How Do You Insure a Rent-to-Own Property?

Two people signing their house rental contract at the bottom of a table with some keys on top and a miniature house - InsureOne, cheap renters insurance

What if you could finally give your dream home the protection it deserves? 

When you simply lease a home, it is easy enough to get a renters policy. However, if you are renting to own, it is not always clear how to insure a rent-to-own house. 

Do you need renters insurance, homeowners insurance, or something else altogether? What are the pros and cons of this special purchase agreement? Keep reading to discover the answers you need. 

What Is a Rent-to-Own Home? 

A rent-to-own home is one that you pay money for while having the option to purchase later. In general, some or even all the money you pay for rent each month can eventually be used toward the purchase of the home. 

As with most real estate agreements, the specifics of this agreement depend on the contract you sign. In some cases, you may have the option to buy the home; in other cases, you may be required to buy the home after a certain point in time. Either way, this special purchase agreement is a great way for those who might otherwise have difficulty buying property to become homeowners. 

Who Should Consider Rent-to-Own Homes? 

For the most part, rent-to-own agreements are great for anyone who wishes to buy a house but may not be easily able to do so. For example, someone with poor credit may appreciate this arrangement because it gives them time to improve their credit score. There is also peace of mind that comes from knowing that nobody else can snag this dream house while the buyer works on their credit. 

Mostly, this arrangement is great for someone who does not have enough spare cash lying around for a traditional down payment. With such an agreement, it is possible to build up a down payment and more while doing something you would be doing anyway — making rental payments each month. 

Understanding Rent-to-Own Agreements 

If you are interested in a rent-to-own home, you need to carefully consider what kind of agreement you would prefer. Your two primary options are lease-option and lease-purchase. 

Simply put, the lease option means that once the lease is over, you can either purchase the home or walk away from the property altogether. Conversely, a lease-purchase agreement means you are obligated to buy the property when the lease expires. As always, pay careful attention to the contract before signing anything. 

Pros and Cons of Rent-to-Own Agreements 

Still on the fence about rent-to-own? No matter how you do it, buying a house is a big deal and should always be carefully considered. 

Below, you will find more info about the pros and cons of leasing to own. By learning more about the benefits and drawbacks, you can better decide whether this agreement is right for you. 

Understanding the Benefits 

The main benefit of leasing to own is that it gives you more time to do things like improve your credit score and save up for a down payment. Since you would otherwise be renting a home anyway, this allows you to build equity with your payments while getting the rest of your finances in order. 

Additionally, this agreement allows you to lock your dream home in at a price with which you are comfortable. Plus, when the time comes to turn the rental into a proper mortgage, you will not have to worry about moving your possessions and relocating your family. 

Man and woman unpacking boxes with their belongings, smiling, she holding the keys to their new rental home

Navigating the Drawbacks 

The downsides of rent-to-own include paying more than you otherwise would for a similar home. Depending on the contract you sign, you may also be responsible for various fees and out-of-pocket costs, including taxes, insurance, and maintenance costs. 

Otherwise, the primary downside of renting to own is that it does not automatically qualify you to buy the home. When the time comes, you will still need to qualify for a mortgage, which is not guaranteed to happen. 

The Role of Insurance in Rent-to-Own Properties 

Those with a rent-to-own agreement are often unsure how to insure rent-to-own houses. For example, are you supposed to get a renters policy, homeowners insurance, or something else entirely? 

The short answer is that you cannot get a homeowners policy until you have a mortgage on the property — until then, it is the responsibility of the landlord to purchase such coverage. However, it is advisable for you to get a renters policy to financially protect yourself and your possessions until you officially buy the home. The first step is to assess your belongings to know how much coverage you need. 

Identifying the Right Insurance Coverage 

As detailed above, you will need a renters policy if you want to protect your belongings. As with automobile coverage, you should get quotes from several different carriers so you can select the best policy. 

Beyond that, you need to find a carrier with great customer service. Its agents can help you figure out how much renters insurance you need. They can also ensure you get enough coverage for jewelry, electronics, or other expensive items that could be stolen. When you review burglary statistics, the need for such protection becomes apparent. 

Tips for Managing Insurance Throughout the Rent-to-Own Process 

Once you have selected a good carrier, be sure to regularly interact with them while you are renting-to-own. That does not mean making unnecessary claims. Instead, regularly reach out to local agents via email and phone for advice about your policy. 

In the short term, this ensures you select the best renters protection and get the most out of it. In the long term, this helps you decide whether you want to stick with this carrier for your homeowners coverage once you buy the house. 

Common Pitfalls to Avoid in Rent-to-Own Insurance 

The main pitfall to avoid with rent-to-own homes is assuming that your landlord’s coverage will take care of everything. Remember, their policy is designed to protect the property itself from damage. If you want to protect your personal belongings and also give yourself liability protection (always a good idea), you need to get your own renters insurance. 

Otherwise, the biggest pitfall of rent-to-own insurance is assuming that you have to stick with your carrier. Remember, not only can you always switch your renters policy at any time, but you can choose another carrier for your homeowners coverage as needed. 

Covering Your Rent-to-Own Property 

Deciding to use a rent-to-own agreement in order to one day become a home owner raises some questions about the type of insurance you need. While renting, you’ll need to get a renters insurance policy. After you become an owner and have a mortgage, you’ll need homeowners insurance. Luckily, InsureOne has the best of both worlds for you to choose from for your dream home? 

At InsureOne, we specialize in offering the most robust renters policy. From renters insurance to homeowners insurance and beyond, we are ready to provide you with a quick quote online. You can also pick up the phone and give us a call at 800-836-2240. Finally, feel free to find an InsureOne office near you