for example, will be on tap for higher premiums than those who don’t fall in either of these categories.

Before you choose an insurance company, get some feedback from neighbors, friends and relatives: what is their experience with their own provider? Then find out from the insurer itself the process for filing a claim. “The thing about insurance is you don’t know what it’s worth until you make a claim,” said Dick Luedke, a spokesman at State Farm Insurance. Last, but not least, check the insurance provider’s record with your state’s insurance department.

Figuring out How Much Risk You Can Take On

Whether you need a policy for your own home or for the place you rent, you will need to determine your policy’s deductible. That’s the amount you’ll have to pay our of pocket in the case of a claim, in order for insurance coverage to kick in. With a higher deductible you’ll pay lower monthly premiums, but should anything happen, you’ll have to make sure you can afford the lump-sum expense.  

“Everyone has to assess their personal situation,” says Luedke. “When paying your premium you are paying for the expense of operating an insurance company. You don’t want to pay any more than you have to.”

The amount of homeowners insurance you’ll need is based on the cost to rebuild your home in the case of an accident like a fire. It’s not what you can sell the home for, but what it would cost to build it back.  Homeowners insurance also covers the contents of the home, typically 75% of the insurance amount. If you own expensive items — a collection of fine art, jewelry or an impressive lineup of Manolo Blahnik shoes in your closet — you may want to take out additional insurance through what’s often called a “rider.”  

Renter’s insurance, on the other hand, doesn’t cover the structure of the place (the landlord’s policy should take care of that) — but it does cover all your contents and protects you from liability if someone hurts themselves in your apartment and decides to sue. It can even cover the legal costs if you’re sued.  You typically buy renter’s insurance in $1,000 and $5,000 increments, depending on how much your stuff is worth.  A common misconception among renters is that their belongings are protected by their landlord’s home insurance policy. On the other hand, most renters who do purchase renter’s insurance don’t realize that it covers their belongings even while they travel.

Figuring How Much Your Stuff is Worth

Both homeowners and renters have two options when it comes to determining the value of their belongings: you can go with the ACV, or actual cash value or your things, or the cost to replace them. A basic insurance policy covers the ACV, or the value of the property at the time of the loss. (This means the payout you’ll get for fast-depreciating items like consumer electronics will most likely not be enough to replace them with new ones.)

Going with insurance that covers the replacement cost will cost a little more, but ensures that you can buy all of those items with the amount you’ll receive from the insurer. While you don’t need to have receipts and/or pictures of your belonging, it doesn’t hurt to have some documentation.  The more documents you have, the easier the claims process will be.

Homeowners Insurance: What’s Covered

A home will likely be the biggest purchase in your lifetime and while having homeowners insurance in place is required of most buyers, making sure you have the right policy is equally important. It not only covers the structure of your home, but will also protect you if someone gets hurt or there’s damage to another person’s property.  Also covered is the additional cost of living elsewhere if your home becomes uninhabitable, as are any medical expenses for others accidentally injured in your home or on the sidewalk outside it. (Medical Payments coverage doesn’t cover your or family members living in the home if they get hurt.)  Keep in mind, flood insurance isn’t included in most policies and would result in an additional cost to the homeowner — unless you purchase separate coverage.  

Rental Insurance: What’s Covered

For renters there are two types of insurance: the HO-4 for apartment renters and HO-6 for condo renters. Both cover damages from fire, lightning, windstorms, explosions, civil unrest, as well as damage caused by vehicles, smoke, vandalism, theft, pipes bursting and other damage from faulty appliances. Renters insurance also includes liability coverage in case someone gets hurt in your apartment. Living expenses if your place becomes uninhabitable are also covered. But like homeowners insurance, you’ll need a separate policy for floods and earthquakes if you live in an area prone to those events.