The Difference Between Home and Renters Insurance

As much as this seems like a fairly self-explanatory question on the surface, it gets a little more complex when you start to dig a bit deeper. Each type of insurance has its own set of variables that must be taken into consideration, many of which overlap when you compare the two.

Let's dive in and examine what those are.

The Basics

The fundamental difference between home and renters insurance is that the former covers a stand-alone home and the various aspects of the property it rests on, while the latter exists purely to insure belongings that reside within a rented dwelling. Responsibility for anything that happens to the actual living space in a rental situation falls on the shoulders of the landlord.

Are They Mandatory?

Neither home or renters insurance is fully mandatory. However, there are situations where it will in fact be a precondition for living in a certain space.

That's because it will often be impossible to obtain access to property without agreeing to purchase some form of insurance for it. Mortgage lenders can demand that a borrower have home insurance. Landlords can require their tenants to purchase renters insurance upon agreeing to a lease (although they can't alter the conditions of an existing lease). So unless you have the funds to independently finance a mortgage or an indifferent landlord, you may be compelled to sign up for one of the two forms of insurances.

Do They Include Condos?

For both home and renters insurance, the answer is a firm no.

There are aspects of condo insurance that are recognizable in those other policies. Like a home, condos are fully purchased spaces and belong to the resident(s); and like apartments, they are part of a greater structure that has its own type of insurance. Condo insurance is a hybrid sort of product and thus cannot be classified as either home or renters insurance.

Which Costs More?

Insurance costs are typically proportional to the level of risk and value of the potential claims, which, in this case, means that home insurance is by far the greater expense.

Remember, a renter only needs to insure his or her own things. A homeowner is insuring—to varying degrees—a home, the property it rests on, secondary buildings it may contain and his or her possessions. Unless a renter has a priceless heirloom or diamond collection hanging around the apartment, chances are that home damages will cost more to replace or fix.

Renters insurance often costs something in the area of $15 dollars per month. Homeowners insurance is usually in the $75-$100 monthly range.

How Much Reimbursement is Provided for Belongings?

It depends on how much the homeowner or renter is willing to lay down beforehand.

For both types of insurance, policyholders typically have a choice between signing up for either actual cash value protection or replacement cost value. Replacement cost value is the more expensive one, as it will actually replace possessions entirely at their current market value. Actual cash value factors in depreciation, which means that it detracts from the payout based on how long you've had an item for. Usually an actual cash value policy will be the default, and it is up to the policyholder to decide if he or she wants to upgrade.

So in this case there's no difference between renting and owning. The choice is the same.   

Is Liability Included?

Liability refers to a policyholder's level of responsibility when visitors get hurt or cause damage in their living space. Most standard homeowner policies will include liability up to a certain degree (typically in the ballpark of $100,000). Same goes for renters insurance.

What do They Exclude?

Both renters and homeowner’s policies draw the line at many of the same situations. A standard policy for either one will likely exclude coverage for floods, earthquakes, power failure, war, nuclear hazard, and neglect or intentional acts. Sometimes there are dwelling-specific differences. For example, renters insurance won't cover anything that arises from behaviour that interferes with a building code.

A big thing to pay attention to is whether or not your policy has an innocent co-insureds clause. This means that in the event that a co-policyholder willfully damaged the home or belongings within it, an innocent policyholder would not be held responsible and could claim at least half of the damage. Innocent co-insureds automatically have this protection in several provinces across Canada, but it is not mandatory in all provinces.