What is Renters Insurance?

Highlights:

• Renters insurance helps protect renters from certain types of financial loss that can happen while living in rented properties, such as: apartments, houses, single rooms and condominiums.
• Your exact coverage will vary depending on your policy, but renters insurance typically covers damage to your living space or personal belongings, theft, certain liability claims and expenses you may face if displaced from your home.
• Renters insurance is not required by law; however, some landlords may require it as a condition of renting a property.

Renters insurance can be a lifesaver for tenants facing sudden home-related emergencies. Without it, unpredictable events like fires, windstorms and burglaries drain your wallet. A renters insurance policy can help protect against financial loss.

How does renters insurance work?

Renters insurance helps protect tenants against certain types of financial loss that can happen while living in rented properties. Apartments, houses, single rooms and condominiums may all benefit from renters insurance. When you have renters insurance, your insurer agrees to help pay for certain costs related to theft or damage to your living space and personal belongings. It may also cover some liability claims.

Renters insurance only kicks in after certain events, known as “covered perils”. These include: fire, smoke, lightning, wind and some water damage, as well as, theft and vandalism. Most renters insurance excludes two major categories of damage: earthquakes and floods. Insurance policies covering floods and earthquakes must typically be purchased separately.

What does renters insurance cover?

Like most insurance, your exact coverage varies depending on your unique policy. However, renters insurance generally includes three major areas of coverage:

• Personal property. This includes damage and theft related to your personal belongings. Be aware that your policy may have maximum coverage limits. So, you may need to purchase separate insurance for certain valuable items. This may include: art, antiques, jewelry and some electronics.
• Liability. Renters insurance may help protect you from liability relating to lawsuits, repairs and medical bills if property damage or physical harm is caused by you, your pets or your family members when they are on the premises.
• Additional living expenses. This category of coverage can reimburse you for costs you incur if you're displaced while a rented property is being repaired. This may include hotel bills, food expenses and storage unit rentals.

There are two primary types of renters insurance policies: actual cash value (AVC) and replacement cost value (RCV).

ACV policies cover the value of any damaged belongings minus depreciation, which accounts for an item's loss of value over time. For example, say you're looking to replace a mattress that you purchased 10 years ago for $2,000. After a decade of use, the mattress may now be worth only $500. ACV policies subtract depreciation, so they may not provide enough cash to replace your belongings. This means you may have to pay a portion of the cost out of pocket.

RCV policies pay for new items of comparable quality, without subtracting any depreciation. As a result, they generally offer more comprehensive coverage and larger payouts than ACV policies.

Is renters insurance required?

Renters insurance is not required by law; however, some landlords may require it as a condition of renting a property. Landlords may have their own insurance, which usually covers structural damage to the premises. This insurance does not extend to your possessions.

How to get renters insurance

Even if your landlord doesn't require it, renters insurance can save you money in the face of a sudden emergency. Here's how to find an effective renters insurance policy that works for you and your budget.

• Determine your coverage. Catalog your personal property and estimate its value. To do this, create a list of your belongings, including descriptions, serial numbers, photographs, receipts, purchase dates and costs. Add these costs together to estimate the amount of coverage you'll need.
• Find the best insurance policy. Next, compare policies to find the best fit for your coverage needs. If some of your belongings are expensive or you need additional liability coverage, you may also need to purchase supplemental insurance.
• Shop around. Request quotes from multiple insurers. Assemble a wide variety of options with different coverage levels and price points, but make sure to stick to policies you can afford. You may be able to save money on premiums by purchasing a policy with a higher deductible or by bundling your renters insurance with an existing policy. When you've found renters insurance with adequate coverage and premiums that fit your budget, be sure to review the terms of the policy carefully before you buy.
• Be prepared to file a claim. Once your policy is in place, make sure you know what to do if you experience an event that might be covered under your policy. First and foremost, contact your insurer immediately to declare your intent to file a claim. Then confirm that you're covered and find out how long you have to submit your claim. Keep careful records of any damage or liability costs: collect receipts, take photos and video of any damage inside your home and hold onto any affected belongings. Using this evidence, fill out and file your claim.

Renters insurance can be an important step toward safeguarding your most valuable possessions — and your financial security. The right renters insurance policy can help you feel better prepared to face almost any disaster.