If money is tight, renters insurance can sound like a luxury. But what if you knew that the average cost of a policy is less than $200 a year, which breaks down to about $12-15/month?* For most people, that’s an expense worth stretching to cover, especially when considering everything a policy can cover and how expensive it could be to not be covered.
It’s also important to know that landlord insurance doesn't extend to cover personal possessions of renters. In other words, if your neighbor starts a fire that damages your possessions and you don’t have renters insurance, don’t expect your landlord to pony up and replace your singed clothing or toasted couch.
*Average rates run a little higher in Mississippi, Louisiana, Alabama, Oklahoma, and Texas.
What It Covers
A renters insurance policy usually includes four types of coverage:
The first one that comes to mind for most people is personal property protection. This coverage replaces (or pays cash for the value of) your personal belongings in case of a covered loss. This can include furniture, clothing, electronics, appliances you own, jewelry, etc.
Liability protection pays out if someone is injured in your home and files a lawsuit. That ‘someone’ could be a friend, a roommate, a friend of a roommate, or a family member.
Increased living expenses covers the reasonable costs of staying somewhere else after a covered loss (fire, hurricane, etc.) makes your home uninhabitable.
Guest medical protection can help pay medical expenses for someone injured at your home.
In some cases, renters insurance can also protect your possessions if they’re stolen from your car or a hotel room, or if your bike is stolen. The liability coverage can also extend to include injuries inflicted by your pet. Say your usually lovable cat decides to drag its claws across your cousin, your policy could cover the cost of the injured person’s medical bills.
What It Doesn’t
Unless you purchase an additional rider (an extension of the policy to cover specific situations) for a higher monthly premium, renters insurance won’t pay for damage from flooding, war, nuclear hazard, neglect of property, intentional destruction of property, or governmental seizure of property.
What to Look For
There are two parts of a policy you should pay close attention to: the covered losses/perils and the policy’s limit.
Covered perils simply outlines under what conditions the insurance company will pay for damage caused to your home or possessions. Perils include fire or lightning; windstorm or hail; explosions; riot or civil commotion; damage caused by aircraft or vehicles; smoke; vandalism or malicious mischief; theft; volcanic eruption; falling objects; weight of ice, snow or sleet; and many issues related to damage from HVAC systems, plumbing systems, fire sprinklers, and appliances.
A policy's limit is the maximum amount of money the insurance company will pay for a covered loss. For example, if your computer is worth more money than the limit on your policy and it’s stolen from your home, you’ll have to pay the difference between what the policy pays out and what a replacement computer would cost. While considering a policy’s limit, also see how they plan to replace lost personal possessions. A policy that offers replacement cost coverage will pay for you to purchase a new item of the same kind. A policy that offers actual cash value will pay you the amount of money you could expect to receive if you sold the item at its pre-damage condition and age
A caution about roommates and renters insurance. It can be a great cost-cutting measure to live with roommates to save on rent and utility bills. You can add a roommate to your policy, but that’s a risky move. Any claims that roommate makes on the policy may affect your premiums and will be reflected on your Comprehensive Loss Underwriting Exchange (C.L.U.E.) report.
Insurance companies contribute client claim histories to this C.L.U.E. database, from which the report is generated. If you were to apply for an insurance policy from a different company in the future, they could see if you’ve made multiple and similar claims in the past. This might mean they will charge you higher monthly premiums. It can be risky to allow someone else an influence over this report, which could affect your financial future.