Renters Insurance: What It Is & How It Works

Renters Insurance: What It Is & How It Works
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Paying for renters insurance might seem like an unnecessary expense because your landlord almost certainly has property insurance on your apartment or dwelling. But that insurance doesn’t cover you. It will compensate your landlord in the event of disaster, but your property is your own personal loss…unless you have your own renters insurance.

There’s no legal requirement that you must carry it, although your landlord might make it a condition of your lease. It’s referred to as an HO-4 policy in insurance-speak.

How Renters Insurance Works

Renters insurance can cover three common components, depending on your policy:

  • Your personal property 
  • Your liability in the event someone is injured in your rental unit due to your own negligence.
  • Living expenses should your home be rendered uninhabitable 

All coverage is typically subject to a deductible – you must personally pay the first handful of dollars before your renters insurance kicks in.

Property Coverage

Property coverage might pay to replace any belongings that are destroyed – your carrier will give you the money to buy a new one if your television is destroyed if you have “replacement cost coverage." Or it might only pay you whatever your television was worth at the time of its demise. This type of coverage is referred to as “actual cash value.” It depends on the terms of your policy.

Your property might also be covered if it’s stolen rather than destroyed due to circumstances beyond your control.

Liability Coverage

Liability coverage has your back if you spill cooking oil all over your kitchen floor, fail to clean it up properly, and your friend wipes out on the slick surface. He has medical bills, and he’s pretty annoyed with you. He sues you.

Liability coverage will pay for your legal defense, up to the terms included in your policy, and it will pay up if you lose the lawsuit and owe compensation for the incident. It will pay for his medical treatment even if your friend doesn’t sue.

Living Expenses Coverage

This type of coverage picks up the tab for other accommodations if you’re forced to move out for a while because your home is uninhabitable. This generally includes not just the cost of temporary shelter, but meals and laundry as well. It usually kicks in when there's been water, smoke or fire damage that make your home inhabitable.

Some policies might even pay for moving expenses if your dwelling is damaged to the point where it can't be repaired within a reasonable period of time.

What These Coverages Protect

Exactly what’s included beneath the umbrellas of these three types of coverage can vary depending on the terms of your policy and how much you want to spend on it.

Liberty Mutual renters insurance covers your clothing, electronics, furniture and jewelry on a basic policy. It will also pay your temporary living expenses in the event of a crisis.

USAA renters insurance goes above and beyond, but it's only available to members. Both earthquake and flood coverage come with a basic policy with this insurer, which isn’t usually the case with most of them. In addition to the usual clothing, electronics, furniture and jewelry, USAA also covers bicycles, fine art, sports equipment, coins, firearms, appliances and furs. Moreover, these items don’t have to be physically located in your dwelling at the time disaster strikes them. They can be in your car or in storage.

Not all insurers will cover property that’s damaged while it’s in storage, and many don't offer flood coverage.

Basic Policies vs. Added Coverage

It’s generally not a matter of an insurer refusing to cover some of these issues, but rather not including them in its basic, standard policy. In other words, you get what you pay for. Added coverage costs more.

Some policies won’t cover your artwork or jewelry unless you buy additional coverage for these items, and even then, the rider will only cover up to certain values.

Storage facility coverage is also often an add-on, and flood and earthquake insurance are usually considered to be additional coverage, or it might even involve purchasing a whole separate policy. Replacement cost coverage is often an add-on as well.

Restrictions and Limitations

Some coverages can be limited or restricted, so read policy terms carefully before you commit to one. You might ​think​ your personal property is covered during a move or while it’s in storage, but USAA renters insurance excludes damage that’s the result of a temperature change.

Dog bites are another tricky issue. The liability provisions of your policy might not include coverage if Fido gets out of line, particularly if he’s considered to be a high-risk breed that’s known to be aggressive under certain circumstances.

Bug infestations might not be covered. Your claim might be paid if a fire destroys your dwelling, but not for extermination or damage to property if cockroaches or bed bugs creep inside and wreak havoc.

How Much Does All This Cost?

So what’s all this going to cost you? Again, it depends on whether you want to go with a basic policy or pay for extra coverage. Liberty Mutual indicates that it provides basic coverage for as little as ​$5 a month​. The national average is more like ​$15 to $30 a month​, but "average" includes both basic and more complex policies. Replacement cost policies tend to run about ​10 percent more​, according to Insurance.com.

Ways to Cut Costs

Allstate renters insurance can run you as little as ​$4 a month​ if you also insure your auto with them. In fact, this is a pretty common discount feature among insurers. It’s referred to as “bundling” your policies.

Allstate also offers discounts if you install certain safety equipment in your home, if you’re over 55 and retired, if you’ve never made a claim to another renters insurance policy or if you sign up for automatic debits of your premiums from your checking or savings account. Liberty Mutual offers a wide variety of cost-savers and it’s been ranked high among insurers for this feature.

Another way to lower the cost of your premiums is to gamble that you’re probably not going to be making a lot of claims. You might agree to pay a $1,000 deductible rather than $500 per claim. Increasing your deductible can reduce your premiums.