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What renters insurance actually covers and why you need it

September 28, 2022, 8:12 AM UTC
A couple sitting on the floor launching while sitting next to boxes from moving into their new home.
Experts generally recommend at least $300,000 in personal liability coverage.
Photo Illustration by Fortune: Original Photograph by Getty Images

Renting an apartment or house can relieve some of the responsibilities that come with home ownership: maintenance, pest control, trash removal, and yard work.  

It does not, however, eliminate the need to buy insurance. Many renters believe their landlord is responsible for insurance but that is only partly true. Your landlord is responsible for insuring the building and grounds against damage or loss. Unfortunately, this does not include your personal belongings, personal liability, or a place to live if your rental becomes uninhabitable. 

This is where renters insurance comes in. Here’s what you need to know about insurance for people who rent or lease their living space. Find out what renters insurance is, how much it costs, what it does and does not cover, and why you need it. 

What is renters insurance? 

Renters insurance is a contract between you and an insurance company that provides financial protection if your personal property is damaged or stolen or you damage the property of others. 

It’s made up of three types of insurance coverage—personal property, liability, and in most cases, additional living expenses.  

“Your renters policy can protect you at home and anywhere in the world,” says Jennifer Wilbert, assistant vice president of personal insurance property at Travelers Insurance. “If you’re in a hotel on vacation you could be afforded the same protection of your personal property you would have at home.” 

Personal property coverage: This coverage pays to replace or repair your belongings—TVs, books, cookware, paintings, clothing, furniture, etc. Protection includes damage or loss from fire, smoke, lightning, vandalism, theft, explosion, windstorm, water, and other disasters. Floods and earthquakes are not covered, but you can obtain a separate rider for those types of disaster. 

Personal liability coverage: Liability coverage provides protection against lawsuits for injury or property damage that you or your family members cause to other people. It also pays for damage your pets might cause to other people or their property. (Not your own property or the property you rent.) 

Additional living expenses: Depending on the coverage you choose, your renters insurance may also pay for a place to live if, for example, your apartment building burns to the ground. It may also pay for lodging, meals, and other expenses while you wait for your apartment building to be repaired or rebuilt.  

How renters insurance works 

Renters insurance works much like homeowners insurance, minus the dwelling coverage. In fact, most companies that offer homeowners insurance also offer renters coverage. If you are migrating from home ownership to renting because you’re downsizing or changing jobs, check with your current insurer first, especially if you have other policies such as auto, boat, or life with that company, since bundling is a cost-saving measure. 

“There are many different ways to structure renters insurance and what it covers and what you can add to the policy,” says realtor and rental specialist Andrew Pasquella at Sotheby’s International Realty. “Beyond furniture and electronics, it’s not uncommon to have jewelry like engagement rings on a renters insurance policy as well.” 

Since insuring your personal property is up to you, first determine how much stuff you have and what it is worth. Here’s the process of applying: 

Take inventory  

Start by compiling an inventory of your belongings and enter them into a spreadsheet along with an estimate of each item’s value. It’s a good idea to photograph or make a video everything you own. For expensive items, make sure to write down any serial numbers that could help verify your claim.

Choose actual or replacement value 

You have two options when it comes to estimating the value of damaged or stolen property: actual or replacement. Actual value is what the item is worth today after depreciation. Replacement value is how much it would cost to replace the item with a new one.  

Replacement value is easy to calculate: Actual value, technically actual cash value (ACV), involves a complicated formula: R × (E – C) / E = ACV where R = replacement cost of the item; E = expected lifespan of the item; C = current age of the item; and ACV = actual cash value. 

For example, if your TV costs $1,000 to replace, has an expected lifespan of 10 years, and is 5 years old, its ACV would be:

$1,000 x (10-5) / 10 = $500 

Insuring belongings for its replacement value is more expensive than insuring for actual value, so the decision comes down to cost of insurance compared to your ability to make up the difference between ACV and replacement value. 

Calculate personal liability coverage needed 

Once you’ve figured out how much personal property insurance you need, you’ll want to consider the amount of liability coverage you require. Liability insurance provides coverage against a claim or lawsuit that results from an injury or property damage to others while on the property you rent. Liability coverage has a limit or the maximum amount the insurance company will pay. In many cases, your property owner will require a certain level of liability coverage before letting you sign a lease. Experts recommend liability coverage of at least $300,000. 

