The cold, hard truth is that your landlord’s property insurance company doesn’t care about you at all, and it’s a safe bet that your landlord isn’t going to help you out financially if the roof crashes in on your head for one reason or another. Your renters insurance company is the only entity that’s going to have your back in case of catastrophe.
Determining what kinds of coverages are available and what you need can seem like a bit of a challenge, but it's not that complicated.
Types of Coverage
Renters insurance typically covers three eventualities, even on a basic, bare-bones policy: It will pay out if:
- Certain items of property are destroyed or stolen.
- Someone is injured on your property and you’re to blame.
- Your rented dwelling becomes uninhabitable for some reason so you must relocate for a period of time. This coverage is often referred to as “additional living expenses” or ALE coverage.
The extent to which your insurance company will pay for these things depends on the elections you’ve made for coverage. It might just pay for repairs to your personal property, or it might pay "actual cash value" to replace it. It might go an extra mile and pay out if something is stolen from or destroyed in your parked vehicle instead of your home. Liberty Mutual renters insurance covers this eventuality as a standard part of a policy.
Coverage for injuries to another caused by your negligence is known as liability insurance. It might only come to the rescue if a guest trips over an electronics cord stretched across your living room floor and needs surgery, or it might also cover you if your dog sinks its teeth into your postal carrier. USAA renters insurance covers this eventuality, and Allstate renters insurance will even cover you if you damage someone else’s property.
Read More: Third Party Liability Insurance Definition
As for that alternate roof over your head in case of emergency, coverage might only pay for the roof…or it might pay for some portion of your meals away from home as well because you no longer have access to your kitchen. It might even pay out if you don’t have to leave your rental, but a lack of electricity has rendered the entire contents of your refrigerator inedible.
Typical Policy Limitations
Not all of these features come standard with every policy, and other limits are typically built in as well. Liability and personal property coverage might only protect you up to certain dollar limits. Items of personal property that you use to earn a living probably probably won’t be covered.
You might only be insured against certain perils, typically fire, theft, wind or water damage – unless the water damage results from a flood. Most renters insurance policies don’t cover flood or earthquake damage, although USAA does cover flood damage on a standard policy.
ALE coverage is usually limited to a certain period of time or a dollar limit.
You’ll have to pay a deductible when you make a claim. Your $1,500 television might be destroyed, but your insurer will only pay $1,000 if you have a $500 deductible.
Riders, Endorsements and Other Extras
The good news here is that you don’t have to be limited to these standard policy conditions. For example, you can elect between replacement cost coverage of your property – what it would cost you to go out and buy a new television – or “actual cash value,” which is what that television would be worth after you’ve been watching it for three years.
You can also add earthquake or flood coverage if you happen to be renting a home on the San Andreas Fault or the Mississippi River Delta, or an “umbrella” to your liability coverage to protect you up to a higher dollar limit or in situations of slander or libel.
Pricey, unique items might require a rider or endorsement for coverage – an add-on to your standard policy that's sometimes referred to as a “floater.” Think expensive jewelry, antiques and collectibles. USAA calls this a “valuable personal property” policy.
How Much Coverage Do You Need?
Start by walking through your home and making a list of all personal property that you want to insure. That six-year-old cellphone might be an “eh,” so you can leave it off. Then do a little research to pin down the value of each item.
You’ll need $20,000 in personal property protection if you have $20,000 in property that you really don’t want to live without. Keep in mind that replacement coverage as opposed to actual cash value will cost you a little more.
The liability coverage you’ll need should increase with the value of what you have to lose if you're sued. You might need more than the recommended $300,000 in coverage if you have $400,000 tucked away in assets and investments, or you might need less if you’re just out of college and haven’t yet begun amassing a personal fortune.
What’s This Going to Cost You?
Insurance.com performed a rate analysis that indicates you’d have to pay about $27 a month to cover $40,000 in property and $100,000 in liability protection. A bare-minimum policy might cost as little as $9 a month, and Liberty Mutual offers some policies for $5 a month. Each $10,000 in property protection equates to another $15 to $20 in your annual premium.
A significant factor is your location. ALE coverage and theft coverage will cost your insurer more in the event of a payout if you live in Manhattan than in a small town in Kansas. In fact, many insurance companies include cost calculators on their websites and your zip code is a critical input factor. Your credit history might also factor in.
Read More: Statistics Used in Determining Insurance Rates
Steps Toward More Affordable Premiums
You can reduce your premiums by increasing your deductible if you’re reasonably sure that you can come up with $1,500 or so in cash in the case of an emergency. Higher deductibles mean lower premiums.
And, of course, you can elect personal property coverage only for those items of property that you don’t want to have to come out of pocket to replace. Maybe you only want to insure your jewelry and your electronics, and their value comes out to about $30,000. You wouldn’t need $40,000 in property protection in this case.
A company with which you already have a policy, such as auto insurance, might offer a discount if you add on a renters insurance policy with them as well. This is referred to as “bundling.”
Some insurers offer discounts under various circumstances, such as if you’re over age 55 or if you install better locks or smoke alarms.
And you’re not locked in to whatever you decide when you purchase a policy. You can increase your coverages at any time if the value of what you own increases or if you get a job paying $500,000 a year.
- Insurance.com: Average Renters Insurance Rates
- Insurance Information Institute: Your Renters Insurance Guide
- USAA: Affordable and Totally Worth It – How Renters Insurance Works
- Insurance Information Institute. "Renters Insurance." Accessed July 28, 2020.
- Insurance Information Institute. "Renters Insurance: Personal Possessions." Accessed July 28, 2020.
- Insurance Information Institute. "Renters Insurance: Liability." Accessed July 28, 2020.
- Insurance Information Institute. "Renters Insurance: Additional Living Expenses.." Accessed July 28, 2020.
- AM Best. "Rating Services." Accessed July 28, 2020.
- Insurance Information Institute. "Renters Insurance: There are two types of renters insurance polices." Accessed July 28, 2020.
- Insurance Information Institute. "Renters Insurance: Ask Your Insurer How You Can Save Money." Accessed July 28, 2020.
- National Association of Insurance Commissioners. "NAIC Releases Report on Homeowners Insurance." Accessed July 28, 2020.
- Insurance Information Institute. "Facts + Statistics: Homeowners and renters insurance: Average Premiums For Homeowners And Renters Insurance, 2008-2017." Accessed July 28, 2020.
Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.