If you’re in college or have recently graduated, you probably rent the place where you live. Compared to owning your home, this means way fewer responsibilities (and expenses). You take care of the rent, utilities, and security deposit, and your landlord handles the rest.
In addition, there’s another common rental expense that you’ve probably encountered: renter’s insurance.
Any good landlord will require you to have renter’s insurance, but do you actually know how it works? Why should you pay this extra expense when you don’t even own your place? And how can you find the best renter’s insurance for your needs?
These are just some of the questions we’ll explore in this comprehensive guide to renter’s insurance. Whether you’re getting renter’s insurance for the first time or just want a better understanding of how it works, this article will help you out.
What Is Renter’s Insurance?
Broadly speaking, renter’s insurance protects you and your personal property. In exchange for a monthly or annual payment (called a “premium”), an insurance company agrees to pay you in the event something bad happens.
What bad things? you may ask. Read on to find out.
What Does Renter’s Insurance Cover?
Renter’s insurance covers three main things:
- Personal Property
- Liability
- Additional Living Expenses
Let’s look at each in more detail:
Personal Property
Even though you don’t own the place you rent, you still own the things inside your living space. Whether it’s furniture, sporting equipment, or your mint collection of rare Yu-Gi-Oh! cards, your possessions are likely worth thousands of dollars.
Renter’s insurance will reimburse you in case your possessions are stolen, damaged, or destroyed. What your policy covers and how the company will reimburse you depend on the details of your renter’s insurance policy. We explore how personal property coverage works later in this article.
Liability
Let’s say someone visiting your house trips on a rug and breaks their leg. They then sue you for the cost of their medical bills. This could easily cost you thousands of dollars when you account for court fees and damages.
If you have renter’s insurance, however, then the insurance company will likely pay both your court fees and any money the court awards the injured person.
In addition to protecting you from liability in case someone is injured on your property, the liability portion of your renter’s insurance also covers these situations:
- Property damage that a guest of yours causes.
- Damage you, your family members, or your pet cause to a neighbor’s property.
- If you or a family member accidentally injures a guest or neighbor.
The specific coverage details vary based on your policy. Generally, however, most policies provide at least $100,000 of liability coverage.
Additional Living Expenses
What happens if a fire makes the place you rent uninhabitable? While your landlord may be able to repair the damage, you’ll need to find somewhere else to stay in the meantime.
The additional living expenses (ALE) portion of your renter’s insurance can help pay for the expenses you incur while your rental is being repaired. This includes things like hotel bills, restaurant meals, and other covered expenses.
You’ll need to consult your policy to see exactly which situations it covers. But it’s reassuring to know that you generally won’t have to pay out of pocket for the high additional costs of temporary living expenses.
Shopping for car insurance as well? Have a look at this guide.
How to Get Renter’s Insurance
Now that we’ve covered the basics of what renter’s insurance is, how do you get renter’s insurance coverage?
Compared to health insurance or car insurance, renter’s insurance is pretty straightforward to get. Here are the steps we recommend:
1. Determine Your Coverage Needs
Before you start getting insurance quotes, you should determine how much coverage you need.
Most landlords will require a minimum amount of coverage. My landlord, for instance, requires at least $20,000 of personal property coverage and at least $100,000 of liability coverage.
In most cases, the minimum amount your landlord requires is probably all you need. However, be sure to examine your specific circumstances. In particular, make sure you have enough coverage for all of your property.
If you have very valuable personal property, then you should up your coverage. Remember, you’re preparing for a worst-case scenario in which your home burns down, leaving you with nothing. While this hopefully never happens, it’s the right mindset to have when figuring out how much coverage you should get.
2. Get Insurance Quotes
Once you’ve determined your coverage needs, it’s time to start shopping for insurance.
First off, please compare at least a few insurance providers. Many landlords and property management companies will offer an insurance policy through a partner of theirs. While this could be the right coverage for you, be sure to do your research. You might be able to pay less (or get better coverage) with a different company.
Any good insurance company will let you get a quote online. Typically, this requires you to enter some personal information and answer a few questions.
Mainly, the insurance company wants to assess how much of a risk you are. With renter’s insurance, this usually means asking if you’ve ever had a claim and if there’s something particularly risky about your home. For instance, I’ve had some quote forms ask what material the roof is made of.
Once you’ve entered your information, you should receive a quote immediately. Make note of how much it costs and then compare a few more policies.
