Comprehensive Guide to Renters Insurance

Renters insurance protects your personal property from theft, loss, and damage while you are renting an apartment or house. Renters insurance also provides personal liability protection in case someone is injured in your home. This guide offers everything you need to know about renters insurance, including how it works, what it covers, how to buy it, and what it costs.

What Is Renters Insurance?

For those with a mortgage loan, homeowners insurance is required by mortgage lenders to protect the property, possessions, and against financial losses due to injury incurred by visitors. However, homeowners insurance doesn't cover the renters of a home. Instead, tenants need to buy renters insurance, which is a form of property insurance that covers losses to personal property and protects the insured from liability claims.

The coverage includes injuries that occur in your rental that are not due to a structural problem. Injuries due to structural problems are your landlord’s responsibility. Renters insurance protects anything from a studio apartment to an entire house or mobile home.

Even if you’re just starting out or living in a short-term rental, getting a renters insurance policy can be a safe bet since it's relatively inexpensive and easy to obtain. You may not think you own anything of great value, but you probably own more than you could comfortably afford to replace following a burglary or fire.

In addition, no matter how careful you may be with your own apartment, you can’t control your neighbors. They can leave your security gates open, buzz ill-intentioned strangers into your building, or fall asleep with a cigarette in hand and start a fire.

While your landlord’s property insurance may cover the building itself, it will not cover the contents of your apartment, nor will it cover your costs if you are sued by someone who had an accident within your apartment or rented space.

What Renters Insurance Covers

Renters insurance has three basic coverage components: personal possessions, liability, and additional living expenses.

Personal Possessions

This coverage is for the contents of your rented dwelling. Typically, named perils include fire, theft, vandalism, plumbing and electrical malfunctions, certain weather-related damage, and other named hazards. More specifically, a standard HO-4 policy, as it's called, is for renters and covers losses to personal property from events that include:

• Hail
• Explosions
• Riots
• Damage caused by an aircraft or vehicle
• Vandalism
• Volcanoes

However, floods and earthquakes are not covered and require separate insurance policies.

Liability

Liability coverage protects you up to a certain amount in the event that you get sued for an injury or other damages incurred at your home by other people. It also pays for damage that you, your family, or your pets cause to others. It pays any court judgments and legal expenses up to the policy limit, which usually starts at $100,000 and can go up to $300,000. For coverage higher than that, you need to buy an umbrella policy.

Additional Living Expenses

This coverage means that if your unit becomes uninhabitable due to one of the covered perils, you’ll be provided with some money to pay for temporary housing. Hotel bills, restaurant meals, temporary rentals, and other expenses incurred while your dwelling is being rehabbed are all included.

What Doesn’t Renters Insurance Cover?

You should be aware that there are many things that most policies do not automatically cover, including backup of sewage into your residence and earthquakes, floods, and other “acts of God." These things can be covered for an additional premium if you feel you are at significant risk.

Also, if you have any unusually expensive or valuable items, such as high-end electronic equipment, fine jewelry, musical instruments, or an important collection of art and antiques, you may need to purchase floater insurance in the form of a rider to cover these items. In addition, a separate rider might be needed to cover wind damage in certain areas from hurricanes.

Renters insurance policies also do not cover losses caused by the tenant’s own negligence or intentional acts.

How to Get Renters Insurance

Assess Your Insurance Needs

When you apply for renters insurance, it's a good idea to photograph or make a video recording of everything you own. For expensive items, make sure to write down any serial numbers that could help verify your claim.

You can even take it a step further and enter the items into a spreadsheet along with an estimate of each item’s value. Although these steps take some extra effort, they are worth it for two reasons.

1. You probably think that the total value of the items you own is less than it actually is, which puts you at risk of under-insuring yourself. When you sit down and assess the actual value of each item you own individually, you will get a more accurate picture of what your belongings are worth. Perhaps you have around 50 Blu-ray DVDs. That may not seem like much to you, but at $20 a piece, you have a collection worth $1,000 that you won’t want to pay to replace in case of fire.
2. While your insurance company probably won’t want the inventory or the photographs when you take out the policy, your documentation will be indispensable if you ever need to file a claim because you will be better able to prove the value of your possessions. Make sure to keep copies of your inventory outside of your apartment, such as in a bank safe deposit box, with a trusted friend or relative, or emailed to yourself as an attachment so that all your supporting documents won’t get destroyed along with your belongings.

