When you look for a place to rent, you have a lot on your mind – location, amenities, lifestyle, monthly payment, moving, buying furniture – but renters insurance is probably not high on the list. It should be –many landlords require tenants to carry renters insurance and it is a good idea.
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It’s a relatively inexpensive way to protect your worldly goods, at home and away. Renters insurance doesn’t just protect your possessions – its liability coverage may protect your future earnings as well.
This guide explains how to choose and use renters insurance, how to find the best renters insurance, and how to get the lowest renter insurance rates. Click on any of the links below to be taken directly to that section or scroll down to the page.
According to the Insurance Information Institute, only 37 percent of renters buy renters insurance, while 97 percent of homeowners carry homeowners insurance. You, like many tenants, might believe that your belongings are protected by your landlord’s property and liability insurer.
You would be wrong.
Renters insurance policies are designed to reimburse policyholders for damages caused by most common threats to tenants – fire, theft, and vandalism, for example. In addition to standard coverage provided by most policies, you can add optional coverage for less-common dangers, or to protect exceptional items. Standard renters insurance provisions include:
Personal property coverage
Standard renters insurance covers theft and a host of other perils. It protects your personal possessions, including furniture, clothing, electronics and household goods, against damage from fire, smoke, explosions, wind, lightning, vandalism, theft, water (excluding floods) and other miscellaneous disasters listed in your policy.
Not only are your belongings covered while in your home, they are typically protected away from home too – for example, when your eccentric best friend throws your laptop out the window of a public bus as a “joke.”
However, there is fine print involved. Normally, coverage is restricted to some percentage of the total limit for your property at home – 10 percent is an often-cited figure. So if your personal property at home is insured for $20,000, off-premises, your limit may be $2,000.
In addition, you’ll probably have a deductible. If the laptop tossed out by your friend is worth $550, and your deductible is $500, it may not make sense to file a claim.
Personal liability coverage
Just because you don’t have a lot of stuff doesn’t mean you should skip renters insurance. It also covers you if you are sued for causing damage or injury to others, at or away from home. This coverage extends to lawsuits caused by members of your household (family only, not roommates unless they are named in the policy). For example, renters insurance covers you if your child throws a rock through a school window or your dog bites the meter reader.
Property belonging to others that’s damaged, lost or stolen while at your residence is generally covered. Other standard coverage includes reimbursement for additional living expenses if your home becomes unlivable due to a covered event, and medical payments for people injured by something you did at or away from your residence.
Homeowners policies differ depending on whether residents share walls with their neighbors (condos and co-ops) or live in single-family residences. But what about renters insurance? Do you need a different policy if you rent a house and a yard?
Nope. “There is no difference in renters insurance for houses, condos, or apartments. There is only one rental form for residential insurance,” says David Melzer at East Insurance Group.
Renters insurance policies don’t cover everything that can happen, or everything you own, but they do take care of the most common mishaps. Here are perils not covered by standard policies:
- Flood damage
- Nuclear hazards
- Government action
- Losses from intentional acts (by the insured) or neglect
- Mold and rust
In addition to exclusions, renters insurance policies also limit coverage for specific categories of possessions – lost or stolen jewelry coverage, for instance, may be capped at $2,500, and protection for computers and electronics may also be subject to limits. Artwork may not be covered at all.
If you have valuable items with no or limited coverage, you’ll have to purchase a special rider or endorsement to protect yourself from these losses. “Scheduled” personal property refers to items with limited coverage under a standard policy; you establish a “schedule,” a list of items and the amounts that will be paid if they are lost or damaged, as an addendum to your policcy.
In addition, most renters insurance policies offer cash value reimbursement. If you want full replacement value, that’s extra.
Finally, if you do any sort of business out of your home – eBay sales, babysitting, etc., consider purchasing additional protection – incidental business liability and business merchandise coverage.
Perhaps the most under-rated benefit of renters insurance is its liability coverage. Even if you don’t have costly possessions, an expensive lawsuit could drain your finances for years. Your liability coverage protects you from lawsuits — both the cost of your legal defense and for judgments or settlements up to your policy limit.
The low end of the liability coverage is about $100,000, and many experts recommend purchasing at least $300,000 in protection. If you have a high income, you might want to extend this coverage with an umbrella policy — $1 million of extra protection costs about $200 to $350 per year.
Your policy also likely provides $1,000 to $5,000 of no-fault medical coverage. So, if a visitor is injured on your premises, you can submit the medical bills directly to your insurer for payment.
Whether you’re a student, young family, established careerist or retiree, renters insurance can protect your belongings and your current and future income. However, varying life stages require that you structure your coverage differently.
For example, a typical student whose belongings consist of extremely-used clothing and a four-year-old laptop has little to lose and is an unlikely target for lawsuits. According to Consumer Reports, there are companies that specialize in renters insurance for students, featuring policies with lower rates, coverage limits and deductibles.
Children in the home increases the risk for accidents, and young families should make sure they have plenty of liability coverage. Unlike coverage for adult-caused incidents, renters insurance for young children includes damage caused intentionally. If little Johnny punches out Billy’s teeth and isn’t even sorry, you’re probably still covered – as long as Johnny’s under 13.
Careerists often have expensive possessions and significant income to protect. When your net worth and income improve rapidly, you should reevaluate your renters insurance coverage every year to make sure your protection keeps pace with your wealth. Once your income reaches a comfortable level, and you’ve achieved significant net worth, you’ll likely want more coverage than most renters insurance can provide – policies usually max out at $300,000. For excess liability, you’ll need an umbrella policy – liability protection that kicks in once your renters or auto insurance protection is exhausted.
