Learn about what is renters insurance and why is it so important. Understand the benefits, what's covered and excluded, why it's required and the average cost
We created this blog to address an important question: What is renters insurance and why is it so important? We believe it’s crucial to understand the significance of renters insurance, as it has a significant impact on both property owners and tenants. Unfortunately, renters insurance is often disregarded or overlooked, but it provides essential protections that serve as a strong safety net.
So, we’ll look at what it is that renters insurance covers and how it works. We also talk about its benefits including personal property coverage, liability protection, and additional living expenses reimbursement — and a better grasp as to what this all means. Additionally, we’ll discuss potential exclusions in typical renters policies and additional coverages renters might need to consider adding to their policy.
Then, we’ll make clear why landlords require renters insurance and how tenants can comply with leases requiring these policies. Lastly, we will give an overview of the cost (everyone’s favorite subject!) of obtaining a renters insurance policy. This won’t be nearly confusing as it may seem as we work through the details. Let’s jump in and learn more!
We hope that you find this article helpful! Notable Risk leverages 20+ years of expert risk-management experience (and lots of real estate know-how) that is not often found at independent insurance agencies. Hopefully, we will have an opportunity to help you with your real estate insurance needs! Please click here to schedule an intro meeting or call us today at 888-897-4815.
Table Of Contents:
- 1. What is Renters Insurance?
- 2. Benefits of Renters Insurance
- 3. Top 5 Exclusions in Renters Insurance:
- 4. The Top 6 Additional Insurance Coverages
- 5. Why Do Landlords Require Renters Insurance
- 6. Complying with Tenant Leases Requiring Renters Insurance
- 7. How Much Does Renters Insurance Cost?
1. What is Renters Insurance?
Renters insurance serves as a protective barrier for your personal property, liability, and living expenses during the time you are renting. Although landlords have their own insurance policies, they will not assist in case of damage or loss to your valuable belongings.
The Components of Renters Insurance
There are three main parts to renters insurance under most policies: personal property coverage, personal-liability protection, and alternative living expense reimbursement. Here’s some greater detail on each:
Personal property coverage
Imagine this unwanted scenario: your apartment catches fire, destroying your furniture and electronics. Fortunately, if you have renters insurance with personal property coverage, you’re likely covered. Your policy will cover the cost of repairing or replacing your belongings, up to the specified limit. This coverage also prevents your landlord’s insurance policy from being relied upon — a likely focus of his or her. If you lack sufficient coverage and experience significant losses due to a loss caused by fire or theft, you may be tempted to hold your landlord responsible for compensating you for your possessions. You can bet that your landlord wants to avoid a claim on his or her landlord insurance policy as this may lead to increased premium costs or even non-renewal. This also interferes with good relations that both landlord and tenant hopefully strive to maintain. So, let renters insurance do its job and prevent all of this where possible.
- Coverage limits: Renters get to choose how much coverage they need based on the value of their belongings.
- Deductibles: Many insurance policies require individuals to pay out-of-pocket costs, also known as self-insured amounts, before the insurance coverage takes effect. Renters have the option to choose a deductible amount that suits their specific needs, typically ranging from a few hundred dollars to several thousand dollars.
- Type of reimbursement: Policies may offer actual cash value (ACV) or replacement cost value (RCV). ACV considers depreciation, while RCV pays the full cost without considering depreciation.
Personal Liability Coverage in Renters Insurance
Similar to homeowners insurance, renters insurance provides coverage if you accidentally cause bodily injury or property damage. So, if your young child is overly excited in your neighbor’s living room resulting in broken possessions or you accidentally trip someone on the street, you’re likely covered up to your personal-liability limit under your policy.
Most insurance companies provide personal liability insurance from $100,000 to $500,000, without any deductible. And as noted in the examples above, this coverage is not just for accidents at home. If you accidentally cause harm or damage beyond your premises, your personal liability coverage will still step in (but remember to read the terms and exclusions of your policy in full to confirm your specific situation).
- Bodily Injury: If someone suffers a burn from your poorly functioning stove, personal liability covers medical bills and potential legal fees.
- Property Damage: If you accidentally broke your neighbor’s antique vase, personal liability steps in to cover the replacement cost.
Alternative Living Expenses Coverage
If a covered loss, like a fire or flood, makes your rental unit unlivable, you’ll need to find a new temporary home. That’s where Alternative Living Expenses (ALE) come in. It covers the costs of things like hotels, dining, and dry cleaning.
- Hotel Bills: ALE will cover your hotel stays until you can return home or find another place. No need to sleep on a lumpy couch.
- Eating Out: When you can’t cook in your kitchen, ALE has your back. It covers your restaurant meals, so you can eat like a king or queen.
