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Is Renters Insurance Worth It?
Some renters may think that everything they have inside their apartments is insured under the landlord’s policy, but that only covers the building itself. What if your apartment gets burglarized? Or, worse yet, what if it suffers smoke damage in a fire? Many insurers offer renters insurance that is tailored to fit the specific needs of tenants, and because the average cost of renters insurance is only $180 a year, it is relatively low-cost compared to other types of insurance plans.
Before you purchase a renters insurance policy, make sure you understand what these policies really cover and how they can protect you against the unexpected. Also, there are some key differences compared to homeowners insurance that can help save you money in premium payments and in bigger claim payouts.
How renters insurance works
When a renters insurance claim is filed, the insurance adjuster inspects the damage that was done and determines the monetary value of the loss. If your claim is accepted, you can be reimbursed in one of two ways, depending on how your policy is structured:
- Actual cash value (ACV): This method would reimburse you for your lost or damaged possessions only after accounting for the age of each item and discounting for the wear and tear, or depreciation, that has occurred over the years to lessen its value. Usually, the ACV is lower than the market value, but premiums tend to be cheaper.
- Replacement cost value (RCV): This would replace your possessions with similar items at their current market value, so it does not factor in depreciation. The downside is that the annual premiums for RCV policies tend to be about 10% higher than ACV ones, according to the Insurance Information Institute.
Benefits of having renters insurance
If you rent your home or apartment, having a renters insurance policy is extremely important. Renters insurance provides financial peace of mind and covers common liabilities. If something were to happen to your personal belongings, renters insurance helps you cover the cost.
Without insurance, you’re on the hook for repairing or replacing your damaged items out-of-pocket. That new $1,000 laptop that got destroyed in an apartment fire wouldn’t be covered, nor would your furniture, small appliances and clothing. If you don’t have insurance, you might not be able to afford to replace those items.
Another benefit of renters insurance is that it’s cheap, so there’s no reason to not get a policy. Renters insurance costs $180 per year on average, which is just $15 a month. Even if you’re on a tight budget, it’s easy to fit the cost of renters insurance into your lifestyle.
[Related: The Best Renters Insurance of 2020]
Why renters insurance is important
Renters insurance is often one of the most under-utilized insurance products on the market. Many renters don’t consider renters coverage because it has not been made mandatory by the state, as is the case for car insurance (and will be soon under Obamacare), or by lenders, who often make homeowners insurance a non-negotiable part of mortgage agreements.
But as you know by now, the costs for the premiums are relatively low, as are the barriers to entry. It only takes one burning candle to be knocked over in one unit to affect hundreds of people in an apartment complex. With so many neighboring tenants, your potential exposure to lawsuits is staggeringly high. Living without the protection of a renters policy may become a mistake you cannot afford to make.
What renters insurance covers
In all of the most important ways, renters insurance is virtually identical to homeowners insurance. The best types of renters insurance offer coverage for:
- Personal possessions, against damage due to fire, smoke, lightning, theft, vandalism, explosion, windstorm, water and other disasters listed in your policy. Possessions — sometimes called movable possessions — can include furniture, clothing, electronics, appliances, kitchen utensils and bed linens.
- Liability, which protects against lawsuits for bodily injury or property damage caused by you or your family members, as well as no-fault medical coverage in case a visitor is injured in your home.
- Additional living expenses, including hotel bills, restaurant meals and other expenses above and beyond your daily expenses – in case your home becomes uninhabitable due to a covered hazard.
What renters insurance doesn’t cover
Renters insurance offers comprehensive coverage, but it doesn’t cover everything. Here are some things that aren’t covered under your renters insurance policy.
- Earthquakes: Earthquake damage is not covered by renters insurance. If a major earthquake strikes your neighborhood and your apartment building crumbles, your items do not qualify for coverage. If you live in an area with a high-risk of earthquakes, it’s a good idea to purchase earthquake insurance.
- Floods: Renters insurance also doesn’t cover flood damage. Any type of flooding — whether it’s related to a hurricane or a burst pipe — isn’t covered by renters insurance. Renters who live in a flood zone or near the coastline should buy a flood insurance policy for more protection.
- Pet damage: If you have a pet, any damage it causes to your home or apartment is not covered by renters insurance. This includes damage to your personal items, as well as damage to the interior of your home.
- High-value items: Renters insurance covers personal property, but high-value items, like electronics or jewelry, usually have certain coverage limits. If you own a lot of expensive items you need to protect, you can purchase an endorsement to increase your policy’s coverage limits.
