While landlords carry a significant amount of responsibility for the homes they rent out, it’s important for renters to understand their options for coverage.
This issue can seem harder for people entering a rent-to-own agreement to understand, so, before deciding to proceed, you should make sure you understand the details of what this type of agreement means. That will help you make informed decisions about your coverage needs as you move forward.
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How Do Rent-to-Own Agreements Work?
When you rent-to-own, you are signing a contract between you and your landlord that allows you to purchase the home after an agreed-upon period of time. During that period, you pay rent to the homeowner. Part of that money is saved as a “lease fee” that goes toward your potential future purchase of the property.
As the “lease fee” accumulates, the money is kept in a designated account by the landlord on behalf of the tenant. If you’ve entered into this kind of agreement and choose to later purchase the property, that money will go towards the money you owe to take ownership of the house.
While there are some obligations that you will have once you are in this agreement, such as needing to make repairs to the property at your own cost, your landlord still has obligations as the actual homeowner that they need to fulfill.
Who Is Responsible: You or Your Landlord?
While you might always have the intention of owning the home by the end of this arrangement, you are not legally the owner during this period of time. Often, people will change their minds about purchasing the house while in a rent-to-own agreement, which means that the landlord gets to keep all of the lease fees that have built up during the contract.
For that reason, since the funds were never actually used to purchase the property, the home is in the landlord’s possession, so it is the landlord’s full responsibility to carry homeowners insurance to provide liability and structural coverage for their property.
While the home needs to be financially protected in the event of damage, even though there is a contract facilitating a future transfer of the property from the landlord to you, their policy on the house generally doesn’t cover your belongings. That’s where renters insurance comes in.
Do You Need Renters Insurance?
While you may have thought that being in a rent-to-own agreement would put you in a different group for insurance purposes, when it comes to personal property coverage, you are treated as any other renter in an insurance company’s eyes.
One of the key questions you should ask before entering a rent-to-own agreement is what type and amount of homeowners insurance coverage your future landlord has for the property. When it comes to any type of home insurance, the most important thing you want to do is ensure that you have the right amount of coverage to protect you in case something goes wrong.
While the landlord is responsible for having a homeowners policy on the house, the details of that policy might not meet your needs, and you need to know how to determine what kind of coverage you should get.
How Do You Choose A Policy?
Personal property coverage can vary between different renters insurance policies. As with any other purchase of home insurance, you should know what coverage you need and find a policy that satisfies those requirements. This way, you won’t be left without protection you end up needing in the event of damage to your rental.
Here’s what renters insurance covers in the event of damage by fire, vandalism, windstorms or lightning, as well as loss by theft:
Personal property insurance will have set limits on how much monetary coverage you will get, depending, of course, on the policy you choose when shopping for renters insurance. What you might not realize, however, is that there are often specific limits per category of property.
Additionally, renters insurance can extend beyond the walls of your home to included belongings kept in vehicles registered under your name and insured address. Also, renters insurance generally includes liability coverage similar to what your landlord would have for themselves under their homeowners policy.
When shopping for your policy, make sure to thoroughly look through all your options, because there are often ways you can save if you have other insurance policies you already purchase. Typically, insurance companies can offer bundles combining renters insurance with auto, health, life, and jewelry and valuable items insurance policies you may already use.
As with any other policy, make sure that you fully understand all of the coverage that you get before signing on with an insurer. Just like home insurance, you might still need to purchase additional coverage in the form of umbrella insurance or riders, depending on your individual situation.
Since many landlords want you to have renters insurance before entering into a rent-to-own agreement with you, it’s something you should explore before making up your mind to proceed.