- Moving Costs: If you need to find temporary housing while repairs are being done, ALE will reimburse your reasonable expenses.
Without renters insurance, you’re taking a huge risk – make sure your belongings are protected, and don’t underestimate the value of the added liability protection, particularly in today’s litigious world.
2. Benefits of Renters Insurance
Hopefully, we have convinced you that renters insurance is an affordable way to protect yourself when you become a tenant. If not, here’s a bigger list for you to consider:
Top 10 Benefits of Renters Insurance:
- Coverage for Personal Property: Your personal property is protected in the event of an unfortunate event.
- Limited Coverage Off-Premises: Your belongings are covered even when they’re not located in your rental property.
- Liability Protection: If someone gets hurt in your place or you accidentally cause injury to a third party, this insurance steps in to eliminate financial setbacks.
- Addition Living Expenses (ALE): If your place becomes unlivable, this insurance covers your hotel stays, laundry, meals, and more. These expenses can overrun your available finances, particularly when your rental unit requires more time to restore.
- Credit Card Forgery & Unauthorized Transactions: Some policies have added protection or endorsements that provide coverage for theft of your credit card data, checks, etc.
- Medical Payments Coverage: If a guest gets injured at your place, this insurance helps cover their medical bills. It’s important coverage to quickly eliminate disputes with your visitors.
- Replacement Cost Value (RCV): When your stuff gets destroyed due to covered perils like a sudden equipment burst that floods your living room or an electrical fire that destroys your walk-in closet, this optional insurance pays to replace your affected belongings with new items, without considering the depreciation of the original items.
- Deductible Waiver: In certain situations, like a big fire, some policies may waive the deductible. This is helpful to potentially save a few thousand dollars at a time when the money can add extra support to put you back on your feet after a stressful event at your rental property.
- Avoid Disputes with Landlord: If damages result to your rental property and it’s covered by renters insurance, you can not only maintain better relations with your landlord but you may avoid a lawsuit brought by your landlord depending on the facts and circumstances that led to the damage. The risk-transfer mechanism that renters insurance provides can be irreplaceable.
- Eligible for More Rental Properties: Where permissible, most landlords require tenants to obtain renters insurance and require evidence of insurance to occupy the unit. So, your willingness to obtain this coverage equates to more choices for rental units (i.e., those that require it) as well as overall compliance with your obligations and harmonious relations with your landlord or property management company.
3. Top 5 Exclusions in Renters Insurance:
- Natural Disasters: There is typically an exclusion for floods or earthquakes.
- Pest Damage: Bugs and rodents in most cases are specifically excluded.
- Maintenance Neglect: If you fail to adequately maintain something and, later, a loss occurs, your insurer will likely deny the claim.
- Certain Valuables: High-value items like collectibles or jewelry will likely be subject to lower limits, or sub-limits. For these valuables, you will need to obtain blanket or itemized coverage or a separate endorsement to make sure the larger values are fully insured.
- Cyber incidents: If you are surfing the net from your home office and your computer becomes infected or ransomware surfaces you may need to rely on the financial support of a cyber security policy. This coverage is typically excluded in a renters policy and may be added by endorsement or a separate policy.
Before signing up, read your policy carefully to know what’s excluded and consider additional coverage if needed. For more background on this topic, you may want to read this Investopedia article for more information.
4. The Top 6 Additional Insurance Coverages
- Flood Insurance: As mentioned above, floods are typically excluded. Since a large percentage of damage occurs in low to moderate-risk flood zones, this additional coverage can be important to obtain.
- Earthquake Coverage: Similarly, earthquakes are excluded. Unfortunately, while the frequency may be low the potential costs (damages) may be extremely high.
- Pet Liability Coverage: Certain dogs may be excluded from the liability coverage under your renters insurance so be sure to check your policy carefully. Keep in mind that according to Forbes.com the average damages associated with a dog bit injury is approximately $64,555!
- Scheduled Personal Property Endorsement: Also, as we noted earlier, your personal valuables like wine, art, or jewelry may exceed your coverage limits for these types of items — the so-called sub-limits that apply in this case. To close the coverage gap consider adding an endorsement to schedule items or obtain a higher limit blanket policy so that the full value of these items will be taken into account in the event of a covered loss.
- Burglary and Theft Extension: Certain policies have more narrow coverage for burglary and theft requiring endorsement to close the gaps. Check your policies carefully.
- Personal Umbrella Policy: One crucial aspect to consider is the personal liability coverage provided by your renters insurance policy, which will have a limit (typically around $100,000 – $500,000, with many policies closer to $300,000). However, this amount may not offer sufficient financial protection and peace of mind. To address this concern, it is advisable to obtain a personal umbrella policy that extends the coverage limits for your liability-related risks.
