Homeowners and Renters Insurance

Homeowners insurance is a specific category of coverage that protects property owners financially in the event that their property sustains losses. Losses may result from damage to the residence, furnishings, and other assets in the home. Damage may result from exposure to fire and smoke, wind, or hail.

Renters insurance, on the other hand, is a special insurance product that protects the renter financially if losses occur to the renter’s belongings (contents) as the result of exposure to similar perils. Renters insurance policies (also known as tenants’ policies) do not include protection for the building structure. That is the responsibility of the landlord or property owner.

If you are facing a dispute with your insurance company over a home insurance or renters insurance claim, you may want to consult with a lawyer familiar with insurance law to figure out your next best steps forward.

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How Insurance Companies Determine Homeowners and Renters Insurance Rates

How much is renters insurance? Insurance companies determine the premium rate for homeowners insurance coverage on a case-by-case basis. The following attributes of the particular property impact the premium determination:

• Roof. Older roofs cannot stand up to high winds or hail damage.
• The age of the building. Old homes cost most to repair than newer ones, especially when it comes to replacing or repairing plaster walls, wood floors, and custom molding. Roofing materials can affect premiums in two ways. Newer materials may be more resistant to damage and so the underwriter may lower the premium. Other types of material may be more expensive when it comes to repairs or replacement, so the underwriter may increase the premium. Some insurance companies offer a discount on the premium for installing a new roof.
• Bringing the building up to code. Many insurance companies do not consider bringing a building up to code a covered expense following a claim. There are, however, amendatory endorsements that provide this coverage for an additional premium.
• Special Features. That beautiful swimming pool or luxurious hot tub may be great to melt away stress but insurance companies often increase premiums if the special features are more expensive to repair or replace in the event of damage. Special features may also increase premiums if they are attractive for liability claims from guests.
• Location, Location, Location. The geographic location of a property affects insurance premiums because of the risk of damages presented in that location from high winds or, in the case of California, damages from fires. The Insurance Information Institute reported that structure fires caused $12 billion in damages in 2019.
• High Crime Rates.  Homes located in communities that suffer from high crime rates will feel the impact in the premium. Homeowners can add safety features to their property to lower those premiums. Examples of safety precautions include deadbolt locks and home security alarm systems that feature monitoring for fires and burglaries.

Some insurance companies also reduce premiums when a homeowner updates plumbing or HVAC systems. Shop around with the best homeowners insurance companies to see which offers the better rates before you buy homeowners and renters insurance coverage.

Why Homeowners and Renters Insurance Quotes Increase

Insurance companies use new rates every year for coverage renewals so the premium may increase even though the insured had no claims and did not increase coverage.

Another characteristic that can cause your home insurance rates to increase is the consumer’s credit score. Credit-based insurance (CBI) scores first started in the industry more than 20 years ago, and they function similarly to mortgage scores except that each insurer has its own method of determining the credit scores for purposes of homeowner’s coverage.

The credit score rating system depends on the insurance carrier and the state where the buyer lives. Those two factors may not affect the premium at all or can double the premium.

The factors that impact a CBI score vary from insurance company to insurance company. Some common factors are:

• Buyer’s credit history
• Bank accounts and credit cards in good standing
• Late payments
• Credit usage
• Past-due accounts
• Low available credit
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  o many credit applications

Unlike the Fair Isaac Corporation (FICO) credit scores credit card and mortgage companies use, the CBI score is not discoverable by consumers. And, while the CBI may affect the premium amount for an insurance policy, insurers very rarely decline to sell an insurance policy to a consumer because of bad scores.

Some states, like Maryland, California, and Massachusetts do not allow credit scores to impact homeowners and renters insurance rates.

It’s important to bear in mind that the amount and kind of outstanding balances have a deep impact on the CBI score. A consumer who owes a $200,000 mortgage is considered more positive than a consumer who has $200,000 in credit card debt, and a good CBI score can result in a 20% reduction in your home insurance rates.

The theory behind using credit scores to determine premiums is twofold:

• Homeowners with low credit scores tend to file claims more often and those claims tend to be in higher amounts.
• Consumers with poor credit history may not have the resources to properly maintain their home and are more likely to have a high tolerance for risk as exhibited by their handling of financial matters.

Following the foregoing logic, insurance companies often charge people with poor credit histories higher rates. Home or renters insurance rates for someone with a poor credit score may be as much as three times higher than for someone with excellent credit.

If a buyer needs to get cheap homeowners insurance, it pays to clean up the credit history.

How to Lower Homeowners and Renters Insurance Rates

Here are some steps consumers can take to lower homeowners insurance rates:

• Pay bills on time
• Pay credit card the full balance of credit card bills each month
• Stay below credit card limits
• Check credit services often and fix any discrepancies and errors
• Avoid opening up new lines of credit

This video explains why improving your credit score lowers insurance rates.

