What Is Renter’s insurance? A Guide for Renters

If you live in a rented house or apartment and you don’t have renter’s insurance, you need to consider getting yourself a policy. But what is renter’s insurance and why you should have it? Read on to find out more about how you can cover yourself.

What Is Renter’s Insurance, Exactly?

Renter’s insurance is also called tenant’s insurance. It’s designed to cover you and your personal belongings while you live in a residence which you are renting.

You are responsible for your own belongings and may not ask your landlord for compensation in case of theft, fire, flooding or any event that may lead to loss or damage (except in very rare instances.)

Doing so may result in misunderstanding and animosity between you and your landlord. Landlords have their own insurance policies that cover the buildings/structures they rent out and any other financial interests attached to these. These policies don’t extend coverage to the tenants or their personal belongings.

Renter’s Insurance vs Landlord Insurance

Considering the above mentioned, it’s good to learn exactly how renter’s insurance compares to landlord insurance. Most people don’t understand the difference between renter’s insurance and landlord insurance.

Landlord insurance is a policy that covers the rented building itself, which in this case is a house or apartment. In some cases, coverage may extend to contents inside the building owned by the landlord but it is mainly for the building.

Landlord insurance also protects the landlord from liability risk. If the tenants’ belongings are stolen or damaged, landlord insurance won’t cover the cost of replacing them unless it was due to negligence on the landlord’s part.

Examples of things landlord insurance may cover include:

• Building damage from a chimney fire
• Roof damage from falling trees
• Water damage from pipe leaks
• Replacing burst geysers
• Damage from roof leaks
• Replacement of windows or door locks after a break-in

Since the landlord’s policy protects mainly the apartment or house you live in, it’s up to you to protect yourself and your possessions while you live there. Renter’s insurance may cover the following types of damages:

• Lost or stolen belongings
• Replacement of items lost due to water damage or fires
• Payouts for booking alternative accommodation after a fire or severe building damage
• Certain kinds of legal cover in liability disputes

Your personal belongings include all the things you have in your residence. Examples include clothing, furniture, appliances, electronics, curtain, linen and more. Your landlord can’t insure your belongings because he or she doesn’t own these items. In the same way, you can’t ensure the building because it’s not your property.

Renter’s Insurance vs Homeowner’s Insurance

Apart from landlord insurance, another type of policy worth looking into while considering renter’s insurance is homeowner’s insurance. The major difference here as with landlord insurance is that homeowner’s insurance covers the building, while renter’s insurance doesn’t.

Homeowner’s insurance covers not only the building, but it’s content also. This includes belongings. Homeowner’s insurance is specifically for those who own the building they live in.

Apart from building and structure coverage, both renter’s insurance and homeowner’s insurance policies include personal property, personal liability, additional living expenses, as well as medical payments coverage.

As a result, homeowner’s insurance costs more than renter’s insurance, The average cost of homeowner’s insurance is estimated at an average of $1,083 nationwide annually. Comparatively, renter’s insurance costs $187 annually depending on your zip code. You may already have homeowner’s insurance for your home if you have a mortgage for it. But it might be worthwhile to find out if you can get a better quote from a different insurance provider.

Why Get Renter’s Insurance?

A lot of tenants don’t have renter’s insurance. Some think it’s unaffordable, while others don’t know about it. There are also renters that simply choose to adopt a nonchalant attitude towards insurance, believing it’s not important.

When it comes to disaster, don’t fool yourself into thinking it won’t happen to you. For instance, any area that receives a good amount of rain can unexpectedly be hit by floods. A lot of areas also have fires that erupt from unknown sources and burn down entire buildings – spreading too rapidly to allow residents to vacate belongings.

If you’re capable of replacing all your personal property without any financial assistance, then you could risk forfeiting insurance cover.

However, too many people underestimate the replacement costs on all their belongings. There are many belongings that renters take for granted when calculating replacement costs. These can include things like curtains, kitchen cutlery and cooking utensils, linen, carpets, and even wall decorations.

The replacement cost is what belongings would cost when bought brand new, not what they’re currently worth. For example, even if your microwave is 10 years old already, it should ideally be insured at the cost of buying a brand new one, not at its secondhand retail value.

