How Does Renters Insurance Work, and Why Do I Need It?
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Renters insurance is affordable insurance coverage for people who rent the place where they live. It protects against the loss of personal belongings, certain types of liability, and temporary relocation if a rental unit becomes uninhabitable due to a covered event. Although it’s relatively straightforward, you may wonder how renters insurance actually works. As always, the time to learn about insurance coverage is before you need it, not after.
This guide to how a renters policy works covers what renters insurance is, how to determine whether you need renters insurance, how and where to shop for renters insurance, how to choose a policy, how much insurance to buy, and what a typical policy covers.
What is Renter’s Insurance?
If you rent your home, you should consider buying renters insurance. You can get renters insurance whether you’re renting an apartment, condo, townhouse, other attached dwelling, or a single-family home.
It’s a common misconception that if a disaster occurs on your rental property, your landlord can be held financially responsible for any damage to your personal belongings, any injuries that result, and extra expenses that you may incur. The truth is, whatever insurance coverage the landlord has on the building or the rental unit doesn’t cover you as a renter.
Renters insurance covers the policyholder’s personal property, which refers to all of a renter’s belongings. This includes:
- Furniture
- Clothing
- Electronics
- Appliances and kitchen equipment
- Bedding and towels
- Most sports and hobby equipment, such as bicycles and musical instruments.
It doesn’t cover fixtures of the rental unit, such as built-in appliances.
There are two other components of a standard renters insurance policy that are beneficial: liability coverage and relocation coverage. In addition to property coverage, renters insurance covers the policyholder’s legal and liability expenses related to lawsuits resulting from accidents occurring on the rental property. It also compensates for additional living expenses if the policyholder and other covered occupants are forced to relocate temporarily due to a covered disaster.
While these are the typical coverages, policies vary. As a result, it’s important to carefully compare the details of any policies you’re considering. Commonly covered events include smoke, fire, explosions, theft, vandalism, windstorms, lightning, natural disasters, and water damage from internal sources, such as plumbing or leaks from a neighboring unit. Earthquakes and floods from weather or other external water sources are usually not covered.
Is Renters Insurance Required?
Renters insurance is sometimes required by landlords. Even though a landlord will most likely be compensated for damage to the property in the event of a disaster, it’s still in the landlord’s best interest to ensure that renters can afford to cope with the same circumstances. That’s why landlords can require renters insurance as a condition of a lease, even though renters insurance isn’t required by law. Whether you’re renting from an individual or a large management firm, and regardless of the size or type of rental property, you shouldn’t be surprised to see language in the lease that requires you to provide proof of renters insurance.
Why is it smart for a landlord to require tenants to carry renters insurance? If renters have their own coverage for disasters that affect the property or incidents that occur on the property, the landlord is much less likely to get dragged into a lawsuit over damaged belongings, personal injuries, or other such issues. Even if a landlord isn’t found legally responsible, a lawsuit is still time-consuming and expensive. Also, a tenant or potential tenant who provides proof of a renters insurance policy is usually perceived as a better potential tenant than one who can’t or won’t get renters insurance.
Do I Need Renters Insurance?
Assuming your landlord doesn’t require renters insurance and the choice is totally up to you, how do you figure out if you need it? According to the Insurance Information Institute (III), a renters insurance policy is a smart choice for most tenants. That’s because renters insurance is affordable for most households, and the coverage it provides is valuable in a wide variety of disasters and incidents. If damage to your possessions or the possibility of needing to relocate temporarily because of a disaster would be a significant financial obstacle, renters insurance is probably the right call.
If any of these situations apply, it’s strongly recommended that you get renters insurance:
- Your landlord requires it.
- You have a lot of possessions, or you have particularly valuable possessions.
- You don’t have separate liability or umbrella insurance that covers if someone is injured on your property or by a member of your household.
How Do I Buy Renters Insurance?
According to the III, most renters insurance policies are similar from company to company in terms of what they cover and under what conditions. Renters insurance is generally affordable, so most consumers should focus more on finding a company they’re comfortable with and a policy that meets all their needs rather than finding the absolute cheapest policy available.
If you already have an insurance company that you’re happy with for auto, life, or any other type of insurance, that’s a good starting point. But it’s in your best interest to check out other companies as well, based on recommendations from family, friends, and any realtors you know. You can get online quotes from many renters insurance companies, which makes comparison shopping easier. However, remember that not all renters insurance companies operate in every state. (See the state availability table below.) Ultimately, you should choose a company that offers good customer service and helps you understand the policy you’re considering.
When comparing policies, whether from competing insurance companies or the same company, only look at those that provide the amount of renters insurance you actually need. The best approach is to figure out how much your belongings are worth and buy enough coverage to be fully reimbursed if you lose everything in a disaster. Also, consider certain types of supplemental coverage based on your living situation and other factors. These steps will be covered in more detail later in this guide.
When comparing options from different companies, make sure the coverage limit is high enough to pay for all of your possessions. You should also consider if you need the various add-on coverages offered and understand what your policy does and doesn’t cover.
How Much Does Renters Insurance Cost?