These extra coverages add some additional premium costs, but they provide robust coverage that may be important given your particular situation. Not only do these additional coverages protect your belongings and other exposures, but they also benefit landlords by reducing disputes over uncovered damages or losses.
Navigating through Renters Insurance Options
To make informed decisions about supplemental coverage, check out Investopedia’s guide on Renter’s Insurance. It provides detailed explanations and advice that can help in different situations.
5. Why Do Landlords Require Renters Insurance
The answer lies in the potential financial exposure that landlords face if a tenant does not have their own policy.
Avoiding Claims on Your Policy:
The landlord’s goal is likely to avoid claims on his or her landlord insurance policy. Each claim can potentially lead to increased premiums or even non-renewal of the policy by insurers due to risk assessment.
The Legal Aspect:
In many cases involving accidents or incidents at rental properties, landlords are often included in legal claims. Having tenants with their own liability coverage helps protect landlords from such scenarios.
Understanding the Legal Aspect:
Your landlord should be mandating renters insurance within legal parameters set by local housing laws and regulations. Any requirements around renters’ insurance must be clearly outlined in lease agreements before signing off between you and your landlord. Assuming the legal requirements are satisfied, renters insurance is a win-win. Your landlord avoids unnecessary financial risks (which may ultimately keep rents lower) while ensuring a safety net for you against unexpected loss to your belongings or a lawsuit you are unprepared for financially. Note: Always consult with a real estate attorney when reviewing your lease including clauses about mandatory renters insurance.
6. Complying with Tenant Leases Requiring Renters Insurance
Landlords must understand the legal requirements surrounding renters insurance. Many leases stipulate that tenants must obtain their own renters insurance policy. This gives the landlord an extra safeguard of fiscal assurance, not just for the tenant but also themselves.
If a tenant doesn’t get renters insurance, they could be breaking the lease. That can lead to complications and potential legal disputes. So, landlords will want to enforce this clause strictly.
The Importance of Proof: Certificate of Insurance
To ensure compliance, most landlords ask for proof of coverage before allowing tenants into their properties. A certificate of insurance from the tenant’s insurer is usually required by landlords to verify that they comply.
Landlords following best practices request updated certificates at each lease renewal to ensure continuous coverage throughout the tenancy. You can find more information on how to get proof of insurance from The Balance SMB.
Moving Forward: Ensuring Compliance
Keeping track and enforcing these regulations may seem like extra work, but they protect both parties by reducing liabilities and fostering mutual respect between landlord and tenant. Remember to consult your attorney or real estate professional for any legally binding contracts related to rentals.
7. How Much Does Renters Insurance Cost?
There is no one size fits all (you expected us to say this!), but here are some general guidelines:
Factors Impacting the Cost
The cost of renters insurance depends on a few things:
- Value of your belongings: As a starting point, the value of your items will have a big impact on total cost.
- Your location: If you live in a disaster-prone, expect to pay more as the insurance companies expect a higher potential for costly loss.
- Deductible amount: The higher your deductible, the lower your premium payments will be, and vice versa. It is important to find a balance that you are comfortable with in terms of how much you are willing to pay out of pocket before your insurance coverage begins.
- Liability limits: The more you want to protect through a higher limit, the more you’ll pay.
- Credit score: Good credit may mean lower premiums.
Back to the part that you are likely heavily focused on! Renters insurance is generally viewed as affordable. According to The Balance, the average annual premium in the US is just $188, albeit some states average as high as $221. On average, that’s less than $16 per month for the 10 benefits above and all the others we didn’t mention! Renters insurance is coverage to carefully consider and ultimately obtain. It’s a win-win for tenants and landlords!
Renters insurance has a lot of advantages, and it’s often available at a reasonable price. The most crucial benefit is that it provides vital coverage for the tenant’s personal belongings and liability, which can serve as a valuable financial protection. Since landlords and tenants both benefit greatly from this, it’s essential to ensure that tenants are well-informed about how renters insurance functions, the items it covers, and what it doesn’t, as well as the overall benefits compared to the associated costs.
IMPORTANT NOTE: The information contained in this blog article and herein is for general educational purposes only and shall not be relied upon by any person, or any party, for any purpose. Further, the information is not updated in any manner. Neither the blog article nor any information contained herein (whether express or implied) shall be deemed to be legal, financial, health or any other advice, opinion, or the like. You must consult your own legal, tax, financial, accounting, health or other advisors for any advice that you require concerning any topics identified, directly or indirectly, in this blog article or herein. Notable Risk LLC and its owners, members, managers, directors, officers, partners, consultants, and the like (the “Notable Parties”) do not provide any representation, warranty, promise, guarantee, or the like, that any information contained in this blog article or herein is accurate or complete in any respect.