Buying a house in America is expensive and only getting more so. As housing prices climb, Americans are increasingly choosing to rent. In fact, renters now account for nearly 40 percent of American households.
One of the first questions most new renters find themselves asking is “what is renters insurance and why do I need it?”
These are important questions. There are a lot of myths and misunderstandings around renter’s insurance, and not knowing the truth can cost you. So here’s what you need to know before you rent.
What Is Renters Insurance?
Formal renters insurance definitions can look confusing at first glance. For most renters, the easiest way to understand it is to think of renters insurance as homeowners insurance for people who rent instead of owning their homes.
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Like homeowners insurance, renters insurance is a combination of three different types of insurance coverage.
- Personal property coverage
- Liability coverage
- Loss-of-use coverage
This means that it protects you and your property. It provides compensation if your things are stolen or damaged and covers some of the costs if someone is injured in your home. It also pays for the costs you might incur if you become unable to live in your rental due to damage.
Types of Renters Insurance
There are two primary types of renters insurance:
- Actual Cash Value
- Replacement Cost
Actual Cash Value policies cover items for their exact cost at the time they are damaged or lost. Replacement Cost policies cover items for the total amount of money it would cost to replace them.
For example, imagine that you bought a couch for $500 six years ago. The couch has since depreciated in value to around $200. What happens if the couch is damaged or stolen?
If you have an Actual Cash Value renters insurance policy, your insurance company will pay you $200, which is the current value of the couch. If you have a Replacement Cost policy, you will receive $500 as that is the estimated cost to replace the item.
How Does Renters Insurance Work?
For the most part, renters insurance works like every other kind of insurance. You purchase a policy from an insurance company. The policy specifies:
- What is covered and under what conditions
- Your deductible
- When and how you need to make claims
You pay the insurance company a premium at regular intervals, such as once or twice per year. In turn, the company agrees to reimburse you in the event that you experience a qualifying loss.
When your property is lost or damaged or you become liable for damages, you pay a portion of the cost first. This is your deductible. Once that amount has been paid, your insurance company will pay the rest up to your total coverage.
For example, let’s say that you have a policy offering coverage up to $10,000 with a deductible of $500. If your apartment is broken into and your things are stolen, you must pay at least $500 (your deductible) toward replacing your lost items before your insurance coverage kicks in. After that, your policy will pay for up to $9,500 worth of stolen items, taking you to a total of $10,000 (your maximum coverage limit).
Any losses you experience above and beyond $10,000 are non-reimbursable. If you want coverage above and beyond standard policy limits, you can purchase it via add-ons such as riders, floaters, or endorsements.
Documentation and Claims
In some cases, you may be required to document your possession of high-value items and their loss. For example, you may need to submit photos or receipts showing you owned the item and a police report demonstrating that you reported it stolen or that your home was broken into. You may also be required to submit claims within a certain amount of time of the inciting event to qualify for coverage.
What Does Renters Insurance Cover?
Renters insurance typically covers most of your possessions. This includes:
- Furniture
- Computers, electronics, and devices
- Books and miscellaneous items
- Clothing and jewelry
- Appliances
Your insurance policy will pay for these items in the event that they are stolen or damaged in qualifying circumstances.
Qualifying Circumstances
Your renters insurance policy covers the loss or destruction of your items in circumstances beyond your control. These include:
- Bad weather and natural disasters (e.g. lightning, windstorms, snow or hail)
- Explosions or volcanic eruptions
- Damage by aircraft or vehicles that are not yours
- Riots
- Theft or vandalism
- Smoke damage
- Burst pipes
- Electrical accidents
Your policy will usually cover your personal belongings even if they are not in your home, such as when they are in your vehicle or with you on vacation, for example.
Liability Coverage
Renters insurance liability coverage also covers situations such as when:
- Someone is injured while in your home
- You accidentally cause someone injury at their home or elsewhere
- Neighboring properties are damaged by an incident in your home such as a fire
- You incur hotel fees and other costs because your home is damaged and you are unable to live in it
Other Coverage
Your rental insurance coverage may cover other circumstances and losses as well. Examples include:
- Credit card fraud
- Other people’s possessions stored in your home
- Food and other perishables lost as the result of qualifying circumstances
Does Renter’s Insurance Cover Theft?
When asking “what does renters insurance cover?” many renters are particularly concerned with theft. Happily, renters insurance does cover theft. If your covered items are stolen from your home or vehicle or while you are on vacation, you can file claims to be reimbursed for your loss.
It is important to remember, however, that limits apply. Specifically, your coverage does not kick in until you have paid out the full amount of your deductible toward replacing the items yourself.
Also, your policy will only reimburse you up to the maximum limit on your policy. Beyond that amount, you cannot be reimbursed, regardless of the actual value or replacement cost of the items lost.
What Does Renter’s Insurance Not Cover?
What is not covered by renters insurance is just as important to understand as what is. There are a few things that it notoriously does not cover.
- Intentional or negligent damage
- Damage done by guests
- Business activities
- Your vehicle
- Certain natural disasters
- Anything above your policy’s maximum limit
Intentional, Negligent, or Guest Damage
Renters insurance coverage is based on the assumption that you will make reasonable efforts to protect and maintain your home and possessions. As such, your policy does not cover any damage you intentionally or carelessly inflict on your home. For example, break a window while carelessly throwing objects around, that damage will not be covered.
