Imagine this scenario: You love technology and have invested in top dollar in the latest equipment for your home, and the value of your gadgets is not insignificant.  Your mantra has become “you live once, so why not!” 

But one day, you get home, open the door, and discover your new TV, laptop, gaming console, and tablet are nowhere to be found. There’s been a rash of burglaries in the area, and you’re his latest victim. In that instance, you get to understand the phrase ‘my heart dropped to the floor. You start to hyperventilate, in a panic thinking about how you can recover everything. You spent everything you had on this new tech, and now you’re broke.

Now imagine a simple phone call could make everything ok again? With renters’ insurance, you’d be covered and have nothing to worry about. 

What is Renters’ Insurance? 

Renters’ insurance- also known as tennant’s or HO-4  insurance- is an insurance policy taken out by someone who rents a house, apartment, condo, etc and functions in the same manner as a homeowners policy. Among other benefits, renter’s insurance provides liability insurance and  covers personal property, but not the building itself. 

Despite the benefits of having a policy- which we’ll explore more fully below- a 2016 study found that only 41% of renters opt to take out renter’s insurance, a figure in sharp contrast to homeowners, where 91% of homeowners opt for coverage. 

Further exploration into these dismal figures sheds light on the startling disparity in adoption of renters’ vs homeowners insurance.  When polled, the most common reason renters choose not to take out a renter’s insurance policy is that they assume the landlord’s insurance policy will cover their losses. For others, it is all about the cost. And interestingly, a third faction of renters feel that what they own is not worth enough to justify the premium of a renters’ insurance policy. 

What Your Renters’ Insurance Covers

The coverage provided under your renters’ insurance depends on the policy you choose, as different companies- or underwriters- offer different coverage and plans. When shopping for a policy, it helps to start with a good understanding of your needs. The more coverage a policy provides, the greater the expected premiums. 

Here is what your renter’s insurance will cover:

  • Personal belongings like electronics, clothes, and furniture. If a disaster or theft occurs, your rental insurance will cover you for these losses. Rental insurance also covers your property outside of your home. For instance, if someone steals your laptop while you’re at the coffee shop, your renters’ insurance policy will cover you.
  • Displacement costs if you need to move because a disaster like a flood or fire makes your residence uninhabitable
  • Accidental property damage is also covered. Say you take a leisurely soak in the bathtub at the end of the day. You’re enjoying it so much that you don’t notice that you left the faucet on a bit, and the tub is soon overflowing. The flood damage caused by the overflowing bathtub will also be covered.  
  • Liability coverage for emergency medical expenses that may occur within your home. If a friend comes over, slips on a wet spot in your kitchen, and hits their head on the corner of the counter on the way down. Their medical bills- stitches, hospital visit, etc- are covered under renters’ insurance. 

It’s important to understand the circumstances and situations that would- and would not be covered under a renters’ insurance policy. These events that may lead to property loss or destruction would be covered: 

  • Natural disasters – lightning, windstorms, volcanic eruptions, fire, damage due to snow, ice, or sleet
  • Man-made situations – fire, falling objects, and damage by aircraft or vehicles
  • Malicious acts like vandalism, theft, or riots
  • Unforeseen occurrences – electrical surges, freezing, cracking, or burning of appliances.

Under most policies the below scenarios would not be covered. You will not get compensation for the following:-

  • Flood or earthquake damage – These are separate policies, and to have damage covered from these disasters requires additional coverage.
  • Infestation damage from insects or vermin (mice, bedbugs, are not covered)
  • Roommates– Even though you live together, only named policyholders are covered. 
  • Valables- Personal items with great value such as jewelry or artwork would be covered, but they usually have a capped value around $1000-1500. If you have a number of valuable items that surpass the cap of your policy, speak directly with the insurance company to ensure coverage. 

Regardless of the cause, remember that renters’ insurance does not cover the building or structure- that damage would be a claim on the landlord’s insurance. It’s also crucial to read the policy information carefully to understand the coverage. There are exclusions, caveats, and limits with all policies of which  you need to be aware.

Frequently Asked Questions about Renters Insurance

  1. My landlord has an insurance policy, doesn’t that cover me?

 Unfortunately not. The landlord’s policy covers damage, etc to the building, but not your property contained within. What their policy would cover is their property and  third-party liability. For instance, if you were to get hurt on the property, it may provide some financial relief to the landlord if you sue or for your medical bills, but it wouldn’t cover your personal property. 

  1. Are there instances when the landlord may be at fault?

Absolutely, if you can prove that the loss or destruction is due to negligence on his part, then it may be appropriate for you to bring a claim against the landlord. For instance, if you request a lock change for the front door because you have evidence/reasonable belief that your security is compromised, but they refuse to change the lock, they may be at fault. Similarly if you report your pipes are leaking, and the landlord does not fix the problem, the landlord may be held legally responsible for damages.

But even if the landlord is at fault in an event like those above, you’ll still be appreciative to have a renters’ policy, as it will more quickly remedy the issue. You can then go back and request compensation from the landlord and their insurer. 