Choose an Insurance Company

Once you’ve figured out how much insurance you need, you'll be ready to locate insurance companies that offer renters insurance policies in your area. To find a company, you can simply do an internet search for renters insurance and your state.

Another approach would be to check with family and friends for recommendations and rates. Tell your insurance rep how you found them and if you have any other existing policies with them, because you can often get family rates or package deals (e.g. if you purchased both renters and car insurance together). Once you’ve located potential insurers, research the companies’ ratings with a company such as AM Best, which rates insurance companies’ ability to pay you when you make a claim.

Start the Application

After investigating your options, it’s time to start the application process. If several companies checked out financially, there’s no reason not to apply to all of them to see which one can offer the best combination of low rates and solid coverage.

Some companies may allow you to complete the entire process online. Others may want to speak to you on the phone or send you some paperwork to fill out. In most situations, it shouldn’t be necessary to meet with a representative in person.

The application is relatively straightforward. The only questions that might trip you up are related to the type of construction of your dwelling, the year it was built, and the type of roof material used. For some properties, you can actually find this information on Zillow; if not, you can get it from your landlord.

Choose Your Coverage Type

The two types of coverage available to renters are actual cash value and replacement cost. 

Actual cash value coverage pays what the property was worth at the time damage or loss occurred, meaning it discounts the claim payout due to age or wear and tear. As a result, you might not receive enough money to buy a new item, which is why actual cash value is the least costly type of renters insurance. 

Replacement cost pays the full amount of replacing the items or property with new ones and is about 10% more expensive than actual cash value coverage.

Unless you’re on the tightest of budgets, it’s wiser to opt for replacement cost coverage. It ensures that if your couch is destroyed in a fire, you'll receive enough money to buy a new one. If you have actual cash value coverage, you might get paid far less, which might not be enough to buy a new sofa since the coverage pays you based on what your old sofa was worth due to depreciation.

While replacement cost coverage tends to be slightly more expensive, the difference in premium is usually negligible when weighed against the huge increase in coverage received.

Choose Your Deductible

You’ll also want to decide which deductible best fits your financial situation. A deductible is the portion you need to pay out of pocket when you file a claim.

As with all types of insurance, the lower your deductible, the higher the monthly premiums, because with a low deductible, the insurance company will need to pay more money in the event of a claim.

Deductibles can range from $500 to as much as $2,000. If you raise it from $500 to $1,000, you could get as much as a 25% reduction in your premium. Consider how much you can afford to spend to replace your belongings in the event of a major loss, then insure yourself for the difference. Your deductible can be low to start, and you can always increase it later as needed.

Pay for Your Policy

Rates vary from state to state and company to company, but renters insurance averages between $15 and $30 per month. Of course, your rate can depend on the size of the unit, the number of possessions, and the size of your deductible.

Renters insurance often discounts for measures you take to reduce the risk to the insurer. These can include fire or burglar alarm systems, fire extinguishers, sprinkler systems, and even deadbolt locks on outside doors. As mentioned above, you might also get an additional break if you are already a policyholder with a particular company.

Insurance tends to be cheaper when you pay an entire year’s premium at once instead of paying in installments. If you decide to pay monthly, be aware that some companies may require an automatic monthly withdrawal from your checking account.

Once you receive your new policy, review it to determine the coverage, including any nonstandard additional coverage if purchased. Also, double-check that your deductible and premium amounts are correct.

Frequently Asked Questions (FAQs)

The Bottom Line

"What is renters insurance?" is a fair question, but a better question might be, "Why should I have renters insurance?" The answer: It keeps accidents and annoyances from becoming bank account and budget killers. Remember that your landlord’s insurance protects their building, but it does not cover your stuff—ever. Only you can protect yourself and your possessions.