Do you intend to enter into a rent-to-own agreement? Remember that it’s a specific home-buying situation where you will both rent and own a home. It goes beyond renting a house. This is an alternative path to homeownership that gives you an option to buy a rented property after a certain period of time.
Just because you’ve moved into a rental property right away doesn’t mean it’s your personal property. Although you’ll have a lease option while you are in the rent-to-own ‘limbo’, you will be capable of purchasing the home after a set amount of time.
Meanwhile, you should consider purchasing property insurance just in case. Be careful when choosing liability protection. Not every insurance coverage is created equal. If you’re not sure whether to buy renters or homeowners insurance, you’re in the right place.
Should You Purchase Renters or Homeowners Insurance?
Homeowners insurance is more expensive than renters insurance. That’s because every insurance company tends to cover more when it comes to homeowners. While renter’s policies are aimed at covering the property damages (liability coverage) and items inside, homeowners policy covers the whole unit.
Homeowners Insurance vs Renters Insurance
Rent to own consists of 2 phases. First, you’ll rent the home or property. Keep in mind that you will not be the property owner as long as you rent it out. Once you have secured financing and saved for a down payment, you’ll be able to purchase the home.
So if you are a tenant-buyer in a rent-to-own deal, you should consider buying renters insurance in the first phase. You will want to make the switch from renters to homeowners insurance when you purchase the rented property. That’s how it works in most rent-to-own deals regardless of the insurance cover.
Why Do You Need Homeowners Insurance?
It doesn’t make sense to buy insurance if it covers things you are not responsible for. That said, it’s important to determine your responsibility before signing a rent-to-own contract. The good thing about these agreements is that every part is negotiable.
Tenant-buyers usually take on responsibility for the property when the sellers pay off the mortgage and don’t need homeowners insurance anymore. This stipulation could be requested by the seller in the agreement. In this case, you will be responsible for any property damage that occurs while you’re renting it out.
Why Renters Insurance Is Worth It?
Renters insurance is often worth it because it supplements the homeowners insurance by covering anything damaged or stolen inside the property. Therefore, it’s a good idea to have renters insurance while in the limbo period between renting and owning the house.
The Bottom Line
Homeowners insurance covers the cost of the damage to the home caused by natural disasters like earthquakes, floods, and fires. On the other hand, renters insurance covers damaged property inside.
Unlike car insurance, neither homeowners nor renters insurance is legally required. While you can be in a rent-to-own deal without any insurance, you will be responsible for some damages that happen while you’re living in it.
Read the fine print and pay particular attention to cover losses before purchasing either to make sure you are covered for possible damages. Your policy should cover issues and damages that are highly possible in the area you plan to buy a home.
