Transitioning from Renter to Homeowner
Congratulations if you are going from renting to purchasing a new home! The process is exciting and can be overwhelming with professionals coming at you at all angles with requirements and contracts filled with legal terms and jargon. When it comes to insurance requirements, below are some tips to help create understanding and simplify the process.
If you currently have renters insurance, you may understand what is covered under renters insurance and wonder about the difference between renters and homeowners insurance.
Renters Insurance Explained
The purpose of renters insurance is to cover the replacement of your belongings if stolen or damaged. As a renter, you are only responsible for insuring the contents in the home as well as covering your liability should you be found responsible for the damage to the home, while the owner of the home will insure the structure of the home if damaged or destroyed. If you are the cause for damage to the structure, then the liability portion of the rental insurance will help cover the repair costs. The claims are typically a much smaller dollar value than claims from a homeowner, so renters insurance is much more affordable and can be as minimal as $30 per month.
Homeowners Insurance Explained
Homeowners are required to take out an insurance policy when a mortgage is obtained. There are two main types of insurance for homeowners: Mortgage Insurance, and Homeowners Insurance. Mortgage insurance is to cover the lender if the homeowner is to default for any reason. Homeowners insurance is to cover the building, structures on the property, and the contents inside. Homeowners insurance is much more expensive than renters insurance because the largest insurable factor is the cost to re-build the home. An InsureLine Insurance Broker will evaluate the re-build value of the home, taking into account the year built, materials used, appliances included and the safety of the original building materials. The size of the home is naturally a factor because the larger the home, the more it will cost to re-build and the more valuables it can hold inside. If the actual value of the home is $200,000, but the re-build cost is estimated at $350,000, you will want your insurance policy to be based on the $350,000. The liability portion of homeowners insurance also covers you in the event that a visitor to the property gets hurt and you are found legally negligent.
If you are purchasing a condominium, the strata corporation covers insuring the structure; but you will need to insure your contents and liability (similar to renters insurance). Read the strata policy to clarify their coverage before you purchase insurance, as you may be liable to pay the deductible on that policy in the event of a claim; this could be anywhere in the range of $5,000 to $25,000, so you would want your homeowners policy to cover this amount.
Landlord Insurance Explained
Do you plan to rent out your new home either on a full-time or part-time basis? If so, you can obtain landlord insurance, which protects items used to service the property, damages resulting to the property through actions of the tenant, and liability if a renter was to get hurt and the landlord or property is found legally responsible.
Neither landlord nor homeowners insurance will typically protect personal items of the tenant. As a condition of the lease, the landlord could require the renter to purchase renters insurance. If you are renting the property full-time, you will want a landlords policy.