  1. Isn’t it expensive to get renters’ insurance? Is it even necessary? 

Most people won’t get renters’ insurance unless it is mandatory.  

Especially if they’re not high earners with a large amount of discretionary income, some argue/ rationalize not having insurance by saying “why should you spend money on something you may never claim.” Comedian Chris Rock comically  defines insurance in a way that’s relatable for many. 

Paraphrased, Rock says this about insurance: “we shouldn’t call it insurance. We should call it in case “stuff” happens. So if the stuff doesn’t happen, shouldn’t you get your money back?” Unfortunately, that’s not how insurance companies work, so you won’t see a refund if you don’t file a claim.

But the good news is that renter’s insurance is not expensive, and many people can find policies for less than $200 per year. According to Business Insider, the average monthly rate for renters insurance is just $15, meaning coverage for everything you own could be had for just $.50 per day.

  1. How much coverage should I get?

Renter’s insurance comes in 3 categories:

  • The personal property category takes care of personal items. You can get coverage in the range of $10,000 – $250,000. Think about the things you will need to replace in the case of losses: clothing, furniture, sports equipment, technology, etc. Also, think about what you are comfortable paying every month in the form of a premium
  • Temporary living expenses, which covers alternative accommodation if you have to leave your place due to a flood, fire, etc. Experts recommend opting for about 30% of your personal property coverage. The range for temporary living expenses is $3,000 – $200,000. 
  • Personal liability covers third-party costs if someone takes legal action against you due to an accident, negligence, a dog bite, etc. The typical range for this coverage is  $100,000 to $1,000,000. While it can be difficult to determine how much coverage you’ll want because you cannot foresee some events, you can speak to your landlord to see if they have any requirements, as well as determine what you’re comfortable paying.  
  1. What is the process of applying for renters insurance?

Follow the steps below when applying for renters insurance.

  • Take a proper inventory of your belongings. Catalog your possessions room by room, and photograph more valuable items. Should there ever be a claims dispute, photos can help support your case. 
  • Determine what items you’d want to cover. The more items insured, the higher the monthly coverage premium
  • Do your research on the underwriters. You have the option of specialty insurance companies, standard providers, and using a broker. With the latter, you benefit from the best advice due to their connections with various underwriters.  
  • When you narrow down your list, do your due diligence. Do more in-depth research on the provider. Ask for references and read customer reviews.
  • Source for as many quotes as possible for price comparisons. 
  • Ask for a consultation so that you can ask all the questions. Make sure you ask about deductibles as well. 
  1. How do I calculate my renter’s insurance value?

The value will depend on:-

  • The value of the personal property
  • The Liability coverage you need
  • Place of residence
  • Any other extras depending on the circumstances
  1. Actual Cash Value (ACV) and Replacement Cost Value (RCV); what is the difference?

The difference between actual cash value and replacement cost value is subtle, but extremely important to understand when selecting insurance plans. 

Actual cash value accounts for the depreciated value of an insured item. For instance, you bought a $2,000 Macbook three years ago. Due to wear and tear, updates in technology, and general depreciation, it’s no longer worth the full $2,000- you couldn’t sell it to someone else for that amount. An estimator may instead value the item at $1,000 today, and thus would pay out today’s value of $1,000. 

The replacement cost value covers the actual cost or whatever you buy as a replacement. Using the example above, you’d receive a check for $2,000 for the Macbook. Replacement cost value coverage does pay out more, but the premium is predictably higher, too, so read the fine print carefully. 

  1. What is a deductible?

A deductible is the share paid by the policyholder before the insurance company pays out on a claim. The amount is predetermined and is in addition to the monthly premium. Generally speaking, there’s an inverse relationship between the deductible and monthly premium: a higher deductible plan will have lower premiums, and vice versa. 

Many young people opt for the higher deductible, lower premium, banking on the fact they likely won’t make a claim, and opt to keep more money in their pocket on a month-to-month basis.

It’s common for renters to select plans with a $500 deductible- meaning they pay for the first $500 of damage or loss, before the insurer starts contributing. 

  1. What does lapse of payment mean, and how will it affect my coverage?

If you do not make premium payments, you will lose your insurance cover. You normally have a leeway of 30 days to update your account. If not, the insurer will cancel your policy. The only compensation you would get in this case is if there was an ongoing claims settlement. Anything outside of that falls on you. 

Allowing a policy to lapse is a risky decision leaving you financially- and potentially legally- exposed in the event of theft, flood, fire or other disaster requiring you to file an insurance claim. 

Final Thoughts

The affordability of renters’ insurance- just fifty cents per day- should be enough reason to convince you to open a policy if you rent your home or apartment. But remember, renters’ insurance also covers loss of personal property, alternative living expenses, and provides financial support should someone become injured on your property and bring a lawsuit against you. With so many benefits, and so few costs, renters’ insurance is definitely a good investment.