Add living expenses coverage 

Additional Living Expenses (ALE) coverage pays your temporary living costs if a disaster makes your rental property uninhabitable. Note the word “additional” meaning that you will be reimbursed for the additional daily living expenses of temporary housing beyond your normal living expenses. ALE typically covers the additional cost difference for a hotel, temporary rentals, restaurant meals, and other expenses you incur while your rental home is being repaired or rebuilt. Coverage is typically a percentage, i.e., 30%, of your personal property coverage. It also often has a time limit—in other words, one year. 

Obtain a quote 

Armed with an estimate of the type and amount of coverage you need, begin your search for an insurance company.  

  • Seek advice from family and friends 
  • Check with the insurance company you use for life or auto insurance for a bundling discount 
  • Ask about discounts for safety devices (smoke detectors) and security systems even if installed by the property owner. Also, check into ongoing (disappearing deductible) discounts if you do not file a claim for a set period. 
  • Check the insurance rating of any company you consider. The credit rating agency AM Best rates an insurance company’s ability to pay claims. 

Don’t hesitate to obtain quotes from multiple insurers. An online search of companies that provide renters insurance will let you compare types of coverage available, and most will let you obtain a quote online. 

Finally, explore premium costs with different deductibles (the amount you pay before insurance coverage kicks in). The higher the deductible, the lower the premium, but the more you must pay upfront. 

Choose an insurer 

If you like what you see after obtaining a quote, start the application process. You can also apply to multiple insurers to get firm rates. As with getting a quote, many insurers will let you apply online. Once you’ve chosen an insurer, if possible, pay an entire year’s premium up front for the lowest cost. 

File a claim 

At some point you may suffer damage or loss, or someone may be injured on property you rent and you may need to file a claim. Almost all insurance companies have an 800 number to call to file a claim; many also let you file claims via their apps or websites. Have that number programmed into your phone so you don’t have to search for it when you need it. Here are some other things to consider depending on the circumstances: 

If a crime has been committed—arson, theft, burglary, or vandalism, call 911 to report the crime, seek medical help for any injuries, and file a police report. Make note of the names of any officers with whom you speak. Notify your property owner so they can take action as needed, and call your insurance company, as soon as you are able, to report any damage or injuries you suffer. 

If there is injury but no crime, call 911 to get medical help, notify your property owner so they can take any action they need to, and contact your insurance company to report the accident as soon as you’re able. 

If there’s damage but no crime or injury, contact your property owner followed by your insurance company. Report the damage to your insurance company. 

Note that there is a hierarchy when for reporting an event and filing an insurance claim. Seek medical help, seek law enforcement assistance, inform your landlord, and finally call your insurance company.  When you contact your insurance company, report the injury, loss, or damage and start the claims process (or if you’re not ready, ask how long you have to file a claim).  

Ask if the injury, loss, or damage is covered and if not, why? Make sure your claim exceeds your deductible. If it’s close, you may decide not to file. Find out (approximately) how long it will take to process the claim. Remind your agent of his duty to make sure you receive the proper claim forms within a time frame set by the state. Ask what you need to do next.  

For example, if you need to find alternative housing, ask about the specifics of that coverage, and keep all receipts for anything you spend. If there is loss or damage, make a detailed list of what’s missing or damaged and its value. 

Finally, if you are not satisfied with the service you receive from your agent or claims representative contact your insurance company. If you’re still unhappy, contact your state insurance department or local consumer protection office for help. 

What does renters insurance cover? 

Coverage is limited to three areas: personal property, personal liability, and additional living expenses (ALE).

Your personal property and that of covered family members both on and off your rented residence will be repaired or replaced, depending on selected coverage, at their current or replacement value if they are stolen, damaged, or destroyed. 

Medical bills for your guests (not you or family members) are covered if they’re injured on your rented property and the incident is deemed an accident. The same coverage applies to the property of guests that you or family members or pets accidentally damage or destroy.  

If you are displaced from your home by a covered event, ALE coverage will reimburse you for extra living expenses you are forced to bear because of that displacement. This includes hotel costs, meals, and travel. 

