The Basics of Renters Insurance

Do I Need Renters Insurance?

If you are renting a house or apartment and have possessions, then you most likely will need renters insurance. 

Renters frequently make two mistakes regarding renters insurance. They tend to assume that:

1. Their landlord’s insurance will cover them if something happens. 
2. Their stuff isn’t worth insuring.

However, both of these assumptions are incorrect.

Your landlord does have property insurance, but that coverage extends to the physical structure of the building. If a strong storm knocks a tree over and it damages the roof and siding of the apartment building, your landlord’s insurance is designed to cover those repairs. If that same storm causes an electrical surge that damages your laptop and TV, your landlord’s insurance does not cover those items.

This brings us to the second assumption: that your stuff isn’t worth insuring. Even if you have an apartment full of hand-me-downs and thrift-store finds, it’s important to insure your things. Think of it this way: If you had to replace everything, including your clothes, furniture, and kitchen equipment, how much would it cost?

Add it all up, and the number could surprise you. This is why renters insurance is important, even if your stuff is second-hand.

Additionally, your landlord might even require you to have renters insurance. Increasingly, landlords are requiring renters to provide proof of insurance coverage at lease signing. 

What Does Renters Insurance Cover?

A renters policy protects your belongings, and it also provides liability coverage in the event that someone is injured in your rental.

Personal Possessions

Renters insurance offers coverage for your personal possessions–essentially, this is all of your “stuff” that you bring with you to furnish your apartment, and your other belongings such as your clothes, furniture, and linens. These items are typically covered for named perils, such as theft, vandalism, or a severe weather event. For example, if your property is destroyed in a covered event such as a fire or tornado, you’ll be covered under a typical policy. 

Liability Coverage 

A renters policy also includes liability coverage, in case someone is injured while visiting you. For example, if a friend trips and falls in your apartment, breaking a wrist, your renters insurance policy would cover your friend’s treatment and medical costs. Liability coverage will usually have set dollar limits that are detailed in your renters policy. Typical limits can start at $100,000 of coverage and go up to $300,000. If you feel you need more liability coverage than is offered by your renters policy, talk to your agent about Umbrella Coverage. 

Loss of Use

Your renters insurance policy will also typically include a “loss of use” provision. If your apartment or rental home is damaged due to a covered peril and you have to find somewhere else to live, your policy would cover the additional living expenses that you incur. This can potentially include paying for temporary shelter at a hotel and meals while you are there; or, if you will be unable to return to your apartment for a while, it could cover the cost of a temporary rental. There are sometimes dollar limits set in a loss of use provision, such as a daily reimbursement limit you shouldn’t exceed. Make sure that you know what these limits are now–in an emergency situation, you probably won’t be thinking about searching for these details.

Who Does Renters Insurance Cover?

Unlike homeowners insurance, which typically covers everyone living under the same roof, renters insurance covers the individual. 

If you live alone, your renters insurance will cover all of your belongings. However, if you live with one or more roommates, each of you will need your own separate renters insurance policy.

This might not seem intuitive — doesn’t renters insurance cover the contents of an apartment? If so, why would there be a need for more than one roommate to have a renters insurance policy?

A simple way to think about this is to imagine two very different roommates. One roommate has contributed the living room furniture, which was given to her by her family. She likes to find her clothing at thrift stores, and she uses an old laptop. The second roommate loves to cook and has brought her top-of-the-line pans, knives, and cooking equipment to furnish the kitchen. She likes designer clothing and owns a brand-new gaming laptop.

When you calculate the value of each roommate’s belongings, their premiums will be very different. This is because your renters insurance premium will be based on a number of factors, including the replacement cost of your belongings.

If there’s a fire in the apartment, and only one of the roommates has renters insurance, the other will have to replace her belongings out of pocket.

How Does Renters Insurance Work?

If you have to file a renters insurance claim, your insurance adjuster will examine the damage. If your claim is approved, you’ll receive a payment — minus the amount of your deductible. That payment will be either for the actual cash value (ACV) of your belongings or for the replacement cost value (RCV) of your belongings.

