What Is Renters Insurance and What Does It Cover?
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If you currently rent the apartment, home or condo you live in, listen up, this article is for you.
As a renter, you may be exposed to the risk of liability losses and physical damage to every possession you own. Not to mention extra living expenses that add up rapidly if you are displaced from your property due to a covered insurance claim.
Renters insurance, according to industry experts, is the one of the most undersold insurance products available. It is both hugely necessary and dirt cheap (How much does renters insurance cost?)
It’s not uncommon to see renters insurance policies for as low as $13.00 per month (State Farm recently offered renters insurance for $4 a month!).
That’s not a lot to pay to protect yourself from being sued for a slip-and-fall or losing every possession you own in a fire.
Tip: For the record, personal umbrella policies are the other “undersold” product…also dirt cheap.
What Does Renters Insurance Cover?
Renter’s insurance is very similar to a homeowner’s insurance policy.
The main difference between the two is that the renter’s policy, for obvious reasons, doesn’t provide coverage for the “dwelling” itself, as the insured would not have “insurable interest” in the dwelling.
So a renter’s insurance policy only covers the renter’s liability, personal property, and additional living expenses…which should be the tenant’s only concern in the event of a claim.
For example, a renter would not be able to collect any money from the property insurer in the event their apartment burnt down. Only the owner of the building would receive compensation for that loss.
However, the renter would be able to file a claim for their damaged contents within the apartment, along with any personal liability that results, assuming they actually purchased renters insurance.
Let’s look at what’s covered by a renters insurance policy in a little more detail:
Personal Property – “Stuff”
Whether you are aware or not, your personal belongings are not insured by your landlord. Why?
It goes back to insurable interest. Your landlord doesn’t “own” your “stuff,” so he/she cannot insure it. This is a common misconception of renters.
Many people mistakenly believe they would somehow be reimbursed for their property in the event of a loss. Nothing could be further from the truth.
Real quick…add up the cost to replace everything you own in your apartment.
That’s exactly how much money you’d have to spend to repair or replace your items if they are damaged. Does renter’s insurance sound like a good idea yet?
When it comes to liability, there is a 99.9% chance you signed a hold harmless agreement as part of your lease agreement.
In short, it means you are accepting responsibility for any potential liability claims that occur on or within the space you occupy.
Just like your property not being insured by your landlord, he/she is not going to cover you for bodily injury or property damage of others that results from your negligence.
In simple terms, the property owner is off the hook if someone gets hurt in your unit, subsequently sues, and wins a judgment for damages.
Someone slipped on your wet kitchen floor and broke their neck? You will certainly wish you had liability coverage in this instance.
Loss of Use – Additional Living Expenses
Let’s say your apartment was badly burnt in a fire or hit by a tornado. You certainly couldn’t live in it while it’s being repaired.
You’ll likely be in a hotel for some time. On top of that, you’ll probably have to eat out, do your laundry at a public laundromat, and pay for who knows what else while “on the road.”
All of these examples are potential additional living expenses you would incur in the event you “lost the use” of your apartment.
A good renter’s policy will offer coverage that pays either ALL of your expenses or at least the difference between your current expenses (prior to the fire or tornado) and the higher expenses you now have.
Be sure to read your policy in detail and ask your agent questions if you are not sure of exactly how you are covered in the event of a loss.
What to Look Out for When Purchasing Renters Insurance
Just like a homeowner’s policy, you can buy bare bones or top-notch renter’s insurance coverage. Here are a few things you will want to look out for:
Named Perils or All Perils – You want all perils coverage. Click the link to learn more about the differences?
Water Back-Up – Does your insurer offer water back-up coverage (from sewers or drains)? Your property that sits on the floor would not be covered if a drain backed up and water damage resulted if you do not have this valuable coverage.
Scheduled Property – Do you own any “valuables,” such as jewelry, guns, fine china or silverware? Your policy will likely have special sub-limits for these types of items. Basically, anything typically targeted by thieves may not be covered to its full value unless specific, additional coverage is purchased.
So there you have it. There is no insurance for any possession you own if you don’t carry renters insurance. The flat screen, your bed, and the IKEA furniture you worked so hard to build are at risk 24 hours a day.
At the end of the day, renters insurance is dirt-cheap. The last thing you need is to lose everything you own in a fire, or have your salary garnished to pay for someone’s broken leg as a result of a slip and fall in your apartment.
As with any type of insurance, it is recommended that you buy as much as you can reasonably afford. It is best to rank insurance near the very top of “absolute necessity” items, rather than an afterthought.
Read more: Is renters insurance required?