Solved! Is Renters Insurance Worth It?

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Q: When I was signing my lease, my landlord suggested that I buy a renters insurance policy; the company doesn’t require it, but it strongly recommends it for its tenants. I don’t even have that much stuff. What is renters insurance? What does renters insurance cover? And do I need it?

A: While being hit with a suggestion for another expense just as you put down your first and last months’ rent may feel a little scammy, the landlord is actually trying to help you out. Renters insurance is an affordable way to protect your belongings, which are probably worth a lot more than you think (or at least could cost a lot more to replace than you might expect). It has other benefits, too—renters insurance policies provide liability coverage, some travel coverage, temporary housing reimbursement if your apartment requires repair, and other perks. Mostly, though, rental insurance coverage is important because the insurance policy the landlord holds will not cover your personal belongings if they are damaged or destroyed by a covered event, so you’ll be on your own to replace your items out of pocket in the absence of a policy.

It’s typically recommended that all renters get renters insurance. Renters insurance can provide extensive coverage for a relatively low cost.

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How does renters insurance work? A renters insurance policy is similar to a homeowners insurance policy, but with one key difference: Where homeowners policies cover both the structure and the contents of a building, renters insurance does not include structural coverage. If the building is damaged due to an accident or unexpected event, such as a fire, windstorm, hailstorm, vandalism, or other covered peril, the landlord is responsible for the repairs, not the tenants. Tenants are responsible only for their personal property. As a result, renters insurance is considerably less expensive than homeowners or landlord insurance. Policyholders will purchase the coverage with an annual premium. The policy documents will specify the limits and conditions of the coverage, along with the deductible, which is the amount of money the policyholder must pay out before the insurance coverage will reimburse them. Policies do have coverage limits, so renters who have collectibles, valuable jewelry, or expensive artwork will want to do a careful estimate of the value of their items and make certain they have enough coverage.

Renters insurance typically covers your personal property even if it’s not physically in your home.

Many renters are surprised to learn that renter insurance coverage applies to their personal property even when it’s not located at home when the loss occurs. If a bag is stolen while the policyholder is at work, luggage is lost by the policyholder during travel, or a laptop is snatched from a car, renters insurance can help cover the cost of replacement, but only after a deductible is met. However, there are some limitations here. For example, if luggage is lost while it is in the possession of an airline, the renters insurance policy will not cover the loss because the policyholder was not in control of the luggage at the time of the loss. Since it was the responsibility of the airline, the airline’s insurance will help cover the loss if the luggage can’t be found.

Renters insurance can provide legal and medical coverage in certain circumstances.

Aside from personal property, what is covered by renters insurance? If a visitor slips on water splashed on the bathroom floor, who is responsible for medical expenses that may result from the visitor’s injuries? Renters insurance typically provides coverage for medical payments arising from situations such as this one. Medical bills (and legal bills, should a lawsuit be filed) can add up quickly, so having liability coverage, which is a standard component of renters insurance, can be a huge benefit to the renter. These expenses will, in most cases, fall under personal liability, which is one of the renters insurance coverages included in a standard policy, with limits on each claim and total payout over the life of the policy. While it’s not something most people think to include in the renters insurance definition, this liability coverage is a fairly standard offering and can provide an enormous financial safeguard to renters.

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If damage to your home forces you to move out temporarily, renters insurance can help cover associated costs.

Damaged property isn’t the only problem that can result from an incident. If the rental (whether it’s the individual unit or the entire structure) is damaged badly enough, residents may need to move out while repairs are completed or the structure is rebuilt. This isn’t just an inconvenience—it can be a huge expense in and of itself. Ousted residents will need to pay for a hotel or short-term rental, possibly for weeks, as well as costs associated with living somewhere other than the norm: extra food-shopping necessitated by an undersize hotel refrigerator, extra commuting costs, restaurant meals, and parking, among other things. Renters insurance will typically cover part or all of these expenses during the time a policyholder needs to relocate during repairs.

However, renters insurance generally won’t cover items damaged by excluded perils like a flood or bed bug infestation.

