In a sense, renters insurance is homeowners insurance — without the building.
If you rent a house, flat or apartment, you are not typically responsible for insuring the building. But most other features of homeowners insurance do apply to your situation as a renter.
Like homeowners insurance, renters insurance includes three key types of financial protection:
- Coverage for personal possessions
- Liability protection
- Additional living expenses (ALE)
Coverage for Personal Possessions
Your main concern as a renter is protecting your possessions. These are the questions your agent will ask you when purchasing a renters policy:
1 How much insurance do you need? Buy enough insurance to replace all of your personal possessions. Renters insurance covers you against losses from fire or smoke, lightning, vandalism, theft, explosion, windstorm and certain types of water damage (such as from a burst pipe or when the tenant upstairs leaves the water running in the bathtub and floods your apartment). Earthquake and/or flood coverage is optional where needed and may be sold as separate policies.
The easiest way to determine the value of all your personal possessions is to create a home inventory — a detailed list of all of your belongings along with their estimated value.
2 Do you want replacement cost or actual cash value coverage? When you choose actual cash value, a deduction is made for depreciation, which is based on the age of the items lost. Replacement cost coverage is more expensive but it allows you to replace your lost property without having to chip in a lot of your own funds to do so.
3 How much of a deductible are you comfortable with? This is the amount you are responsible for paying when there is a loss. For example, if you have a $500 deductible and a fire destroys $5000 worth of furniture, the first $500 is your responsibility and your insurance company will cover $4500. In general, the larger the deductible, the lower your insurance premium.
4 Do you need special coverage for anything? If you own expensive jewelry, furs, collectibles, sports equipment or musical instruments, consider adding a “floater” to your policy to protect against their loss. A floater will typically specify certain dollar amounts for named items and may carry a lower deductible than the rest of the policy.
Most renters policies also include what is called off-premises coverage, which means belongings that are outside of your home are covered the same as if they were in your home. For example, property stolen from your car or a hotel room while you’re traveling would be protected.
Renters insurance provides liability protection that covers you against lawsuits for bodily injury or property damage done by you, your family members and even your pets. This coverage pays for the cost of defending you in court, up to the limit of your policy. Choose an amount that’s sufficient to protect your financial and other material assets in the event of a lawsuit.
Renters policies usually also include no-fault medical coverage. This allows someone who gets injured on your property to simply submit his or her medical bills directly to your insurance company so the bills can be paid without resorting to a lawsuit.
Sometimes people feel they need more than typical liability limits and coverage available in a renters policy. You may want to consider purchasing a personal umbrella liability policy. An umbrella policy kicks in when you reach the limit on the underlying liability coverage provided by your renters or auto policy. It will also cover you for things such as libel and slander.
Additional Living Expenses
Additional living expenses (ALE) coverage provides coverage if your home is destroyed by an insured disaster and you need to live somewhere else for a while. Some of the covered expenses include hotel bills, temporary rentals, restaurant meals and other expenses you incur while your rental home is being repaired or rebuilt. Essentially, it covers the expenses you would not have to incur if you had your usual roof over your head.
Multiple Policy and Other Discounts
Insurance companies often offer discounts on renters insurance if you have another policy with them — for example, car insurance or business insurance. You may also get a discount if you:
- Have a security system
- Use smoke detectors
- Use deadbolt locks
- Have good credit
- Stay with the same insurer
- Are over 55 years old