Is Renters Insurance Really Necessary?
Living in an apartment can be pretty convenient, but it also comes with a lot of risks. Even though you might be able to avoid most maintenance costs, you can still be at risk your apartment building burns down, is damaged in a storm or is broken into. Think your landlord will help? Think again.
This is where renters insurance steps in. A renters insurance policy protects you against many of the financial mishaps that may occur during your time as a renter. This keeps you safe from the financial consequences of a rental disaster.
How does renters insurance work, and what does it provide?
A renters insurance policy provides coverage if you suffer property loss or cause damage to the building while renting. There are three common types of coverage that most renters insurance policies offer.
Personal property coverage
This type of coverage covers the cost to repair or replace your belongings if theft or damage occurs. This will include things like clothes, furniture, electronics — almost everything you own in the apartment. Most policies have a clear limit on the value of what’s covered, and will require clear documentation of what you owned and what was lost to pay out a claim.
You’ll want to check your specific policy to find out what types of events are covered. Fire and many natural disasters are usually included. Less expensive policies often do not include theft coverage, so you’ll have to decide if you want to add that coverage to your policy. If you live in an area with threat of tornado or earthquake activity, you may want to ensure that’s included.
Liability coverage steps in if something occurs in your rental property that causes harm to a guest or to a guest’s possessions. For example, if you have a friend over, and they trip over a cord on the floor and break their arm, liability insurance would step in.
What about if you cause damage to the property accidentally, by starting a fire, for example? You do not need liability insurance for that; that’s what your landlord’s insurance is for. You would only be liable if the damage was intentional.
This type of insurance is rarely triggered, but without it, you can find yourself completely wiped out financially.
Additional living expense coverage
This coverage kicks in if the place you’re living in becomes uninhabitable due to damage or destruction, and it pays for things like hotel rooms, gas and food — essentially any extra expenses you incur in as a consequence of having to live somewhere else while your home is under repair. This is usually very inexpensive, but it can be very helpful in a situation where your apartment or rental home is destroyed.
Premiums, deductibles and coverage limits
There are three big things you’ll want to know about your policy: the premiums, the deductibles and the coverage limits.
The premium is the amount of money you’ll pay out of pocket each time there’s a bill for your insurance. Keep in mind that lower premiums usually means lower coverage.
The deductible is an amount subtracted from any payouts that might come from your insurance. If you make a $5,000 claim and have a $500 deductible, you’ll only get $4,500. This keeps the insurance company from having to deal with smaller claims. The higher the deductible, the lower the premium. This could also mean that you’ll need to come up with more out of pocket in an unexpected situation like theft or destruction of your property.
The coverage limit indicates the maximum amount of money your policy will cover. With personal property coverage, this is the amount your insurer will pay out if your property is damaged. With liability coverage, this is how much your insurance provider will cover for injuries to others or damage to the property of others in your rental. Finally, the additional living expense coverage is how much the company will pay out in a situation where you are unable to live in your apartment.
A higher coverage limit means a higher premium. We recommend a coverage limit that would enable you to easily pay for your essential possessions for personal property coverage and liability coverage.
Two other terms that are useful to know are replacement cost coverage and actual cash value. When determining how much will be paid out in a claim, some policies will pay you the amount needed to replace an item new, while others will pay you the amount the item is worth before it’s destroyed. For example, let’s say you have a five-year-old television. Buying a new replacement might set you back $700, but if you were to sell that used television, it might only be worth $200. A policy with replacement cost coverage would pay you $700, while a policy with actual cash value coverage would only pay you $200. Of course, replacement cost coverage means a higher premium.
Is renters insurance required?
Renters insurance is not required by law
Renters insurance is not required by law in any U.S. state. You are not legally obligated to have a policy merely to rent a property.
However, not having a renters insurance policy means that you are leaving yourself open to the risk of losing your possessions due to theft, fire or other matters. You may be able to pursue legal action against your landlord in some cases to recoup your losses, but that’s far from a guarantee.
Many landlords may require renters insurance
Even though there is no legal requirement to have a renters insurance policy to rent an apartment or a house, your landlord can require it upon signing a lease. In such a situation, you would be in violation of the lease if you did not have renters insurance. This can put you at risk of an eviction and legal action if you do not carry renters insurance when your lease requires it. Often, landlords will require policies to have a certain amount of liability coverage that will cover the value of the building.
Having a policy is not a replacement for a deposit. A deposit is in place to cover minor issues when you move out, whereas a renters insurance policy is there to cover major damage to the apartment and building that would go far beyond your deposit.
Is renters insurance useful?
Insurance exists simply to help protect you from expensive but relatively unlikely events. You can go years without having to file a claim, only to find yourself desperately needing it after an unfortunate event. This is particularly true for liability insurance, which steps in if someone is hurt while visiting you.
One big advantage to consider is that renters insurance is quite inexpensive, averaging around $15 a month. It is far less expensive than homeowners insurance because it is unconcerned with the structure itself — that’s covered by the landlord. It just focuses on your possessions and any liability you might face if someone is harmed or someone’s possessions are damaged in your rental.
Should you have a policy, then? If your landlord requires it, that’s an easy answer — yes.
If not, there are three things you should consider.
- If your apartment is broken into and items are stolen, your landlord doesn’t owe you anything. You’re basically out of luck. By not having insurance, you are relying solely on the security of your rental. Has there been any history of break-ins or any other crime in your area recently?
- If your possessions are burnt in a fire or damaged by some other event, your landlord again doesn’t owe you anything.
- What exactly do you do if you have someone over, they get hurt, and they decide to sue? Without insurance, anything you’re found to be liable for is going to come out of your pocket, and if it’s extensive, it could completely wipe you out.
Many people assume their landlord will cover them in these situations, but the truth is they don’t have any legal obligation to do so. Protecting your stuff and your liability is up to you.
How do I find a good renters insurance policy?
Here are four key things to keep in mind when shopping around for a policy.
If my possessions are damaged, will this policy provide me enough of a payment to get back on my feet?
How much of a payment would you need to be able to easily rebound with life’s essentials? If you must have everything replaced new, you’ll want a policy with replacement cost coverage; if some downsizing and some used items are okay, then actual cash value coverage will work. Make sure that you have an updated list of your possessions that you can access even if your property is destroyed.
Are the most common risks covered?
Fire coverage is a must, of course, but do you live in an area with tornado risk? Make sure that big risks are covered in your policy. Policies don’t cover every possible thing that might happen; you’ll have to review the policy and make sure the things that concern you are covered.
How reputable is the insurance company?
A good way to determine this is to find out how insurance rating organizations view these companies. Use Google to search your insurer along with various insurance rating organizations such as Fitch, Moody’s, J.D. Powers and AM Best.
Look at more than just the premium
Remember, a low premium might look nice, but does it come with a high deductible and limited coverage? Decide what you want as a bare minimum in terms of coverage and what you want your deductible to be, then start comparing policies.
We welcome your feedback on this article. Contact us at firstname.lastname@example.org with comments or questions.