The sample monthly premium for the top 10 companies ranges from about $13 to about $24. These premiums are consistent with a 2021 survey from the National Association of Insurance Commissioners (NAIC) that shows annual average insurance costs in each state. In 2018, the average renter in North Dakota paid annual renters insurance premiums of just $126, the cheapest of any state. Meanwhile, Mississippi topped the list as the most expensive state, with average annual renters insurance premiums of $252. Even at the high end, renters insurance should be within reach for most renters.
The cost of your policy depends on where you live, the company, the amount of your deductible, and the chosen level of coverage. A basic policy covers your personal property, renter’s liability insurance, and additional living expenses if you are temporarily displaced. You can increase your coverage by increasing coverage limits, adding riders or floaters to cover particularly valuable possessions, adding coverage for specific kinds of disasters such as floods or earthquakes, or increasing your liability coverage. All of these options will raise your insurance premium. To lower your premium, consider increasing your deductible. This is the amount you’ll have to pay out of pocket before your insurance coverage kicks in to reimburse you for a covered event.
What Does Renters Insurance Cover?
There are three main components of renters insurance coverage:
- Personal possessions reimbursement
- Liability insurance
- Additional living expenses reimbursement
Personal possessions coverage is what most often comes to mind when people think of renters insurance. If there’s a covered event or disaster, your insurance company will reimburse you for personal belongings that were damaged or stolen. This includes everything in your rental property, such as your furniture, clothing and shoes, electronics and devices, appliances (not including appliances like the oven that are fixtures of the rental unit), bedding and bath items such as sheets and towels, and sports and hobby equipment. Most renters insurance policies exclude items valued over a certain dollar amount. If you have high-value possessions like jewelry, artwork, collectibles, or specialized computer or hobby equipment, you can get these items appraised and add extra coverage to your policy to ensure you’ll be reimbursed if they are affected by a disaster.
Renters liability insurance protects the policyholder from lawsuits stemming from incidents originating on the rental property, such as accidental injuries, injuries from household pets, or accidental damage to a neighbor’s personal property.
Additional living expense coverage provides reimbursement if a covered disaster renders your rental property unlivable and forces you to relocate temporarily. It covers what you pay for meals, lodging, and other living expenses above and beyond your normal expenses.
Finally, covered events typically include fire, smoke, lightning, vandalism, break-ins, explosions, windstorms, and water damage from inside sources. Earthquake and flood damage are generally excluded, but both are available as additional coverage.
How Much Renters Insurance Do I Need?
In your search for affordable renters insurance, you’ll need to figure out how much renters insurance you actually need. The III recommends making a home inventory of all your possessions, along with their approximate values. If you know how much you originally paid and when you obtained each item, include that information as well. Make a special note alongside particularly valuable items. These may need to be appraised and discussed with your insurance company, as they may require special floater or rider coverage.
You’ll also have to decide between an actual cash value policy and a replacement policy. An actual cash value policy considers the age of your possessions and how much they’re worth now. Certain used items like clothing, bedding, appliances, and electronic devices aren’t going to be worth nearly as much as what you paid for them. As a result, while your renters insurance premiums will be lower, you’ll be compensated for less than the cost of new, equivalent items if you file a claim.
Replacement cost coverage costs a little more, but because renters insurance is generally affordable, it’s probably worth the higher premium for a policy that will pay for new replacements. Say, for example, your 5-year-old laptop computer is stolen. With an actual cash value policy, your insurance company will reimburse you for the computer’s current estimated value, which likely won’t be enough to buy a new model. With a replacement cost policy, you’ll receive enough compensation to buy the current version of your old computer or something comparable.
What Should I Look for in a Renters Insurance Policy?
When choosing a renters insurance company and policy, buying enough coverage should be your top priority. This will ensure your policy covers your belongings and provides peace of mind.
As you’re shopping around, remember that you’re evaluating companies as well as policies. You’ll also want to consider the other insurance companies you do business with, as well as recommendations from friends, family, and perhaps a realtor. Choose a company that answers your questions politely and thoroughly, ensures you understand your policy, and has a good reputation for customer service.
When comparing actual policies, price is important, but it’s certainly not the only important factor. Ensure that each policy you’re considering will reimburse you for all your possessions and provide enough renters liability insurance and additional living expenses coverage.
Consider the details of the policy, as well. Do the company and policy allow you to adjust coverage limits, raise or lower deductibles, and add additional coverage, such as umbrella insurance? Many renters will be fine with a basic policy, but if you have additional needs, now is the time to make sure you find a policy that will accommodate you.
Finally, whether you’re shopping online or working with an agent, look around for other possible discounts you may qualify for. Bundling is a common discount available when you buy multiple policies from the same insurer. Bundling options could include auto insurance, life insurance, umbrella insurance, and other types of policies, depending on what your insurance company offers.
The bottom line, according to Robert Hunter, director of insurance at the Consumer Federation of America, is that renters insurance should provide “a good price and good claims service.” Both are important, and one without the other may lead to dissatisfaction over the long term.
Is Renters Insurance Tax-Deductible?
Renters insurance is generally considered a personal expense and isn’t tax deductible. An exception is if you run a business from your home. In that case, your renters insurance premiums could count as business expenses, following the IRS guidelines for home office deductions. If you have specific questions about what is and is not permissible as a tax deduction, always consult a tax professional.
Article Source: usnews.com
For more information on Renter’s Insurance, please check out this video:
