Complete Guide to Renters Insurance

Learn how renters insurance works and everything you need to know to get the coverage you need.

Are you renting your home and concerned about protecting your assets, income, or belongings? It’s understandable as many things can go wrong, from natural disasters to burglary. And your landlord’s insurance only covers their property.  So, what can you do? Well, 41% of renters turn to renters insurance to get the protection they need. If you are wondering if that may be the right solution for you, here’s the complete guide to everything you should know about renters insurance.

With all of this info, you will be able to decide if renters insurance is right for you and how to find the best insurer for your situation.

What does renters insurance cover?

Renters insurance policies typically have three parts:

  1. Liability protection
  2. Protection for your personal possessions
  3. Additional living expenses (ALE) protection

Liability protection

If you, your family, or your pets are found liable for property or bodily damage to another person, you can find yourself in a bit of a pickle. Without liability coverage, any assets or savings you have can be at risk.

Renters insurance usually includes liability, which covers the costs for defending you in court up to your policy limit. Additionally, it should include no-fault medical coverage.

So, anyone hurt on your property can submit their medical bills to your insurance without going to court. This can come in handy if an unfortunate event happens, like your dog biting your neighbor or someone getting injured on your property.

Personal possession protection

Personal possession protection helps you replace your belongings if they are lost due to a peril that is covered by your policy. For example, if your home burns down, the insurer would reimburse you up to your limit for the items that are covered.

Note that unique or expensive items like furs, jewelry, or collections may require a dedicated add-on policy. Plus, this coverage goes beyond your four walls. Your possessions can be covered even when moved outside of your home.

Additional living expenses (ALE) protection

ALE protection covers the costs of temporary housing when your home has been destroyed by a covered peril. The expenses can include restaurant meals, hotel bills, temporary rentals, and more.

Keep in mind, many companies let you select a la carte coverage if you wish. So, if you want one coverage but not another, you don’t have to pay for something you don’t need.

How does rental insurance work?

Rental insurance comes to the rescue when a covered loss occurs. Each policy will have a list of covered perils. Perils are the causes of damage that will be covered.

It is designed to cover damages or losses from occurrences that are out of the policyholder’s control, such as a fire, windstorm, lightning storm, or explosion. Any damage from negligence or normal wear-and-tear is usually not covered.

If a covered loss happens, you will report it to your rental insurance company. The insurance company will then review your claim and investigate your loss.

If everything checks out, the insurance will pay your claim amount less your deductible. For example, if you have a $500 deductible and file a $10,000 claim, you would receive $9,500.

For liability claims, you will follow the same process of contacting your insurance company and filing a claim. However, there is usually no deductible.

Once you settle your claim, you can get back to normal life.

What types of events are covered under renters insurance?

So what instances does renters insurance commonly cover?

According to the Insurance Information Institute, the covered causes of loss for property damage include:

  • Fire
  • Lightning
  • Wind
  • Hail
  • Water damage
  • Freezing
  • Theft
  • Vandalism
  • Malicious mischief

Further, the covered causes of loss for liability coverage include:

  • Bodily injury
  • Property damage
  • Medical payments
  • Credit card fraud

Earthquakes and floods are typically not covered and require a separate dedicated policy.

Are you in the military? Learn about USAA’s renters insurance.

Rental insurance costs

There are two costs to consider when shopping for renters insurance: the deductible and the premium.

Renters insurance premiums

The premium is an annual amount due that is usually split up into monthly payments. The average cost varies by state, ranging from $115 to $244.

It also can vary depending on factors such as:

  • The location of your home
  • Your claims history
  • The claim history at your address
  • Safety features in your home
  • The amount of coverage you select (policy limits)
  • Your deductible amount
  • Your credit score

Note, raising your personal property coverage limit generally has more of an impact on your insurance premium than raising your liability coverage limit.

Renters insurance deductibles

Your deductible may be a dollar amount (i.e., $500) or a percentage of your policy limit (i.e., 2%). Renters insurance companies usually let you choose the deductible amount from a few options.

The higher your deductible, the lower your premium will be. However, when you file a claim, the company will subtract the deductible from your settlement. So, it’s important to weigh the risks and benefits of both options.

Reimbursement methods

Reimbursement is the next important element of a renters insurance policy that you should know about. There are two common methods that insurance companies use to reimburse policyholders. The one you choose will impact the amount you receive in a settlement as well as the cost of your premium.

Actual cash value (ACV)

The actual cash value method (aka market value) pays you what your item is worth at the time it is lost. To do that, the insurer takes the original value and deducts the depreciation.

For example, if your three-year-old laptop is stolen, the insurance company will look at the cost to replace it and then subtract the amount for the three years of use. This can leave you with less than you need to replace your lost property.

However, it can help you keep your premium cost down. Being that this method is cheaper for insurance companies, it is often the standard for reimbursing policyholders.

When you file a claim using ACV, you will get one payment for the amount. You can then use it to replace as much of your property with the money as possible.

Replacement value

On the other hand, replacement value reimburses the policyholder for the full value of their items without any reductions for depreciation. This method allows you to purchase new items so you will be back where you were before the loss (and likely in a better situation).

When you file a claim using the replacement value, you will first receive a settlement for the ACV. After replacing the items and submitting your receipts, you will receive the final settlement for the difference between what you paid and the ACV.

Note that insurance companies may retain the right to repair your damaged items rather than replacing them if they determine it is possible to restore your item to its prior condition.

When signing up for your policy, be sure to check which reimbursement method you are getting.

Learn about Lemonade renters insurance and how it turned the traditional insurance model on its head.

How to save on renters insurance

Now for the smart budgeters, here’s how you can get the best bang for your buck when buying renters insurance.

Renters insurance discounts

Some rental insurance providers offer discounts to help you save on your insurance premium. For example, State Farm offers a discount if you bundle your renters insurance and auto insurance.

However, renters insurance policies are pretty affordable. So, the companies generally have fewer discounts than you’ll see on homeowners or auto insurance policies.

Shop around

The best way to save on your renters insurance is to do your homework. Research reputable companies, compare offers, get quotes, and weigh your options.

While it’s not always best to go with the cheapest option, it’s wise to see what is available so you can find the best value.

Compare renters insurance companies here:

Who needs renters insurance?

Renters insurance is a good idea for just about anyone who is renting their home. Many people don’t think they have much to lose until something happens and they need to replace all of their belongings.

According to Esurance, the average renter has $20,000 worth of personal property. Do you have enough in savings to replace your belongings if something were to happen to them?

Rental insurance is affordable, so it is worth the investment in most cases. Plus, you also gain liability protection which can be a lifesaver if you end up being responsible for damages to a person or their property.

Determine how much coverage you need

You don’t want to pay for more coverage than you need, but you also don’t want to have too little. Here’s how to figure out where to set your policy limits.

Take inventory of your belongings

While it can be time-consuming, performing a home inventory is worth it. Write down each of your personal belongings, the purchase price or current value, and a description that includes the age. Also, take pictures of each item. When you finish, add up all of the items to find out how much coverage you need.

Take inventory of your assets

If you are liable for damages to another person or their property, you will want to have enough coverage to handle the problem and protect your assets. Being so, take inventory of your assets and ensure your coverage is at least equal to the total value of them.

Understand your coverage

Read your policy carefully to find out which coverages you have. You may need to add supplemental policies such as those for expensive jewelry, furs, collections, earthquakes, or floods.

The last thing you want is to find out you don’t have sufficient coverage when you actually need it.

Learn about other costly mistakes you should avoid when getting renters insurance here.

Renters insurance FAQ

What is the standard coverage for renters insurance?

Standard policies include $100,000 of liability coverage and $30,000 of property/contents coverage, according to the Independent Insurance Agents and Brokers of America, Inc.

Can a landlord require you to have renters insurance?

Yes, landlords can require tenants to carry and maintain renters insurance as part of the lease agreement. In fact, more and more landlords are requiring it.

What does renters insurance cover?

The specific details of renters insurance can vary from one policy to the next. However, in general, it covers a renter’s belongings against disasters, damage from neighbors, theft, and vandalization.

Additionally, it covers ALE and provides liability protection for the renter, their family, and their pets.

Will renters insurance cover my dog?

The personal liability section of a renters insurance policy does typically cover a renter’s dog and other pets. However, some companies restrict the breeds they will insure.

For example, Esurance analyzes stats on which breeds present a higher financial risk and won’t insure those that are high-risk, such as pit bulls. On the other hand, State Farm follows the philosophy that “it’s the bite, not the breed,” so they will not ask what breed of dog you have.

You will have to vet for pet-friendliness when shopping for renters insurance with a dog.

Find the best rental insurance company for you

So, where do you start if you are renting and are interested in signing up for coverage?

Head over to SuperMoney’s Renters Insurance Review and Comparison page. You will find a side-by-side collection of industry-leading companies.

Read in-depth reviews of their offerings and see how they rank with past customers to decide which one is the best fit for your needs.

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