When tenants rent an apartment or house, they often assume the insurance the building's owner has covers them. Unfortunately, this is not correct. Your landlord has insurance for structural damage to the building. However, the landlord’s insurance does not cover your personal property. Damage to your personal property is not covered by your landlord's insurance policy, even if it results from damage to the building from events like fire, windstorms or flooding.
The purpose of renters insurance is to insure your personal belongings from damage and potential loss.
Types of Policies
Apartment renters and landlords need to purchase different types of insurance policies. HO-4 is the name of the policy for renters. This policy covers your personal property from 16 types of potential loses. These loses include accidents such as fire and water damage, freezing pipes and smoke. In addition, renters insurance typically covers loses from theft of your person property. Floods, earthquakes and hurricanes are typically not covered by renters insurance without additional riders.
Price of Renters Insurance
An unforeseen loss can occur at any time. For example, a tenant from the unit above yours could leave the bathtub running, and water leaking through the ceiling could damage everything you own. It is expensive to replace all your belongings. The cost of the insurance varies based on your location, but the price is generally worth the investment considering the coverage and peace of mind the insurance provides.
Understanding Cash and Cost Value
Inform the insurance agent of the actual value of your belongings when you purchase the renters insurance. An insurance company will either cover your belongings by paying the actual cash value (ACV) or replacement cost value (RCV). ACV reimburses you the value of the item at the current market value. If the $2,000 computer you purchased a year ago is worth $600 today, that is what you receive in the event of a loss.
With replacement cost value coverage, you receive the amount you need to replace the item at today's prices in the event of a loss. When you purchase renters insurance, you choose either RCV or ACV. If you choose RCV, you pay a higher premium for your renters insurance. If you need to cover very expensive items from loss, the insurance company generally requires a rider -- another word for additional coverage -- to cover the items.
Additional Benefits of Renters Insurance
Renters insurance has some additional benefits. Liability protection is one of these benefits and is standard in renters insurance policies. The specific liability coverage varies depending on the policy. However, typical renters insurance policies provide coverage for slip and fall accidents and lawsuits brought against you for accidents that occur on the insured property, up to your policy limit.
- NAIC: Consumer Alert -Renters Insurance for College Students
- Renters Insurance: Get Cheap Renters Insurance Quotes
- Insure.com: The Basics of Renters Insurance
- Insurance Information Institute. "Your Renters Insurance Guide." Accessed May 11, 2020.
- State Farm. "How Can Renters Insurance Protect Both Landlord and Renter?" Accessed May 11, 2020.
- Travelers. "Renters Liability Coverage." Accessed May 11, 2020.
- USA.gov. "Property Insurance." Accessed May 12, 2020.
- National Association of Insurance Commissioners. "NAIC Releases Report on Homeowners Insurance." Accessed May 12, 2020.
- Insurance Information Institute. "Renters Insurance." Accessed May 12, 2020.
Brian Bass has written about accountancy-related topics and accounting trends for "Account Today." He works as a senior auditor specializing in manufacturing and financial services companies for one of the Big 5 accounting firms. Bass hold a master's degree in accounting from the University of Utah.