What to Know About Renter’s Insurance Policies: Do I Need One?

December 30, 2019

|By CJ

Do you rent instead of own your home? About 34% of households are renter-occupied, so you’re not alone.

You don’t need a homeowner’s insurance policy since you don’t own the structure.

But you do need to protect your personal belongings in case of a natural disaster, break-in, fire, or other damage.

Figuring out what to know about renter’s insurance isn’t easy, especially if you’re moving out on your own for the first time.

We’ve put together a guide for renter’s insurance to help you understand what it is and why you need it.

What Renter’s Insurance Covers

Renter’s insurance is similar to homeowners insurance, but it’s designed to cover your personal belongings and liability only.

It doesn’t provide coverage for the structure since you’re not the owner and aren’t responsible for it.

Policies typically cover three things: possessions, liability and alternative living arrangements.

The policy covers the cost of your belongings if they’re damaged, stolen, or vandalized by covered events.

You’ll receive compensation up to your policy limit for loss of property.

It also usually covers damage to other people’s homes when it comes from your home.

If your plumbing breaks and leaks into your neighbor’s apartment, your policy usually provides coverage.

Covered events may vary slightly by policy, but they typically include weather-related damage, fire, theft, vandalism and damage from appliances.

Renters policies usually cover the cost of your possessions if they’re stolen from your vehicle.

It won’t cover any damage to your car from the break-in.

That would fall under your auto insurance policy.

You’ll also have coverage for your belongings when you’re away from home if they’re damaged or stolen by covered events.

If your laptop is stolen from your hotel room, it should be covered.

The liability portion covers you if someone gets hurt while at your apartment.

If you’re at fault for that injury, the injured person can file a claim and get the injury costs covered by your renter’s insurance.

The liability part also covers you if you’re sued because of an injury.

Alternative living arrangement compensation pays for you to live somewhere else if your rented home becomes uninhabitable due to a covered event.

If a natural disaster of fire damages your home so you can’t live in it, this part of the policy will cover your alternative living arrangements.

The compensation you receive depends on how much coverage you choose and the nature of the loss.

What Renters Insurance Doesn’t Cover

When learning what to know about renter’s insurance, it’s important to know what’s covered, and what’s not.

Not every type of damage falls under the coverage.

While weather-related damage is covered, any natural disasters aren’t.

That includes flooding, earthquakes and sinkholes.

You can purchase a separate flood or earthquake insurance policy to receive compensation for those damages if you live in an area at a higher risk for them.

You may also need extra coverage for belongings of very high value.

This includes high-value art, jewelry and antiques.

Most policies have a limit on individual items. If you own anything that’s worth more than the limit, you’ll want additional coverage in the form of a rider.

Why You Need It

Your landlord carries insurance coverage for the building structure, but that policy doesn’t provide any coverage for your items.

Say your neighbor starts a kitchen fire while cooking dinner that spreads to your apartment.

The landlord’s policy covers damages of the building’s structure, but it doesn’t cover any of your belongings that burn or have smoke or water damage.

Some landlords require renter’s insurance.

If yours doesn’t, it’s still a smart decision.

If you don’t take out a policy, you have no coverage for your belongings.

Your landlord’s insurance policy won’t cover your damaged or stolen belongings if a loss happens.

You’ll simply be without everything you lose.

When you start calculating the cost to replace everything in your home, you realize how financially devastating that would be.

Furniture, kitchenware, electronics, appliances and clothes are just the basics and would cost thousands of dollars to replace.

You’re also providing yourself financial protection for liability claims.

It covers your legal defense, which gives you peace of mind should a liability issue happen.

Calculating Your Insurance Needs

You get to decide how much coverage you want to purchase through your policy.

Remember, the policy only pays up to the limit even if your belongings are worth more.

Most people have over $20,000 worth of belongings.

You may have much more than that.

Do an inventory of your belongings to estimate how much you own.

Go through each room and write down everything you have along with an estimated value for it.

You also must decide how you want to value your property for the policy.

Replacement cost means the policy will pay you for the amount it would cost to replace the items now.

Actual cash value takes into consideration depreciation based on how old the item is.

You won’t get as much to replace a 5-year-old TV as you would a 1-year-old TV because the older TV has lost value.

You’ll pay more for a replacement cost policy, but it may be worth the extra cost.

If your belongings are older, you may not get enough money to replace everything at today’s cost if you have an actual cash value policy.

Discount Options

Renter’s insurance rates vary by state.

The rates also vary depending on the amount of coverage you need.

On average, a policy only costs around $16 per month.

Statistics show that the average premium rates for renters insurance decreased by 2.7% in 2017.

It also decreased the two years prior to that.

Rates fluctuate, but renter’s insurance is generally an affordable coverage and well worth what you pay if you need to file a claim.

You can make it more affordable with discounts.

Most insurance companies give you a discount for having multiple policies with them.

If you also have auto insurance, an umbrella policy, or other types of insurance, see if you can get a lower rate by moving all the policies to one company.

You may also get a discount if your rented home has certain security and safety features.

That includes deadbolt locks, smoke detectors and security systems.