Your policy also will not cover damage done by guests to your home. So, if your friend breaks a window, their insurance may cover the damage but yours likely will not.
Business Activities and Vehicles
Your renters insurance does not cover activities related to jobs or “side hustles” that you do out of your home. Nor will it cover your vehicle. Both require separate insurance policies.
Certain Natural Disasters
Most policies do not cover damage incurred during:
- Floods
- Earthquakes
- Mudslides
- Nuclear events
If you expect any of these to apply to you, you will need to purchase supplemental coverage for them.
Anything Above Your Policy’s Maximum Limits
Your policy may limit the total reimbursement you are entitled to both in total and by category. So, for instance, you may only be eligible for $1,000 worth of reimbursement for stolen jewelry or $2,000 for electronics. This is true regardless of the actual value of your items.
If you have particularly expensive items or large collections of a certain type of item, you will need a special rider or endorsement to cover them.
Do You Really Need Renter’s Insurance?
The short answer is yes. Every renter should have renters insurance.
Many landlords outright require insurance as a non-negotiable term of a lease. Even when they do not, renters insurance provides vital protections for individuals and families renting their homes.
How Much Renter’s Insurance Do I Need?
On average, renters insurance policies offer around $100,000 of liability coverage. In many cases, this is good enough.
To determine your specific needs, however, it is helpful to consider your income and possessions. If you have particularly expensive or prized possessions, work with your insurance company to ensure those items are fully covered at their full replacement value.
If you have very limited income, you may want to select a policy with a low deductible and high coverage to increase the likelihood that your policy will pay out everything that you need should a disaster strike.
How Much Does Renter’s Insurance Cost?
Renters insurance is incredibly affordable. But what is a good price for renters insurance, exactly?
You can expect an average policy to cost between $12 and $15 per month. Keep in mind that replacement cost policies typically cost more than actual cash value policies and that you may need endorsements that slightly raise your costs to cover high-value items or collections.
The 5 Biggest Myths and Mistakes About Renter’s Insurance
There are many myths and misunderstandings around the costs and benefits of renter’s insurance. Here are the top five that people most often fall prey to.
Myth 1: You Don’t Need Renter’s Insurance
Every renter needs renters insurance. Unless you are independently wealthy enough that you can afford to replace everything you own in the event of a fire or flood, as well as pay for repairs and other damages, you need insurance. Period.
Myth 2: You Are Covered by Your Landlord’s Insurance
Most landlords and rental properties carry insurance only on the buildings they are renting out. As such, landlord policies will pay to restore the physical structure of your home, but they will not pay for the items inside such as your belongings. Only your renters insurance policy can protect your things.
Myth 3: Renters Insurance Covers Your Vehicle
Renters insurance covers most of what you own. It does not cover your vehicle, business activities, and other exempt items, however.
Myth 4: Renters Insurance Is Expensive
Renters insurance is actually extremely affordable. You can get great coverage for less than the cost a few lattes each month. Even if you max out your policy options, you can still expect low monthly costs.
Myth 5: Renters Insurance Is Complicated and a Hassle to Buy
Purchasing a renters insurance policy is a quick, easy, and low-stress process. Qualified insurance providers can help you select the coverage you need in no time and annual or semi-annual payments mean there’s no stressing about bills every month to keep your policy current.
5 Key FAQs About Renter’s Insurance
Do you still have questions? Here are five more of the most frequently asked questions about renters insurance.
Q: Does Renters Insurance Cover Dog Bites?
A: Usually! Most policies will cover dog bites. Be sure to check your specific policy when purchasing, however, as some providers require extra coverage for certain particularly aggressive breeds.
Q: Are All Renters Insurance Policies the Same?
A: No! While most basic policies cover the same ground, pricing and coverage can vary widely from state-to-state and between insurers. It’s always a good idea to speak to an agent and shop around a little to ensure you’re getting the best policy for your needs.
Q: Should I Buy an Actual Cash Value Policy or a Replacement Cost Policy?
A: Only you can decide what level of coverage is right for you. That said, many renters prefer replacement cost policies for the peace of mind they provide.
Q: How Often Do I Need to Update My Policy?
A: You should consider updating your policy whenever you:
- Acquire or sell an expensive or important new possession
- Move from one property to another
- Renew your policy
This will ensure that your policy stays current with your needs without taking up too much time and energy.
Q: Can I Wait to Buy a Policy?
A: If your landlord does not require you to have insurance as a condition of your lease, then you are free to buy insurance whenever you want. However, it’s always better to buy sooner rather than later. Every day you spend without a policy is a risk.
If anything were to happen to your home and possessions before you get around to buying a policy, you’d be on your own with no help or support.
How to Get Expert Advice on Renter’s Insurance
What is renters insurance? It’s a necessity for every renter.
If you’re ready to protect your home, family, and possessions, there’s no time to waste. Contact our insurance experts today and let us help you craft the perfect policy for your needs.
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To learn more about how renters insurance can protect your property, get in touch with the independent agents at LoPriore today. Our experienced insurance agents are available 24/7 to answer your questions, provide information about our renters insurance policies, or provide you with an instant quote.
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