How Does Renters Insurance Work?
Renters insurance provides coverage for your personal property, liability, medical payments and loss of use in a rental property. Our guide explains how it works, what it covers and how to purchase a policy.
Key Takeaways
- Renters insurance helps protect your rental property from perils such as fire, smoke, lightning, vandalism, and more.
- Your rental insurer will pay your claim in the event of a covered loss, minus the deductible. Note that you must choose between actual cash value coverage and replacement cost coverage.
- Your landlord should cover your dwelling, which is the structure of your home.
Renters insurance protects you and your belongings in your rented property. Coverages can vary per policy, so it’s important to review your policy details.
A renters insurance policy covers your personal property, such as clothes, furniture, and electronics. However, it doesn’t cover the rental unit’s property, like built-in appliances. It also covers liability, medical payments, and loss of use.
Your landlord doesn’t cover your belongings when disaster strikes. That’s why it’s essential to purchase renters insurance, whether you’re renting an apartment, condo, townhouse, other attached dwelling, or a single-family home.
Renters insurance protects your rental property from covered perils, which can include:
- Fire
- Smoke
- Lightning
- Vandalism
- Break-ins
- Explosions
- Windstorms
- Some types of water damage, such as broken pipes
Keep in mind that renters insurance doesn’t typically include earthquake and flood damage, but you can purchase both as additional coverage.
Buying coverage
Insurance professionals recommend getting at least three quotes from different providers to find the best rate. Insurers offer some common discounts, but you can bundle your renters insurance with a car or life insurance policy to save on your premium.
“If you find a better deal or bundle later, take it,” said Marty Ellingsworth, President of Salt Creek Analytics. “It’s ok to shop and switch.”
Before purchasing a policy, review its details to ensure you’re properly covered. After you’ve purchased a policy, keep your policy active by paying your premiums on time.
Filing a claim
If a covered incident occurs, document as much as possible, including pictures and videos of the damage, police reports, and receipts. You also need to file a claim with your insurer immediately. You’ll be reimbursed if your insurance company approves your claim.
Paying the deductible
Your deductible is the amount you must pay out-of-pocket before your insurance policy pays for covered claims. That said, after you file a claim and it’s approved, your insurer will reimburse you, minus your deductible.
For example, if your insurer approves a $5,000 claim, and your deductible is $500, then you’ll be reimbursed for $4,500.
Renters insurance isn’t mandated by law. However, landlords can typically require it as a condition of a lease. In this case, you must provide proof of renters insurance.
Landlords usually require tenants to carry renters insurance to protect themselves against lawsuits resulting from damages or incidents occurring on the property.
Renters insurance can be a wise investment for tenants because it’s relatively affordable and can protect you from various perils.
In addition to a landlord’s requirement, we recommend purchasing a renters insurance policy if:
- You have many belongings or high-value possessions.
- You don’t have a separate policy protecting you if someone is injured on your property.
Consider these steps to get the right coverage at the best price when purchasing renters insurance:
- Shop around: Review quotes from multiple insurers to find the best price and coverage. Also, speak with your auto or life insurer to see about a bundling discount.
- Assess the value of your belongings: Determine the value of your possessions, including high-value items that may require additional coverage.
- Check state availability: Not all company policies are available nationwide, so ensure the company you’re considering operates in your state.
According to our study of the cheapest renters insurance companies, the average sample premium is $20.81 per month. However, the cost of your policy can vary based on several factors, including:
- Your location: If you live in an area prone to natural disasters, then you’ll likely pay more.
- Deductible: Typically, the higher your deductible, the lower your premium and vice versa. However, ensure you can pay the out-of-pocket costs if you file a claim.
- Coverage limits: The higher your coverage limits, the more expensive your premium will be. It’s important to get adequate coverage to ensure you’re fully protected.
- Claims history: Some insurers may check your claims history, and the more claims you’ve filed, the higher your rate may be.
The amount of renters insurance you need depends on the value of your personal belongings. Review your possessions and their approximate values. Include receipts if you have them, and note especially valuable items. High-value items will likely require additional coverage.
Next, determine whether to purchase an actual cash value policy or a replacement cost coverage policy. An actual cash value policy takes into account an item’s depreciation. For example, if your four-year-old couch was damaged in a fire and it originally cost you $4,000, then your insurer may only reimburse you for $1,500 due to depreciation and your deductible.
Replacement cost coverage is typically more expensive, but it pays to replace your damaged items with new ones of comparable value, without considering depreciation. For instance, using the same example as above, you would be reimbursed appropriately to purchase the current version of your old couch.
Price isn’t the only essential factor when looking for renters insurance. Here are other factors to consider when shopping for a policy: