Basically, there are three main types of insurance that cover your home and your personal property - homeowners insurance, renter's insurance, and rental property insurance. The key question here is whether or not you own the home you're living in.
Homeowners insurance is what you need when you own your home and you're living in it. Of the three types, homeowner’s insurance covers the most. Because of this, it is a bit more complex, costs more than the other two, and requires you to provide the insurance company with the most information. If you have a mortgage on the house your mortgage company will probably require you to have homeowner’s insurance. When you go to apply for home owners insurance you’ll answer questions about the house, like location, year built, etc.
A standard policy will cover damage and losses to the house itself, and your belongings (except vehicles). It also helps protect you from liability claims, such as personal injuries or pet-related incidents. It usually also covers other structures on the property like a shed or detached garage up to a specified amount. It’s also really important to know what’s not included in your policy, like flood or earthquake insurance. You usually need to separate policies for these. Ask questions and read the policy details. Ideally, your equals its replacement cost, that is what it would cost to rebuild - not your home’s purchase price. Your insurance agent should be able calculate the replacement cost for you.
You’ll also need to have an idea of what your personal belongings are worth. Take a good inventory. Going through your home with a smart phone and taking pictures of everything is a great way to start. Coverage applies to everything in your home beside the house itself, like appliances, clothes, furniture, electronics, and even the food in your fridge. It kicks in if your belongings are destroyed, stolen, or vandalized. More expensive items like jewelry or a special collection, may need added insurance.
If you rent an apartment or house or live in in the barracks or military housing, you need is renter's insurance. This covers all your personal belongings, as well as provide some liability coverage. It does not cover the building itself. That's the responsibility of the landlord. Renters insurance is the cheapest averaging less than $200 a year. It's also the simplest to get. The insurance company will want to know your address, and what your stuff is worth. If you have some more expensive items like jewelry or a special collection, you may need added insurance. It's very important to remember that the landlord's insurance will not cover your personal belongings. That's your responsibility.
Third type, rental property insurance, will cover a home you own and rent out to somebone else. It covers just the building itself and NOT the personal belongings of the tenants or renter. It also provides you the landlord, but not the renter, with some liability protection. However, as a landlord you should consider getting additional, sperate liability coverage, like an Umbrella Policy for extra protection from lawsuits. Rental property insurance often also includes coverage for lost rent if the house is partially destroyed and is not habitable.
I’ve covered some basics today and hope this clears things up a bit. There's a lot more to these kinds of insurance. Never assume you're covered for something. Read the policies carefully, ask questions, and discuss your specific needs with your insurance agent.
If you have any comments or would like your question answered on a future podcast, drop me a line. You can find my contact information at moneypilotadvisor.com.