- War: Acts of war or terrorism are not covered by renters insurance. If you’re concerned about not having this coverage, you can usually buy it as an add-on policy.
- Your roommates’ belongings: It’s important to know that your renters insurance policy does not automatically cover your roommates’ belongings. The only exception is if your roommates are listed on your insurance policy. Everyone who lives in your household should have their own policy.
Your landlord’s insurance does not cover you
You’ve probably noticed that renters insurance does not cover the actual building you live in. That’s because your landlord, who owns the building, is required to carry landlord insurance to protect the exterior of the physical property.
Landlord insurance does not cover tenants or their belongings. It does, however, cover the landlord’s liability in the event that a tenant gets injured in the building, and the landlord is found to be at-fault.
Renters insurance vs. homeowners insurance
Essentially, the only real difference with a renters insurance policy is that it strictly covers the renter’s liability and the personal property inside the apartment unit. The rest of the building — the walls, roof, fixtures, foundation, plumbing, furnaces and any appliances that are not owned by the renter — are all part of the landlord’s homeowners insurance policy.
While many renters focus on the relative value of their possessions when choosing renters insurance, what they really should hone in on is their risk of neighbors or visitors filing lawsuits after getting injured in the renter’s apartment. Or, another person’s property may be damaged when they bring it to your home.
[Related: The Best Home Insurance Companies of 2020]
Renters insurance average costs
Renters insurance is not mandated by any state government, but an increasing number of landlords are beginning to require tenants to purchase renters insurance coverage as part of their lease agreement.
The national average cost of renters insurance is $180 per year, according to the Insurance Information Institute. This is a very affordable figure when compared to the reported national average of $1,211 per year for homeowners premiums.
Be careful about setting the limits of your policy. Many renters, especially those in studios or small one-bedroom units, don’t think they have enough possessions to come near these limits. But once you start itemizing each piece of furniture, your clothing, your laptop computer, TV, DVD player, various mobile phones and other electronics, the price can add up to $50,000 faster than you think.
If you have roommates you want to add to your renters policy, it is possible, although different states and insurance carriers have their own rules on how many people can be included on one policy. It might be easier in the long run to have roommates purchase their own separate policies, especially if they prefer different insurers. And besides, do you really trust your roommate enough to put that person on your policy?
[More: How Much Is Renters Insurance?]
Tips for saving on renters insurance
One helpful tool for determining the value of your possessions and adjusting your coverage limits is KnowYourStuff, a site run by the Insurance Information Institute. This free service uses secure offsite software to make an inventory of every item in your rented home or apartment and allows you to update it easily.
Another smart way to save on premiums is to take advantage of insurer discounts for people who choose higher deductibles or bundle their renters insurance with other policies, such as car insurance. Other discounts are also offered when things like smoke detectors, burglar alarms, sprinkler systems and deadbolts are installed. Make a point of regularly notifying your insurer when such changes are made.
Deductibles for renters policies tend to start at around $500 and can go up to $1,000 or $2,000, depending on how much the renter wants to save on premiums. Of course, if you choose the high $2,000 deductible, you may save 25 percent on your premiums, but you’d be obligated to pay for anything up to $2,000 before the insurance would kick in.
In some cases, insurers will offer coverage to renters for just their property and not for liability, or vice-versa. Seek out sites that provide different quotes and side-by-side comparisons in order to find out what kind of policy can be crafted to fit your price range and coverage requirements.
Renters insurance discounts
It’s not hard to find cheap renters insurance. However, most insurance companies offer discounts that can lower your rate even more. When you’re shopping for renters insurance, pay attention to the discounts that the provider offers. The more discounts you can take advantage of, the more money you can save. Here are some of the most common renters insurance discounts:
- Policy bundling: Most insurance companies offer discounts if you bundle your policies. If you already have an existing insurance policy with one company, buying renters insurance from the same company will usually save you money.
- Home safety features: If your home or apartment has certain safety features, like smoke detectors or a security system, you might qualify for a discount. Some companies also offer a discount if you live within one mile of a fire station.
- Paying in full: If you can afford to pay the annual cost of your renters insurance in full, you might be able to save money.
- Raising your deductible: Your deductible is the amount of money you have to pay out-of-pocket towards a loss before the insurance company will reimburse you. The higher your deductible, the lower your annual premium. Raising your deductible, even by a few hundred dollars, can lower your rate.