Here’s how those two values are different: Actual cash value reimburses you based on what your belongings are worth after discounting wear, tear, and depreciation. Replacement cost value is exactly what it sounds like: You are reimbursed for how much it costs to replace the item. 

The hand-me-down couch mentioned above provides a good illustration of ACV vs. RCV. The actual cash value of a 15-year-old sofa is going to be far lower than the market replacement cost value of buying one.

How Much Does Renters Insurance Cost?

The good news is that renters insurance is generally very affordable.

Similar to other types of insurance, underwriters consider a variety of factors when determining a premium. The location of the rental unit will factor in, along with other things such as the type of residence and whether there are safety systems such as fire suppression or security systems in place.

Other considerations that will affect your premium rate include:

• Your deductible: As with other forms of insurance, the higher the deductible you choose, the lower your premium will be.
• Whether you choose ACV or RCV: As outlined in the previous section, an insurance company will have a higher claim to pay if you choose RCV over ACV. The premium will reflect this; a policy with ACV will have a lower premium than one with RCV.
• Your zip code and building type: These have an impact depending on the safety of the area. If you live in an area that has a higher crime rate, your renters insurance premium will reflect that additional risk.

What Doesn’t Renters Insurance Cover?

There are a number of limits to what renters insurance will cover. Here are some common exclusions:

• Flooding: Flooding is almost always excluded as a covered peril in property and renters insurance policies. If you are interested in obtaining flood insurance coverage as a renter, you’ll need to talk to the National Flood Insurance Program (NFIP) or a private insurance company that offers flood insurance.
• Earthquakes: Earthquake coverage is not part of a standard renters insurance policy. If you decide you need additional coverage for earthquakes, talk to your insurer to see if you can add a rider to your policy.
• Pests and infestations: Damage caused by bedbugs, mice, termites, and other pests is not covered by standard renters insurance policies. Mold damage is another exclusion. These are generally considered to be issues of maintenance — rather than sudden and accidental damage — and so are not covered by renters insurance.
• High-value items: If you have expensive jewelry, electronics, guns, or artwork, you’ll need a valuable personal property rider to cover those belongings.

How Can I Lower My Renters Insurance Premium?

Renters insurance is generally very affordable, but if you’re looking to maximize your savings, here are some ideas*.

• Bundle your coverage: Bundling is a great way to see if you can save money on insurance. If you have more than one type of insurance policy, combining them under one insurer could save you money. A vehicle policy is a common bundle option for renters.
• Increase your deductible: A deductible is the amount you are responsible for paying before your insurance coverage kicks in. By increasing your deductible, you are taking on a greater share of the financial responsibility if there is a loss. An insurer will usually lower your premium if you are willing to pay a higher deductible. Make sure that you pick a level that you can comfortably cover out-of-pocket if you decide to increase your deductible.
• Add security features to your dwelling: Talk to your insurer about which safety features might result in a lower premium. Some insurance companies offer discounts if you add in fire-prevention measures or smart-home features like security cameras or additional locks. Make sure your landlord is okay with any alterations you are considering before adding them.
• Switch from an RCV to ACV policy. If you really are looking to save money, switching from an RCV to ACV policy might be worth consideration.

Do I Need Renters Insurance in College?

The answer may rest on where you’re living while in school. Generally speaking, college students most in need of renters insurance are those living in an apartment off-campus. 

If you’re living in the dorms, your belongings might still be covered by a parent or guardian’s homeowners or renters policy. Talk to your insurance agent before heading off to college to see what coverage you might need. Laptops, electronics, and your college textbooks all cost significant money — it’s worth it to make certain these items are covered.

Do I Need Renters Insurance If I’m Just Renting a Room?

Even if you are just renting a room, you need a policy that will protect your belongings. The good news is that with limited space, the value of your covered belongings should be low — and your premium will likely reflect that.

The Bottom Line

Renters insurance is one of the more affordable insurance products available, but it’s underused. People who rent might not realize how much stuff they have and how much it would cost to replace all of it. If you’re paying rent, you should look into renters insurance — talk to your insurance agent today to get a quote.

Disclaimer: 

* Savings, if any, vary based on a consumer’s profile and other factors. Contact your insurance agent for more information. Restrictions apply.

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