What Does Renter’s Insurance Cover?

When getting renter’s insurance make sure you understand what your policy covers. Also familiarize yourself with available discounts, deductibles and coverage limits. Ask your agent if your insurance provides Replacement Cost Coverage (RCC) or Actual Cash Value (ACV) for your property.

RCC pays to replace your lost property, no matter how old it is at current market rates, whereas ACV is the depreciated value of your property at the time of loss. This makes RCC more expensive than ACV and means you will have to pay a bit more for your premium.

However, most of your belongings (apart from jewelry and fine art) will likely have an actual cash value of less than half their replacement cost. If you lose everything in a disaster, you won’t have nearly enough to replace items like linen, clothes and appliances as well as furniture.

The common types of coverage provided by renter’s insurance are as follows:

• Personal Property: Renter’s insurance covers the cost to repair or replace your lost/damaged property such as clothing, furniture and appliances. This is usually subject to a deductible, meaning you’ll have to pay a certain amount towards replacement or repair of your items before you’re eligible for a claim.
• Personal Liability: Renter’s insurance covers costs incurred if you’re found legally responsible for someone’s injuries or damage to their property. It protects you from having to pay out of your own pocket for such incidents.
• Additional Living Expenses: If your home should become uninhabitable, your rental insurance policy will cover all the costs of living elsewhere during that period.
• Medical Payment Coverage: Renter’s insurance also covers medical costs incurred when someone gets injured on your property.

Renter’s Insurance Riders

Renter’s insurance policies don’t cover all kinds of loss and damage to your property. For instance, loss or damage resulting from natural calamities like floods and earthquakes are not covered in a standard renter’s insurance policy. Liability claims caused by dangerous dog breeds like pit bulls also won’t be covered.

You will need to add a separate policy or rider to cover these. An insurance rider (also known as a floater or an endorsement) is an optional add-on to your existing policy. Adding an item that’s not covered by your policy – like expensive jewelry or antiques – will typically come at an increased premium.

A rider allows you to pay extra, broadening coverage where your policy is limited. In areas prone to hurricanes, a wind and flood damage rider might be needed just as much as an earthquake rider is needed in earthquake-prone areas.

Common Rental Insurance Riders

Here are a few other riders you can consider adding to your renter’s insurance policy, depending on your unique circumstances:

• Identity Theft Rider: With nearly 10 million Americans affected by identity theft each year, identity theft coverage is becoming ever more necessary. This rider protects you from spending money out of your pocket to resolve problems brought about by identity theft or fraud. It also gets you expert assistance in handling the fraud.
• Pet Damage Rider: In some cases, landlords only accept your pet when you provide proof that you have a pet damage rider. The most problematic pets for insurance purposes are dogs. Some insurance companies have certain breeds they won’t cover because they’re considered “bad breeds”. Ask your agent which breeds they cover. If you own a pit bull, German shepherd, or Doberman pinscher, you must get a pet damage rider in case your dog bites someone, as losses can add up to thousands of dollars.
• Replacement Cost Coverage Rider: The standard Renter’s insurance policy is based on actual cash value and not replacement value for your property. Because actual cash value takes depreciation into account, you won’t have enough to cover all your damages, even after paying a deductible to claim. A replacement cost coverage rider will help you insure items at a rate that allows you to replace them easily.

Flood Insurance for Renters

One of the several factors your renter’s insurance policy premium will be based on is the flood risk of the building you’re renting. As a tenant, you’ll need a contents-only flood insurance policy, since you don’t own your house.

If you live in a high-risk area for flooding, like Florida, this policy is a must-have. Even renters outside high-risk flood areas can benefit. The National Flood Insurance Program reports that approximately a quarter of all flood claims come from outside high-risk areas.

A renter’s flood insurance policy costs from as little as $100 annually and will cover your personal property and give you peace of mind.

Do You Need Renter’s insurance?

This is a very personal decision you’ll need to make. Considering that you have no control over when a hurricane will sweep through your city, or burglary and theft, getting adequate cover remains a wise choice.

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