Home Insurance vs Renters Insurance

Homeowners insurance and renters insurance both provide financial protection for policyholders against property damage, legal liability costs, medical payments to others and the costs of living out of home. The core difference between these two types of policies lies in the types of property damage covered.

Homeowners insurance is for those who own their home or apartment, and it covers both their personal belongings and the structure of the home. Renters insurance is purchased by tenants, and it covers damage to or theft of their personal property, but not damage to the building itself.

What differs in renters insurance coverage vs. home insurance coverage

The primary difference between homeowners and renters insurance is that home insurance policies include dwelling coverage, while renters insurance policies do not. Otherwise, the policies are essentially the same, so you wouldn't need both renters insurance and homeowners insurance to cover your own property at the same residence.

Homeowners insurance has five core coverage types: dwelling, personal property, personal liability, additional living expenses and medical payments. Renters insurance has all of those features except the first, making it akin to a form of cheap home insurance for tenants.

What do renters and homeowners insurance coverages actually do?

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

Dwelling coverage: Only included with homeowners insurance

"Dwelling" refers to the structure of a home, 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 condo, you'll need either home insurance or condo insurance, respectively, to protect you against the financial cost of these events. Renters insurance policies do not include dwelling coverage, as tenants are not responsible for damage to the building that is out of their control.

Most homeowners insurance policies cover a standard set of common perils for your dwelling. Wind and hail are among the most common perils afflicting homeowners, while fire and lightning are among the most expensive.

Whether all these perils are covered will depend on the specific homeowners insurance policy. HO-3 policies, the most common type sold by insurance companies, will generally cover all of these perils, but a more limited policy, such as an HO-1, will cover fewer.

However, there are some specific perils that are almost always excluded from home insurance dwelling coverage, most notably floods and earthquakes. If you have what's called an open-peril policy, these perils will have to be specifically named as exclusions. If you have a named-peril policy, all perils that are not explicitly cited as being covered will be excluded from dwelling coverage.

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 and operate identically for each policy.

Personal property coverage: Both homeowners and renters insurance cover policyholders for damage or theft of their personal property, which can be anything from your clothes to your furniture and television. When you buy homeowners insurance, personal property coverage may be set as a percentage of your dwelling coverage by default — such as 50% — but can generally be adjusted before your purchase.

When you buy renters insurance, selecting your personal property coverage is the most important part of the process, as it is the main coverage feature and will be the biggest driver of the price of your policy.

Like dwelling coverage, personal property coverage does not cover all perils. Many of the same common exclusions from dwelling coverage, like floods and earthquakes, will have the same treatment under this feature. Both homeowners and tenants should also be aware that certain high-value items may have a coverage sublimit and will thus be covered differently from more common items.

Personal liability coverage: Homeowners and renters policies will both include liability coverage, protecting them from the legal exposure of bodily injury or property damage caused to others. For example, if someone sues you for accidentally spilling hot coffee on their lap, you'll be covered for the legal costs of defending yourself and the damages resulting from legal proceedings. Both homeowners and renters insurance policies default to $100,000 in personal liability coverage, though coverage limits can usually be raised for a minimal cost.

Additional living expenses (ALE) coverage: Also referred to as loss of use coverage, ALE protects you against the financial hit of living outside of your own home or your rental home. Both homeowners and renters insurance policies will cover you for abnormal living expenses if a covered peril renders your living space uninhabitable. For example, ALE will cover the costs of living in a hotel if your apartment is being cleaned after smoke damage. ALE will cover you up to either a set dollar limit or a certain period of time, such as three months.

Medical payments coverage: Distinct from personal liability coverage, medical payments coverage is on a no-fault basis, meaning legal liability does not have to be established. Both homeowners and renters insurance will cover a limited amount of medical bills for someone injured in your home or rental home. Coverage is usually set around $2,000.

What is the cost of homeowners insurance vs. renters insurance?

Renters insurance is much cheaper than homeowners insurance. This is because home policies cover everything renters insurance does, plus the cost of repairing or replacing a home structure. The average annual cost of homeowners insurance is $1,083 nationwide, while the average annual cost of a renters insurance policy is $187.

Why is homeowners insurance more expensive than renters insurance?

Simply put, homeowners insurance is more expensive than renters insurance because it covers more property, property that is more vulnerable to perils and property of higher value. Specifically, only homeowners insurance covers the structure of a home. The dwelling is much more susceptible to perils than the personal belongings protected inside the home and, in most cases, costs much more to rebuild than personal property would cost to replace.

The average cost to build a single-family home is more than $296,000, according to the National Association of Home Builders, while the average renter's possessions are worth about $30,000, says Allstate. Consequently, the destruction of an average home in a covered event, also known as a total loss, is much more costly than the total loss of the average person's personal belongings. Further, while renters insurance only covers your belongings, homeowners insurance covers both your home and belongings.

When an insurance company is setting its policy premiums, its calculation is based on how much money it expects to pay out in claims to its entire customer base. Given that companies expect to pay much higher claims for homeowners than tenants, homeowners insurance policies cost much more than renters insurance policies on average.

Shopping for homeowners and renters insurance

Whether you're shopping for homeowners or renters insurance, you'll need to know the value of what you own to ensure you buy a policy that fully covers you. Property coverage levels are the main factor affecting the cost of your insurance policy, and selecting appropriate dwelling coverage and personal property coverage levels is an important step toward getting 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 will ensure you're covered for a total loss. When selecting this number, it's important to understand the distinction between market value and replacement cost.

Market value is the selling price of your home, but this number includes the value of the land on which the home sits and other sales costs. Replacement cost is the estimated price of building a new home of equivalent quality to your old home. There are a variety of ways to estimate your home replacement cost, and shoppers should do their best to get an accurate calculation.

Personal property coverage levels should be sufficient to cover the value of what you own, protecting you in the event of a total loss. The best way to figure out this number is to make a personal inventory of the value of your possessions, estimating their total worth. Shoppers who are less risk averse may opt for coverage limits lower than the value of what they own, as long as they understand they will only be covered for damage or theft up to the personal property coverage limit they selected.

Renters insurance vs. landlord insurance: Are they the same?

Landlord insurance, also called rental property insurance, is not the same as either renters insurance or homeowners insurance. A home insurance policy does not cover the risks posed by renters, so a landlord policy is needed to cover dwelling damage, a limited amount of property damage and the legal liability exposure related to being a property owner.

Since landlords own their dwellings, they — not their tenants — are responsible for unexpected damage to their building. But tenants are responsible for damage to their own belongings. Given this dynamic, landlords who regularly rent out their property must purchase a distinct landlord insurance policy.

A landlord policy covers damage to the dwelling but will only cover personal property owned by the landlord that is used to service the apartment, such as a lawn mower or snowblower. Tenants should buy a renters insurance policy to cover their own possessions.