Regardless of whether you rent or own, it's always a good idea to have insurance on your home. Most homeowners don't have a choice since their mortgage lender will require that they maintain a homeowner's policy.

What a lot of people don't appreciate, though, is that it is also a good idea if you rent to have a renter's policy. Condo/townhome owners also may wish to look into additional coverage, even though their Homeowner's Association provides some coverage, because that coverage does not include personal items inside the building.

What do policies cover?

An insurance policy will indemnify you for losses, or guarantee to cover your losses, covered under the policy.

A homeowner's policy should cover:

  • Losses to real property due to fire, lightning, vandalism, windstorms, freezing, and more
  • Personal items damaged or destroyed in the home by theft, burglary or other covered risks
  • Personal items lost or stolen outside the home, such as items stolen from your car
  • Personal liability coverage for bodily injury in case a person is injured on the property. 

A renter's policy covers many of the same things. However, there may be limitations on the real property since the landlord should be covered for the property itself.

Will my insurance company hire a lawyer for me?

Insurance companies are obligated to hire a lawyer for you at their expense to defend you if you are sued in a potentially covered case. This is called a duty to defend.

What do policies exclude?

Every policy is different. However, typical exclusions include: liability based on acts committed intentionally or on purpose, losses covered under other policies (for instance, auto insurance covers auto accidents, not homes), sexual misconduct, earthquakes, acts of war and nuclear hazards.

You may be able to add coverage for special items, which may be worth it in the long run.

How Much Liability Coverage Do I Need?

If someone is seriously injured on property that you rent or own, you could be sued for hundreds of thousands of dollars, so your policy's limits of liability for personal injury are a key consideration. This may never happen to you, but if it does, you'll want to be covered.

One important factor in deciding how much insurance to get is your net worth. If you are at risk for being sued, you may want more coverage. Ask your insurance agent for a recommendation.

How much Property Coverage Do I Need?

Most banks and other lenders will require you to purchase property coverage for at least 80 percent of the market value of your home.

But 80 percent insurance may not cover the costs to rebuild if your home is completely destroyed in a fire or natural disaster.

The cost of rebuilding, or replacement value, can be higher than the market value (what it's worth if you sell it) of your home. This is especially true if you have an older home, or a home with unusual features such as stained or leaded glass or unique architectural detailing.

You can purchase homeowner's insurance with an inflation guard clause that increases the amount of insurance in line with increases in local construction costs, or by a given percentage as the inflation rate increases.

Insuring Personal Possessions

Standard homeowner policies limit coverage on certain types of personal property to specific dollar amounts and typically insure personal property items up to a certain percentage of policy limits. For example, if your house is insured for $300,000, personal possessions may be covered at only 50%, or $150,000.

If you have expensive furniture, jewelry or collections, you may want to add a separate schedule or list on your insurance for specific items. That way, you know they're covered for the actual amount it would cost to replace them.

It's a good idea to get appraisals and take photos of your belongings so that you can prove ownership if you have to make a claim.

Making A Claim After A Loss

Paying a bit more for home insurance to get the coverage you need is a smart investment and can help you sleep better at night, but also don't overpay for insurance you may not need.

Be sure to contact your insurance company and attorney if you find yourself in need of making a claim arising from a legal dispute.

Questions for Your Attorney

  • What does my condominimum or townhome association's master policy cover?
  • How long do I have to make a claim on my insurance?
  • What if my insurance claim has been denied? Do I have any further options?