At first glance the difference between homeowners and renters insurance is obvious. One is for folks who own their homes; the other for those who rent.
But that’s the main difference, right?
For the most part, yes. But it’s also important to make a vital distinction.
In terms of homeowners, the first insurable factor is rebuilding the home. Accordingly, carriers will arrive at rates based on two factors.
Renters insurance, on the other hand, exists mainly to cover and to replace your belongings. This clearly explains why homeowners insurance is much more expensive: with renters, you are not insuring the building.
This distinction also helps illustrate why homeowners insurance is mandatory and renters is not. The loss of a home can affect the entire community; there are costs of rebuilding, loss of collective property value, etc. An empty lot doesn’t help anyone.
In this regard, the mandatory-ness of homeowners insurance is not unlike that of liability auto insurance. It’s intuitive to think of these policies as ours, for us -- but in reality they are also protection for our neighbors and with those with whom we share the road.
People looking for homeowners insurance do have some options; mainly, if the homeowner doesn’t want to pay for insurance each month, the amount can be rolled into the mortgage. In other words, the mortgage lender can pay the insurance for you, but that of course will make the terms of the mortgage loan much less favorable.