The table below lists coverage types under renters insurance and a general description of what is and is not covered in most policies.

What does renters insurance not cover? 

Renters insurance, like all insurance, comes with limits. You won't get paid until you meet the deductible has been met, and you won't get paid more than the stated coverage limits for property, liability, and living expenses. 

“Typically, renters insurance may have limitations on payout on theft of items such as jewelry, art, or other valuables," says Wilbert. “To ensure items such as engagement rings, etc. have proper coverage, consider a valuable items rider.” You'll want to speak to your insurance rep if you have questions about specific coverage areas.

“It’s important to remember that most renters insurance will not cover anything structural with the home,” notes Pasquella. “So, if walls, windows, or roofs get damaged, the landlord will be responsible for those, not the renter.” This means that most renters insurance will not cover damage to the property you rent, even if the damage is accidental. 

Vehicles are not covered since they are subject to their own insurance. Finally, damage due to floods or earthquakes is not covered, though supplemental insurance can be purchased that covers many of these exclusions. 

How much renters insurance do I need? 

It’s important to put some thought into determining the amount of insurance you plan to take out.  Having enough coverage is critical and the amount of coverage you need can vary greatly depending on location and landlord requirements. To ensure your numbers are adequate, consider the following: 

Personal property 

The total value of your personal property represents the amount of coverage you need for your belongings. “A typical renters insurance policy ranges from $20,000 of personal property coverage to $100,000 of coverage,” says Joyce. 

If you decide to use actual value as your basis, the amount of coverage you will require will be lower (and less expensive). Just remember that in the event of a loss, you will have to make up the difference in price if you decide to replace the item. 

Personal liability 

As noted, your property owner may require you to have a certain level of personal liability coverage. But no matter what’s required, experts generally recommend at least $300,000 in personal liability coverage and that should be your target. “I’ve seen renters insurance requests range from $100,000 to multimillions,” says Pasquella. 

Living expenses 

ALE coverage will be the difference between the cost of living in your apartment or rented house and the cost of temporary housing, up to the limit, of course. ALE coverage is typically a percentage of the personal property amount of your policy. 

Deductible 

The deductible you choose ($500 or $1,000 is common) will have an impact on the premium you pay, but as with “actual vs. replacement” coverage, the less you pay now, the more you will pay later. 

According to Wilbert, “Coverage should be updated when dealing with considerable changes to your personal property, which could lead to additional savings or added protection.” 

Keeping all these factors in mind, the amount of insurance you need is the figure that best represents a balance between the amount of loss you could cover with cash on hand and the highest premium you can manage without breaking your budget. 

What is the difference between homeowners and renters insurance? 

Neither renters nor homeowners insurance is required by law. For homeowners, insurance is generally stipulated by their mortgage lender, and for renters the property owner typically requires a minimum amount of liability insurance. 

The primary difference between homeowners and renters insurance relates to coverage. The policies are nearly identical except when it comes to coverage of the dwelling (house or apartment). A homeowner owns (or is paying for) a home. A renter is not. The homeowner must insure the structure, something the renter doesn’t have to do.  

Other coverage, including personal property, liability, and living expenses are the same for both homeowner and renter. One exception could be that a landlord (property owner) who does not live in the rented property may not have a need for additional living expenses coverage and may decline that. 

The table below offers a comparison of the types of coverage taken out by renters and homeowners, as well as factors that affect the cost of that coverage. It’s worth noting that of the five types of coverage, dwelling is the only one that’s not part of renters insurance. Likewise, of the six named factors that impact the cost of insurance, only the age and condition of the building is not shared. 

The building-related omissions from renters insurance affects cost in a major way. The need to cover the cost of the dwelling means that homeowners insurance, on average, is more than seven times the cost of renters insurance.

The takeaway 

The fact that renters don’t have to insure the building where they live does not diminish the importance of renters insurance. The need to cover loss of personal property, insure against lawsuits, and pay additional living expenses is reason enough that renters need insurance. Throw in the fact that most property owners require it, and that should seal the deal. 

Moreover, since renters don’t have to insure the most expensive part of homeowners insurance (the home), renters insurance is a fraction of the cost of homeowners insurance. The minimal cost of renters insurance and the peace of mind it brings, make the decision to purchase it an easy one. 

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