Buying versus renting a home and how it impacts insurance
Do you buy a home or rent? That’s an important decision, and both options have pros and cons.
Owning a home is a big step, so renting could be a good move for many reasons. There are many factors that come into play when deciding between the two, but your finances are a significant consideration. The cost of living and rental prices are also things to factor in to your final decision.
Another thing to consider is insurance coverage and what this means for either option. What makes the most sense for the stage of life you’re in? To help decide whether to rent or go for homeownership, we’ll present a few advantages and disadvantages of each. We’ll also give you some insights into how it impacts your insurance, so you can spend time deciding what works best for you, your finances and your future!
Buying a home
Deciding to become a homeowner can be both an exciting and scary milestone because there are so many moving parts throughout the entire process. Consider some of the perks:
- Instead of paying rent every month, the money you’re spending is going toward paying down your own mortgage for your investment, rather than someone else’s.
- You’ll have freedom to improve and maintain the property and you can make all the changes you want without asking a landlord for permission.
- Most homes increase in value so if you decide to sell your home someday, you can earn a profit.
- If your mortgage and other expenses are paid on time each month, owning a home provides stability and can improve your credit rating.
- You’ll have peace of mind never having to worry about a landlord kicking you out or increasing your monthly payments.
Of course, there are some downsides to owning a home and the potential risks associated:
- In addition to the down payment, buying a home in Canada has a lot of additional up-front costs, such as legal fees, including title search; land transfer tax; utilities transfer, moving costs, insurance as well as potential costs to do any repairs or renovations before moving in.
- Often, owning a home is more costly than renting one. Monthly costs, including taxes, water, heat, air conditioning and maintenance must be factored in – not to mention unexpected repairs like a new roof!
- Being a homeowner also means a lot of time-consuming and sometimes costly responsibilities – especially when it comes to yard work!
- As a homeowner, there’s a lack of control over the market and your home’s value. The value of a home may fluctuate although many cities and towns across Canada have seen a healthy increase in value over the years.
Renting a home
By renting a home, you are paying a landlord a regular fee to live at their property. The majority of rental properties also require a security deposit, to protect the landlord against any damages caused by the tenant.
When renting a property, a lease is usually signed. Like other contracts, this should outline whether utilities are included in the costs and more. Leases may last a year or longer, and usually you’ll need to put down the first and final month’s rent payments when it’s signed.
Here are some perks of renting a place:
- You have more freedom to move once a lease has ended, which is not only convenient but gives you insights on different communities you prefer to live in.
- Expenses are predictable.
- You’re only required to pay rent, rental insurance and in some cases additional utilities.
- It’s more convenient if you have a lower income or minimal savings.
- The property owner is responsible for all repairs and maintenance.
However, renting a home isn’t completely risk-free. Here are some things to consider:
- Without ownership of the property, you’re limited when it comes to cosmetic improvements.
- Lack of stability. Once your lease expires, your landlord may decide to increase your monthly rent. This may mean moving to a more affordable property.
- There are landlord and tenant laws, which may impact you if your landlord decides to evict you to sell the home or if there is an issue.
- Your rent payments don’t contribute to any kind of equity. That means there’s no long-term investment in a rental.
- Paying a mortgage on a home improves your creditworthiness, but you won’t see that same benefit from paying rent.
If you’re thinking of buying a home, you will need homeowner’s insurance. Homeowner’s insurance provides the proper protection and coverage for a multitude of losses and damages that could occur to your most significant investment.
Many homeowner’s insurance policies include comprehensive coverage for assets, liability, and structure, but it’s not guaranteed. And, while most policies cover the basics, depending on where you live, your licensed insurance broker may recommend some add-ons for extra protection.
Here are some things that are typically covered under a home insurance policy:
- Interior damage
- Exterior damage
- Loss or damage of personal assets
- Liability from an injury that arises while on the property
- Damage from wind, hail, fire, lightening, water and freezing
- Theft and non-theft property damage like vandalism
Tenant or renter’s insurance
If you decide to live in a rented house, tenant’s insurance is important. It helps protect occupants who do not own the property, but still want to protect their personal belongings stored in the home or on the property. Here are some other things to note about it:
- Renters should note that the property owner’s insurance policy does not coverthem or their belongings in the event they are damaged or destroyed.
- Tenant’s insurance policies will reimburse a renter for the replacement cost of items that are lost or damaged while on the property.
- Within the lease agreement, landlords may encourage potential tenants to obtain their own insurance. This absolves the landlord of any responsibility for lost, damaged or stolen items that belong to the renters.
- Tenant insurance only covers your stuff, so if you’re living with someone, they will need their own policy.
Contact an experienced insurance broker
Whether you rent or own a home, you should have insurance protection specific to your needs. Ultimately, the option that is best for you is dependent on your financial circumstances, housing and rental market trends and your lifestyle preferences.
Both buying or renting options have advantages and disadvantages. Either way, DPM Insurance Group’s brokers and CSRs will help you find the renters or homeowners insurance you need. Our goal is to offer peace of mind and provide you with the coverage you need.