Again, always do your own research. Just because your friend or relative got a great deal from a particular company, doesn’t mean you will. Each person’s situation is different.
3. Sign Up for the Insurance Policy
After you’ve done your comparison shopping, you can now sign up for the best policy you found. Since the actual coverage tends to be the same among companies, this usually comes down to whichever is cheapest.
To sign up for the policy, you’ll need to read some paperwork and sign a few documents.
After that, you’ll specify how you want to pay (and how often). Most insurance premiums are billed annually, though you may have the option to pay in monthly installments.
If you’re confused about any part of this process, don’t hesitate to contact your local insurance agent. It’s their job to help you understand your policy.
How Much Is Renter’s Insurance?
We’ve talked about how to get a renter’s insurance quote, but how much will this coverage actually cost you?
This is a tricky question because there are so many variables. Generally, however, renter’s insurance is quite affordable.
A basic policy will cost around $15 per month on average, according to AdvisorSmith. If you need higher amounts of liability or personal property coverage, then you may have to pay more.
Also, bear in mind that the deductible you choose will also affect your insurance costs.
The deductible is the amount you have to pay out of pocket before insurance coverage kicks in.
A higher deductible will lower your premiums, but you need to find the right balance between what you can afford to pay each month and how much you can afford to pay if you make a claim.
Don’t get suckered into a policy with really low premiums, only to discover later that your deductible is more than you have saved.
Need help boosting your savings? Check out our guide to budgeting and saving money.
Renter’s Insurance FAQ
Renter’s insurance (and insurance in general) can be a confusing topic. To help you make sense of it, here are answers to some common renter’s insurance question:
Do I have to get renter’s insurance?
Typically, yes. Most landlords and property management companies require it.
But even if the place you live doesn’t require it, you should still get it. Although the things renter’s insurance protects against are unlikely, the potential financial damage is enough that it’s still prudent to have it.
How much renter’s insurance do I need?
It depends. At a minimum, whatever your landlord requires. But you should estimate the total value of all your possessions and use that to determine how much personal property coverage to get.
For liability coverage, the minimum amount of your policy (typically $100,000) is probably enough unless you, a pet, or a family member is particularly prone to injuring others or damaging property. But if that’s the case, you have bigger issues to deal with than insurance coverage.
Are there things renter’s insurance doesn’t cover?
While renter’s insurance covers many different accidents and disasters, there are some things it will not cover.
To start, it won’t cover your car if someone damages or steals it. That’s a matter to discuss with your auto insurance provider.
Beyond that, renter’s insurance typically doesn’t cover damage from floods or earthquakes. Some providers will let you add coverage for these incidents at an additional cost. But in other cases, you may need to get separate flood and/or earthquake insurance to cover your belongings.
Finally, be aware that renter’s insurance doesn’t cover your roommates’ property. Assuming they have their own renter’s insurance (which they should), this typically isn’t an issue. But it’s good to know in case it comes up.
What’s the difference between replacement cost and actual cash value policies?
While all renter’s insurance will cover your personal property if it’s damaged or stolen, how the company will reimburse you depends on the type of coverage you get.
Your renter’s insurance policy will either cover the replacement cost of your items or the actual cash value of them.
If your policy covers replacement cost, then it will pay you the full cost of replacing your items as if they were new. For instance, if your $500 bike gets stolen out of your garage, then a replacement cost policy will pay you $500.
On the other hand, an actual cash value policy will only pay the depreciated value of your items. So if your bike was worth $500 new but is now worth only $100, the policy would pay you $100.
Some money is certainly better than no money, but you’ll need to decide which type of coverage makes more sense.
A replacement cost policy will have higher premiums, but it will usually pay you more for your items. An actual cash value policy will have lower premiums, but you could be stuck paying more out of pocket to replace your items if you make a claim.
What’s the best renter’s insurance company?
Unfortunately, there isn’t a definitive answer. What you pay will depend on your state, property details, and many other factors. This is why we encourage you to get quotes from a variety of companies to determine which is best for your situation.
Renter’s Insurance Is a Must
You should now have a better understanding of what renter’s insurance is, how it works, and why you should have it.
Whatever you do, don’t skip renter’s insurance. While we hope you’ll never need it, it’s critical to if you ever do.
Looking for renter’s insurance as part of an upcoming move? Check out our guide to moving to a new city.
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