Everybody knows that when you own a home, you need homeowners insurance to protect your real estate investment and personal belongings. And pet owners routinely invest in pet insurance to cover the cost of veterinary care. But what about renters insurance? For some reason, people are less clear about what it is and who actually needs it. So, let’s clear up the confusion.
What does renters insurance cover?
The average annual premium for a renters insurance policy is $179, or about $15 per month. After you pay your claim deductible, your policy covers the following items up to the limits you designate:
- Personal property: It replaces or repairs personal belongings that are stolen or damaged. It usually doesn’t matter whether the item was located in your apartment, with you while you were away from home or in your storage unit.
- Personal liability: It protects you from legal liability if someone else is injured at your place. This generally includes compensation for their pain and suffering or loss of wages.
- Others’ medical liability: It pays for doctor visits or medical procedures for someone hurt in your rental. (However, your own medical bills and those of your roommates are covered by your/their health insurance, not your renters insurance.)
- Loss of use: If you can’t remain in your rental because of damage from a fire or other covered event, the policy pays for alternate housing plus food until you can return or find a new home.
What isn’t covered by renters insurance?
Before you take out a policy, it’s important to understand the two primary things that renters insurance doesn’t cover. First, your policy doesn’t insure the physical building itself. That falls under your landlord’s insurance.
Second, it won’t cover personal property damaged by certain natural disasters, such as earthquakes or natural floods. Only flood insurance covers damage caused by a flash flood, coastal storm surge or some other natural flood event.
Who needs renters insurance?
It’s smart for any renter to invest in insurance that protects their personal property and gives them liability coverage, but renters insurance is even more important in certain situations:
- Lease requirement: Many landlords now require renters insurance. Before you sign a lease, find out whether this is a tenant condition.
- Limited savings: Without renters insurance, you’re on the hook for replacing your stuff or paying for someone else’s injury that occurred in your home. If you don’t have adequate savings to replace essential things like your stolen laptop or cover your friend’s trip to the emergency room, you’ll be forced to use your credit card.
- Lots of personal property: Even if you have money saved up, would you want to drain it to replace all of your furniture, electronics, clothing and other items if there was a fire or if they were stolen? With renters insurance, your savings account and financial goals are protected.
- College students: As a parent, your homeowners policy typically covers your college student’s belongings while they live on campus. Once they move off campus, they no longer enjoy that benefit and need their own coverage.
- Dog owners: Even the most good-natured dogs sometimes surprise their owners with bad behavior. A renters insurance policy can save you from another unwanted surprise. According to the Insurance Information Institute, it cost $64,555 to settle the average dog bite claim in 2022. Keep in mind that some policies have limitations on certain breeds and bite histories.
- More than one resident: Just because you and your roommates share some expenses, don’t assume their renters insurance policy covers your stuff. It doesn’t unless you have a joint policy.
How much coverage do you need?
When you take out a renters insurance policy, you’ll have to decide on limits for your deductible and property and liability coverages, all of which factor into your premium. Your insurance agent can help you figure out what makes the most sense for your situation, but here are a few rules of thumb:
- Deductible: A higher deductible keeps your premium lower, whereas a lower deductible causes a higher premium. If you don’t have an emergency fund, it might make sense to pay a few extra dollars in premium to limit your out-of-pocket costs associated with a claim.
- Property limits: You want enough coverage to replace all of your belongings in the event they were damaged or stolen. It’s a good idea to inventory and value your stuff to come up with that figure. A simple written list will do. Or you can use a home inventory app, such as Sortly or Nest Egg, both of which offer free and paid versions.
- Liability limits: Most experts recommend a liability limit of at least $100,000. But if you’d be more at ease with additional coverage, it usually costs just a few dollars more per month to double or triple that limit.
The bottom line: It pays to have renters insurance for when the unexpected occurs, which happens more often than anyone wants.