Increasing your deductible can also help you save money on monthly premiums. A deductible is the amount of money that the homeowner or renter has to pay before the insurance company pays on a covered loss.

The more the insured pays in a higher deductible, the less the insurance company has to pay under the policy. Therefore, the insurance company lowers the premium for consumers that opt for a higher deductible.

In a homeowners policy, the deductible applies to property damage to the home and the insured’s claim for damage to personal property. In a renters insurance policy, the deductible applies only to the damage to personal property. Deductibles do not apply to liability damages in either policy.

Typical deductibles in homeowners insurance and renters insurance policies are $500 and $1,000. Some carriers also permit insureds to elect a $250 deductible or lower.

What Homeowners and Renters Insurance Policies Cover

What does homeowners insurance cover? Home insurance covers most of the personal belongings in a home as well as the physical structure itself. Renters insurance, on the other hand, only covers a policyholder’s belongings.

However, both policies provide liability coverage to protect the homeowner or renter against claims made by a third party, including bodily injuries or property damage that occurred while on the owner’s property (or the renter’s unit). Liability benefits include legal costs as well as payments to the injured person.

Some policies also provide loss of use coverage for additional living expenses in case the homeowner or renter must temporarily move due to a loss event. The policies also often cover medical expense payments (no-fault coverage) for third parties injured on the property.

Warning: Not all homeowners and renters insurance policies contain the same benefits.

What you need to know about homeowner insurance policies is that not all policies cover the same perils. “Named peril” policies contain a listing of all the covered causes of damage, usually at the back of the policy terms. Those named perils are damages caused by:

• Fire, wind, hail, lightning, snow, ice, sleet
• Explosions, smoke damage, volcanic activity
• Riots, vandalism, theft
• Vehicles, aircraft
• Falling objects
• Steam heat/water heaters
• Freezing pipes, plumbing, and HVAC systems
• Short-circuit electrical appliances.

In contrast, “all peril” policies (also called open peril policies) cover all perils except those that are named in the policy exclusions section. Knowing the perils that your policy covers is critical knowledge that helps you to protect your belongings and dwelling.

Things Homeowners and Renters Insurance Policies Won’t Cover

Yes. The things the policies won’t cover are listed in the all-risk policy’s exclusions section. Common damages insurance companies won’t cover include:

• Injuries or property damage caused by intentional acts
• Perils listed as an exclusion in an all-perils policy
• Perils not listed as covered in a named-perils policy
• Damage due to vermin infestation (bed bugs, termites, rats, or bats)
• Floods, earthquakes, and other natural disasters (separate policies are available for purchase for these events)
• Pet damage unless the policy has a pet rider which pays after the homeowner/renter exhausts the security deposit
• Power failures
• Damage due to acts of war
• Damage from nuclear hazards
• Maintenance wear and tear
• Repairs required due to housing ordinances or changes in the law
• Home business liability coverage
• Water damage to contents due to weather events

Some belongings that are more expensive than others, like computers, musical instruments, jewelry, furs, and artwork, are categories that companies usually set out on separate riders to the renters or homeowners coverage.

Homeowners and renters insurance riders charge a separate premium and set limits for these items. The insurance policy may also charge a deductible that the owner must pay before the company pays one of these rider claims.

Homeowners and Renters Insurance Covers Pets

The liability coverage under a renters insurance policy may protect the renter from legal liability if their dog bites someone and causes injury. The coverage includes medical payments, legal fees, and settlement costs up to the stated coverage amount.  Medical payments differ from plan to plan, so it makes sense to ask about the limits provided in each plan.

Also, not all insurance carriers cover all pet breeds, so that’s another question to resolve before agreeing to the policy.

Homeowners and Renters Insurance Don’t Cover Floods

No. Water damage from floods or storms is not covered under either homeowners or renters policy.

Homeowners can buy flood insurance coverage separately, especially if the home or rental unit is in the area covered under the National Flood Insurance Program.

How Consumers Living in a Flood Zone Buy Flood Insurance

By its nature, flood insurance sells as a separate policy from the homeowners’ coverage because homeowners policies exclude flood damage. Consumers can buy flood insurance from the federal government or individual carriers.

Here are a few things to know about the federal government flood insurance program:

• Consumers cannot buy flood insurance directly from the federal government. They must buy it through the National Flood Insurance Program (NFIP).
• Coverage through NFIP begins 30 days after the application.
• Rates for flood insurance are set by NFIP. The rates are based on the value of the property, the year of construction, and the level of flood risk.
• NFIP rates may be lower for low-risk flood areas.
• NFIP automatically provides premium discounts ranging from 5%-45% for properties located in communities that meet the Community Rating System requirements. This rating system is based on the local officials taking steps to improve response to flood events.
• Flood policies do not include money for additional living expenses while temporarily flooded out of the home.
• NFIP coverage limits cannot exceed $250,000. This is important if the home’s value is $250,000 or more. In that case, the NFIP won’t pay for damaged content.
• When you file a claim for flood insurance, flood insurance carrier agents will handle the claim, not the federal government.

