Renter’s Insurance: What is It and Do You Need It?

Many people are finding it harder and harder to afford purchasing a home. So, if you’re not paying a mortgage or living with friends or family, what are your options?

More than likely, renting an apartment or condo is your best bet. In fact, a 2017 news article published by CNBC stated that approximately 37% of households rented their home, which was the highest percentage since 1965. Regardless if it’s an apartment, condo, or house, you want to feel as safe as possible and renter’s insurance can give you that peace of mind.

renters insurance

Renter’s Insurance Basics

Let’s start with the obvious question: what is renter’s insurance? To put it simply, a renter’s insurance policy (also known as a tenant insurance policy) may protect your personal belongings in your rental from things like theft or fire. Typically, a landlord has insurance that covers the actual building but that will not cover the tenant’s personal items.

Let’s review what renter’s insurance may cover for you.

What renter’s insurance covers

If you’re wondering what does renter’s insurance cover, you’re in luck. In general, there is a long list of occurrences that may be covered under basic renter’s insurance. A few of these include fire, damage by a vehicle (other than your own), smoke, freezing of pipes, short-circuits caused by appliances, and theft.

Listed below are the top three categories that are covered by a rental policy.

  • Personal Property – This coverage may pay the cost to replace your items if they are lost, damaged, or stolen.
  • Liability Insurance – This coverage may cover out of pocket expenses and costs related to damage that you, a family member or a guest cause to your apartment or to adjacent units. If a guest is injured in your apartment, this coverage may also cover the guest’s medical bills.
  • Additional Living Expenses – If something happens to your apartment that makes it unlivable, this coverage may pay for living expenses like a hotel or food.

Before you get too excited about renter’s insurance, you must know there’s a chance that not all your costs and expenses will be covered. Certain things may have a reduced limit of liability while others may not be covered at all.

What renter’s insurance does not cover

Below is a list of some of the most common items or situations minimally covered, or possibly not covered, by a renter’s insurance policy.

  • Expensive antiques, collectibles, and jewelry are not covered by a basic renter’s insurance policy.
  • If you run a business out of your home, your personal renter’s insurance policy may not cover any damages done to business-related items, like your work computer.
  • Damage done by natural disasters is typically not covered by a basic renter’s insurance policy.
  • If you live with a roommate, you should each get your own policies because your policy will not cover their belongings and vice versa.
  • Any damage done by pests or vermin is not usually covered.
  • If your car is broken into, some renter’s insurance policies may cover your stolen personal belongings. However, they do not cover any damage to the car itself (i.e. a broken window).

Replacing your stuff.

When it comes to replacing your items, there are usually two coverage options that fall under a typical renter’s insurance policy – actual cash value coverage and replacement cost coverage.

In most cases, you can only select one of those options. Let’s review what they are in more detail.

  • Actual cash value coverage: Reimburses you for the value of the item(s) at the time of loss. With this coverage, if your apartment is broken into and your five-year-old couch is stolen, actual cash value coverage will cover the amount that your couch is currently worth, not how much it cost when you bought it brand new.
  • Replacement cost coverage: Reimburses you for the cost it takes to replace the lost item(s). For example, if some of your clothes are stolen, replacement cost coverage will cover the cost of buying brand new similar items at the store.

When looking at the cost difference between these two coverages, replacement cost coverage pays for more, so it also costs more to purchase. Actual cash value coverage costs less overall but will also pay you less if a loss does occur.

While you may be looking to spend the lowest amount possible in the short-term, it’s also good to think about the long-term. If your items are damaged or destroyed, how much do you want to get back?

Is renter’s insurance worth it?

If you’re on the fence about whether to purchase renter’s insurance, the first thing to know is that many landlords and property managers require proof of renter’s insurance before finalizing a rent or lease agreement.

Whether or not this type of insurance is required there are some common misconceptions about renter’s insurance. SafeAuto’s partner, Millennial Specialty Insurance (MSI), clears up these misconceptions for you.

“My apartment includes my renter’s insurance.”

While it’s not always the case, typically if the cost of renter’s insurance is included in your rent, you are only paying for liability coverage. This only covers the landlord’s property and not your own. Make sure to check before signing!

“I don’t own very much.”

So many people think that they shouldn’t bother buying renter’s insurance because they don’t have that much to insure anyway. What happens if you go to work one day and come home to find your apartment has caught on fire? You’ve lost everything. What once didn’t seem like much now seems like SO MUCH. There’s not just the obvious loss of things like furniture and electronics, but you will also lose the small stuff like your clothes, shoes, makeup, dishes, even your bedding, and pillows. Thus, wouldn’t it be nice to have the extra protection that can financially help you restore these items? We think so!

“I can’t afford renter’s insurance.”

This is the most basic misconception and the go-to reason for not getting renter’s insurance. Think about this: maybe you’re struggling financially a little bit right now and the cost just doesn’t seem manageable. So, ask yourself this: would you be able to handle the out-of-pocket costs and expenses involved in replacing all your stuff if a loss happens? It cost a lot of money to reacquire your things and it will cost a lot to buy it all again. The small monthly cost might seem like a lot now, but it’s nothing compared to the lump sum it would take to buy your life back.

How much is renter’s insurance?

You’re probably wondering how much is renters insurance, and how much is rental insurance a month. According to insurance.com, as of July 2019, the national average cost of a renter’s insurance policy with $40,000 coverage for personal property, a $1,000 deductible, and $100,000 coverage of liability protection is $197 per year. That’s less than $17 a month for the cheapest renters insurance. For the cost of a few Starbucks drinks, you can protect yourself for a month.

Maybe you are a college student or don’t have any valuables or assets and want a minimum limit policy. For a policy with $12,000 coverage for personal property, a $500 deductible, and $100,000 coverage of liability, the national average cost is about $100 a year. That’s less than $9 per month.

The Bottom Line.

Renter’s insurance may seem like just another monthly expense, but ultimately it could save you money. If you’re going to be signing a lease soon, make sure to check your agreement on what may be offered and what is required.

Even if you already have a policy, it doesn’t hurt to compare prices and potentially save yourself some money. Check out SafeAuto’s renter’s insurance partner, Millennial Specialty Insurance (MSI), and get a renters insurance quote today.