Retirees are the group most likely to have acquired costly possessions. If you’ve accumulated expensive furniture, high-end jewelry or unique collections over time, make sure your property is covered with higher limits and applicable special endorsements or riders. In addition, if your net worth is $300,000 or more, it’s time to consider an umbrella policy for excess liability coverage. (Many experts recommend liability coverage of two-to-five times your net worth.)
The chart below illustrates several life stages, and examples of coverage and cost estimates for each to show how your life stage and accumulated wealth plays a role in your coverage and premium.
If you experience a liability or a loss, you’ll want to file your claim promptly, fill it out completely, and get reimbursed as quickly as possible. Here are the steps you’ll take to make that happen.
- Report the incident to your landlord. It’s almost certainly mandated by your policy, and may also be required by state law.
- Report the incident, if required, to the police or other authorities. If the damage or loss is the result of illegal activity, such as theft or vandalism, you’ll need to file a police report.
- Document damages with video, photos, lists of lost or damaged property, receipts, appraisals or valuations of property. Keep damaged property until a claims adjuster sees it.
- Contact your insurer. Most policies give you just 48 to 72 hours to file a claim, so time is of the essence. Have your policy number and a description of the incident and damages when you call.
- Complete your claim forms, and submit them so your insurer can start its investigation. The amount of time to get your claim paid depends on the extent of the damages and the complexity of the incident. Some claims may only take a few hours while others can take longer. Your agent should be able to give you an estimated claim processing time.
Unlike auto liability coverage, required in nearly all states, renters insurance is not mandated anywhere. The government does not mandate that you protect yourself from theft, property damage or liability, even if it’s a good idea.
Landlords, however, often require renters to buy insurance. It’s a common misconception among tenants that landlord’s property insurance protects their property. When they discover their mistake, some unhappy renters take legal action to try to force their landlord to pay for damage.
To prevent these lawsuits, landlords can demand that tenants carry their own insurance protection. In fact, landlords are only held responsible for losses when it’s their fault – for example, if the property itself was unsafe, causing an injury, or if it was unsecured, inviting theft.
The state in which you live has a big impact on how you’ll pay. While the U.S. average is $188, some states are subject to more expensive perils, such as hurricanes and blizzards, while others have historically experience fewer natural disasters. The table below lists the average renters insurance cost for each state, as of 2016, courtesy of the Insurance Information Institute.
Landlords can reduce the risk of tenant-initiated lawsuits by requiring renters to purchase their own insurance. If your tenant has no other way of recovering from losses — even if property damage was the tenant’s fault — experts say he or she is more likely to sue you for damages.
Additional living expenses (ALE) coverage allows tenants to stay in a hotel if the premises become uninhabitable, which can help you retain a good renter. Without ALE coverage, a temporarily-displaced tenant could move away. With it, your renter has a place to live until the home or unit is habitable again. This makes him or her less likely to move out.
Finally, tenants without liability coverage can get their landlord dragged into lawsuits. If the tenant’s carelessness causes an injury – for instance, her dog bites her guest, or his visitor trips over his skateboard – the landlord can be targeted by the accident victim if the tenant is uninsured. Requiring tenants to carry liability coverage lets landlords avoid claims on their own insurance policies, keeping rates lower.
- Dwelling coverage for the structure in case of weather-related and other perils, such as mold, fire or vandalism.
- Personal property coverage for damage to items left on the premises for tenant use, such as appliances and furniture, or for maintenance, such as garden equipment and snow blowers.
- Liability coverage for injuries occur on the rental property, caused by your negligence.
Standard policies reimburse you for the actual cash value of lost or damaged property. If you want to receive the full replacement cost, you’ll have to pay extra. Guaranteed replacement cost coverage allows you to repair or rebuild even if the cost of doing so exceeds the item’s original cost. Other coverage you might want to add includes:
- Water damage protection for the building or anything inside it – applies to sewer backups, flooding and other natural disasters not normally included in basic policies.
- An umbrella policy, especially for landlords with multiple properties or high net worth. Umbrella policies provide millions of dollars in liability protection quite cheaply. This coverage kicks in only after your standard landlord policy benefits are exhausted.
- Renter default protection reimburses you for lost rental income if your tenant fails to pay the rent, is evicted with a court order or dies unexpectedly.
Renters insurance is a bargain. Basic student coverage, with low limits and premiums to match, can be purchased for less than $100 a year. The average premium in the US is just $188 per year, and even a policy with $100,000 in personal property coverage costs only about $350 a year.
For scheduled personal property, such as jewelry, plan on paying about $15 a year for every $1,000 in protection.
Personal finance experts recommend that you take an inventory of your personal property and estimate its value. The Insurance Information Institute offers a downloadable app to help — just snap pictures of your possessions and the app does most of the work.
Note the total values that exceed standard renters insurance limits – things like collectibles, artwork, jewelry and electronics. Use a checklist like the example below to pinpoint holes in standard coverage, and decide if you want to purchase additional insurance.
Decide if you want replacement value coverage, or if cash value is sufficient. Finally, determine your need for liability coverage. Experts recommend covering two-to-five times your net worth, adjusting up or down depending on your risk profile (Aggressive dog? Home-based business? Swimming pool?) and your income.
Renters, like homeowners, have possessions as well as income to protect from damage, theft or liability. Fortunately, renters insurance and umbrella policies provide a lot of coverage at a relatively low cost.