What Does Renters Insurance Cover?
When people buy a home, they are usually required to have a Homeowners Insurance policy if they carry a mortgage. Therefore, most people are covered, even for their personal belongings and other risks, such as injuries that occur in the home or on the property. Unfortunately, people who rent are unprotected, often because renters insurance is not required by their leasing managers. Often, tenants wrongly assume that any loss would be covered by the landlord’s insurance. Therefore, only about 37% of renters are covered by renters insurance, whereas 95% of homeowners have home insurance.
How Much Does Renters Insurance Cost?
The cost of renters insurance is so small (anywhere between $11 and $30 a month usually) that it’s really not very sensible to go without it, especially when you consider how much you’ll save in out-of-pocket expenses if you suffer a loss. Also, if you have a renters insurance policy, dependents, like college students, are often covered under their parents’ policies (up to 10% in some cases!). While this is a great provision, we always advise parents who are setting up their college students in apartments to buy a complete policy for their children. Some carriers even offer a reduced policy called dorm insurance so be sure to speak about this option with your agent.
Not only does the state and neighborhood you live in determine the cost of your Renters Insurance but so does the building type. Prices vary by state and neighborhood but coverages are very similar according to geographic location. The widest discrepancy in rates is seen from one state to another with smaller shifts on a more local level. Certainly, a renters insurance policy on a four-bedroom house will be more expensive than for a 400 square-foot studio apartment. The national average for an annual policy of renters insurance is $188, according to the National Association of Insurance Commissioners (NAIC). Compare that national average with the average annual premiums for the following states (from 2015, compiled by NAIC):
- Mississippi: $262
- North Dakota: $114
- California: $202
- New York: $202
- Wisconsin: $132
What Does Renters Insurance Cover?
Renters insurance covers your personal property against damage or loss. It also covers liability if you caused others injuries or property damage.
Let’s say the neighbor upstairs flooded her apartment and it ruined your clothes. You would be able to buy new clothes after being reimbursed by your renters insurance for your loss. It’s important to note that when we say you are covered for your personal property, this includes damage/loss/theft of items taken out of the home. For instance, if your bicycle is stolen, some carriers will cover that loss, at least partially, depending on your policy (see more below for different types of renters insurance). The same holds true if your purse is stolen. If your apartment building is damaged due to severe weather or a fire, you may be covered for housing expenses if your home is deemed uninhabitable. Basically, if you have to stay in a hotel room for two weeks after a fire in the apartment complex, you won’t have to pay for it out of pocket. Your renters insurance and your property manager’s landlord insurance should cover you completely (unless you stay at the most lavish resort in town, of course). Your landlord’s insurance will only cover the damages to the building, so your personal items will be only protected with your personal renters insurance policy. It’s important to ask questions about the terms of your policy before you make assumptions about coverage too, as policies vary from one insurance company to the next.
Renters insurance also protects you against lawsuits. If you are accused of negligence resulting in another person’s injuries or property damage, renters insurance will cover your legal fees, including defense. For instance, if your dog bites a neighbor or if a visitor trips and falls while in your home (or anywhere that’s considered your unit/property, including the yard or garage) you’re covered.
Another little known bonus of having renters insurance is coverage for credit card fraud and check forgery. As we all know, hacking of phones and computers is on the rise, so even limited coverage for these types of losses helps.
It’s important to note that you often have the option between two types of renters insurance policies: the broad form (standard policy) and the comprehensive form (added protections). Like comprehensive coverage with auto insurance, this is an added layer of protection. In the area of renters insurance, it’s advisable to elect higher forms of coverage if you live in, say, Tornado Alley or a hurricane and/or earthquake prone area of the country. See below for the different options.
Broad Form Renters Insurance
Covers fire, theft, explosion, lightning, smoke, vandalism, water damage from utilities. It excludes floods (from a natural disaster) and earthquakes. You can add endorsements (riders, floaters) to this form of renters insurance to increase protection level.
Comprehensive Form Renters Insurance
This type of renters insurance costs a bit more, has higher limits and generally covers more. You can add endorsements (riders, floaters) to this form of renters insurance to increase protection level.
What’s a Rider or Floater on a Renters Insurance Policy?
You’ll want to make sure to have one or another of these on especially expensive items like jewelry and valuable artwork. Furniture may also be worth tens of thousands of dollars and need full protection a standard policy alone would not offer. Tell your insurance agent about all your valuables so that he or she can help you itemize these items with the proper coverage. These types of endorsements can only be added to an actual cash value policy (not a replacement cost policy). See below for an explanation of the differences between an actual cash policy and a replacement cost one.
Actual Cash Value Versus Replacement Cost: Which Is Better?
You have the option of choosing between these two types of renters insurance. While the difference won’t affect the price of your premiums much, it will impact your claim very differently. Let us explain. An actual cash value policy will reimburse you for the cost of the property (the value the day it was damaged/destroyed, not when you bought it) minus your deductible. Replacement cost is different. The way it works is that you buy the replacement item (for instance, let’s say your TV was destroyed in a fire so you bought a new TV). You would submit the receipt for the new TV as your claim. You may or may not be reimbursed 100%, depending on what you bought. You will only be covered fully for the same/similar model of what you previously had.
Replacement cost of renters insurance is about 10% more expensive but you often get more for your money if/when a disaster causes damage to your personal belongings at home. However, if you add riders or floaters to an actual cash value policy, you will fill in the gap for what you’re not reimbursed for after a loss.
Good luck creating a renters insurance policy that fits your needs. Whatever you do, don’t go without it. Also, keep in mind that bundling your renters insurance with your auto may save you a few dollars each month. Go ahead and ask your agent if you’re eligible for a bundling discount if you add on this very important piece of protection.
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Renters insurance is one of the most underrated types of insurance out there. It’s also one that many people regret not having invested in until it’s too late. A renters insurance policy can protect you and your belongings in situations that you may not have ever anticipated.
Imagine the ceiling caving in; a major leak upstairs or a fire! If something were ever to go wrong you may not only have to replace some valuables in your apartment, but your place may become uninhabitable for a length of time too. What would you do if you had to stay in a hotel for a couple of weeks?
You may not remember everything that got destroyed and you won’t be compensated for it either. Think about what kind of damage a really bad water leak or fire will do. Your things may become unrecognizable and you may not list everything properly when you start the claims process. Or worse yet, what if the insurance company requires proof of ownership?
Really, the best way to determine which policy is right for you is to see how often you think you may need to file a claim. Because an expensive deductible is more difficult to pay, you should not choose the highest deductible if you know you’re prone to break-ins or if the apartment complex you live in is poorly maintained (a faucet leak upstairs from you may destroy all your property).
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