On the other hand, consumers don’t need to live in a high-risk flood zone to buy flood coverage. The premiums for flood coverage are high, so most people don’t buy it unless they live in a high-risk area for floods.

Here are a few points of interest regarding the private flood policies:

• Not all states have flood insurance carriers.
• Flood insurance premiums for policies bought from private insurance carriers may be higher or lower than NFIP premiums.
• Coverage limits may be higher than NFIP limits.
• Private flood insurers can refuse to renew coverage or even drop it mid-policy term. NFIP rates may be higher for consumers who previously used a private insurer.

Consumers who live in a high-risk area for flooding may find that the mortgage company requires that the buyer obtain flood insurance from the federal government’s National Flood Insurance Program in order to qualify for the loan.

How do renters and homeowners know if they live in a high-risk zone? To find out if your property is in a high-risk flood zone, visit the Federal Emergency Management Agency’s (FEMA) website.

FEMA separates properties into five risk-level zones based on the property’s elevation and its closeness to water. The five zones are:

• V Zone — need to buy flood insurance
• A Zone — need to buy flood insurance
• B Zone — flood insurance highly recommended
• C Zone — flood insurance encouraged
• X Zone — flood insurance encouraged

The website allows visitors to look up the property’s address to find out what zone it is in and whether or not flood insurance is required.

Renters Need Flood Insurance

Yes, if they live in a flood-risk area. The type of coverage is sometimes referred to as flood insurance contents coverage. Like homeowners flood coverage, renters flood coverage is a separate policy from basic renters insurance.

Renters flood insurance covers the following belongings for damage from floods:

• Clothing
• Electronic equipment
• Furniture
• Drapes and curtains
• Window air conditioners
• Microwaves
• Portable dishwashers
• Carpets not installed over unfinished floors
• Valuables like jewels and furs up to $2,500
• Washers/dryers
• Stand-alone freezers and the food inside (not refrigerators)

If the renter’s contents are in the basement of a flooded home, the only items covered by flood insurance are:

• Washers and dryers
• Food freezers and the food inside
• Portable window air conditioners

If you are unsure whether or not your renters insurance covers you in the event of a flood, check your policy closely and shop around for additional renters flood coverage to find the most affordable rates.

Why You Need Homeowners and Renters Insurance

In the US, the idea for insurance protection against fire affecting houses originated with Benjamin Franklin in 1752.  The first fire insurers refused to write coverage on risks they considered fire hazards just as insurance companies do today.

The underwriting standards used in the 18th century to assess risk formed the foundation of today’s building codes and zoning laws, but the 19th century witnessed tremendous growth in the insurance industry. Throughout the years, insurance companies added new coverages, such as auto policies, to meet consumer demands.

Before 1950, separate policies protected homeowners from the various perils that could impact a structure. The multi-peril format of homeowners policies protects against damages due to fire, wind, lightning, hail, theft, explosion, riot, vehicles, vandalism, and smoke. Do you renters insurance? If you want your belongings protected against those named perils, yes you do.

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day, without homeowners or renters insurance coverage, you could lose everything you own in a fire or natural disaster. While an insurance policy can’t replace memories, it can give you the financial protection you need to rebuild and replace the belongings you lose.

If you have any questions about insurance coverage, how to contact a home insurance agent, or how to deal with homeowners and renters insurance companies, use our free legal tool below to get in touch with local insurance law firms today.

Case Studies: Homeowners And Renters Insurance

Case Study 1: Sarah’s Home Protection

Sarah, a homeowner, experienced a devastating fire that caused extensive damage to her residence, furnishings, and personal belongings. Fortunately, Sarah had a comprehensive homeowners insurance policy in place. This case study highlights how Sarah’s insurance coverage played a crucial role in providing financial protection and helping her rebuild and replace her lost assets.

Case Study 2: Jason’s Renter’s Security

Jason, a renter, fell victim to a burglary that resulted in the loss of his valuable personal belongings. Thankfully, Jason had opted for renters insurance, which proved to be a wise decision. This case study showcases how Jason’s renter’s insurance policy offered the necessary coverage to compensate him for his stolen items, helping him recover from the unexpected loss.

Case Study 3: Resolving Insurance Disputes

Emma, a homeowner, who found herself in a dispute with her insurance company over a claim for property damage. Emma sought the guidance of an insurance lawyer who specialized in insurance law. The case study highlights the importance of legal expertise in helping policyholders navigate insurance disputes and protect their rights.