Renters insurance policies, like homeowners insurance policies, are considered to be policies of exclusion—in other words, unless a peril is specifically excluded in the policy document, it’s probably covered. Some exclusions are standard, and not unexpected: Floods and earthquakes are excluded because they cause widespread regional damage that is very costly to repair, but only in certain areas where they’re likely, so it seems unreasonable to raise the insurance premiums for all customers when only a few will likely incur the expensive damage these perils can cause. Earthquake insurance can sometimes be added to a policy for an extra cost, and flood insurance can be purchased from the National Flood Insurance Program if the rental is in a flood-prone area. Sinkholes are typically excluded for the same reason. However, it is surprising to many policyholders that renters insurance won’t cover damage caused by pest infestation: Mice, bed bugs, termites, and other pests can cause a tremendous amount of damage, but because the infestation has to be fairly significant before damage is caused, the insurance industry considers it a maintenance issue. Damage caused by terrorism is also excluded from most renters insurance policies.

If you have high-value items in your home, you may need additional coverage.

Once a renter has decided to purchase renters insurance, they’ll need to take stock of their belongings and determine how much insurance they need. When selecting a policy, the primary cost components are the premium, the deductible, and the coverage limits.

The premium is what the renter will pay to purchase the policy. The deductible is the amount the renter has to pay out of pocket before the insurance coverage begins reimbursement. Balancing the deductible against the premium can make renters insurance even more affordable. Choosing a higher-deductible policy will lower the up-front premium cost, while a lower deductible will result in a higher premium but require less cash out of pocket at the time a claim is filed.

The coverage limit is also important to keep in mind when shopping for renters insurance. Renters should make a list of all the items they own and then work with an agent to assess how much replacing everything would cost. That amount can then be used to choose an appropriate coverage limit. Some renters are comfortably within a basic coverage limit, but renters with heirlooms, collections, jewelry, artwork, or musical instruments may find that the standard coverage isn’t enough. In that case, an agent can help add endorsements and additional coverage to make sure the renter will be fully protected in the event of a disaster.

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Your landlord may require you to have a renters insurance policy as part of your lease agreement.

While renters insurance isn’t required by law, landlords can legally choose to include it as a requirement of their lease agreements. In the event of a major claim, landlords are not responsible for the personal property of all their tenants, nor can they shoulder the financial responsibility of carrying liability insurance for each individual unit, especially if they own multiple properties. They’ll carry landlord insurance, which covers the structure of the building, but they can require that each tenant carry their own policy and provide proof of renters insurance, meaning that tenants will need to provide a statement or paid bill in order to rent a unit.

Renters insurance can be even more worth your while with just a few steps.

There are many companies that provide renters insurance, both online and through brick-and- mortar agencies. Renters who want to pick up a basic policy can find affordable coverage with very little effort. However, policies do differ in terms of coverage limits, cost, and available add-on coverage options, so with a little extra work, renters can really tailor their policy to their situation, reducing their overall costs by choosing a policy that includes what they need while not paying extra for components that are unnecessary. The best way to accomplish this is for a renter to compile a careful inventory of their belongings, do a little legwork or use an online tool to estimate the replacement value of the items in the inventory, and then start looking at different companies online. After identifying a few options that look like the best renters insurance companies, it’s time to call and speak with an agent or use an online quote tool. While many people would prefer to simply type in numbers on a keyboard, this is one area where actually speaking to a person can be very helpful; agents know the ins and outs of their policy options and can help the renter develop a clearer idea of what they need. They can also help identify the renters insurance rates from policy to policy and help the renter balance premiums against deductibles to find the best option.

Renters should consider collecting quotes from several companies, then sitting down and looking closely at the policies. It’s not necessarily a good idea for the renter to automatically select the least expensive policy, because it may not provide all the coverage they need. No policy is exactly like another, so the renter will need to carefully examine what’s covered, what’s excluded, what the limits are, and the amounts of the premiums and deductibles before selecting the policy that works best for their situation. Once the choice is made, there’s nothing more to do but make the payment and file away the policy documents, then rest comfortably knowing that protection is in place.