As a renter, there's one item that you should never cut from your budget: renter's insurance. This is a type of insurance policy that protects you, your things, and your living situation following theft, damage, or other losses covered by the policy.
If you have a policy, it will save you from paying for these losses out of pocket or having to dip into your savings. Since such losses can be expensive, it's wise for every renter to obtain renter's insurance.
When deciding how much renter's insurance you should get, it's helpful to understand what the policy covers and then factor in what you own that's at stake, the type and cost of coverage, and any plan limitations.
What Renter's Insurance Covers
Standard renter's insurance policies offer three types of coverage.
- Personal property: This covers the cost of fixing or replacing your possessions, such as clothing, electronics, or furniture. Such coverage may prove useful following a robbery or a fire at your apartment.
- Liability: This type of coverage helps pay for accidental damage to someone else's property or injury to someone else in or around the property, for which you are responsible. For example, if you have a guest over, and he gets injured at your apartment, this coverage can help foot his medical bill.
- Living expenses: Choose this type of coverage to offset the costs of miscellaneous expenses you incur for a damaged residence, excluding structural damage to the building. This may come in handy, if, for example, you have to pay for a hotel because your apartment is in an uninhabitable condition.
What the Insurance Doesn't Cover
A renter’s insurance policy doesn't cover all losses. For example, standard insurance policies generally won't cover:
- Flood damage: You'll typically need a separate flood insurance policy to help pay for rainwater damage. This is imperative if you live in a floodplain. Ask your landlord if you are located in one.
- Losses beyond the limit listed in the policy: In general, even covered property losses or liability claims aren't covered beyond the policy limit.
- Jewelry beyond certain limits: Whether it's an engagement ring or a watch, jewelry can be pricey, which is why it's often subject to a lower coverage limit than one that applies to other property losses.
- Losses from uncovered perils: Renter's insurance generally only applies to covered "perils" or risks, such as theft or fire. If, for example, damage to a family heirloom is due to ordinary wear and tear, it generally won't be covered.
While most renter's insurance policies won't cover rain-induced flood damage, some will cover water damage from an air conditioner or plumbing leak.
How Much Insurance Coverage You Should Get
On average, renter's insurance policyholders pay $20 a month to get about $20,000 of property coverage and $500,000 of liability coverage. But you should make the following considerations to determine the specific amount of renter's insurance that you need.
Factor in personal property value. Make a list of the things in every room of your rental, noting the description, quantity, and estimated value of everything you have. Base the amount of personal property coverage you need on the total value of these items. As you make new purchases, add the items and a copy of the receipt to the inventory. You can do this on paper and then store the document in a safety deposit box, or use inventory software and store the file in the cloud.
Assess potential liabilities. Evaluate a ballpark figure for the cost of any repair, medical, or legal bills you might incur from damaging someone else's property or person, keeping in mind that these costs can run high.
Estimate expected living expenses. Put a number on the hotel or other living expenses you might incur if your rental were to become damaged or uninhabitable. If you think you can make cost-effective alternative living arrangements, such as staying with a family member, you may not need to budget much renter's insurance coverage for living expenses.
Consider reimbursement type. Actual-cash-value insurance policies will reimburse you for the current market value of the items after taking depreciation into account. In contrast, replacement-cost policies will reimburse you at the items' current retail price, without factoring in depreciation. Adjust your coverage amount based on which option you choose.
Think about your budget. In addition to your insurance company and your location, your insurance coverage amount will heavily influence your premiums, so settle on a coverage amount that results in affordable premiums. It's a good idea to keep enough money in your emergency fund to cover at least the insurance policy deductible—the amount you must pay before your insurance provider starts to pay for covered losses.
Note policy limits and exclusions. Some insurance companies put a limit on the amount that they will cover in different areas. They might limit the total amount that they would pay for electronics to $500, for example. If this is the case, then you would need to purchase an additional policy to cover those items. Likewise, you may need an additional policy to cover your liability in relation to your job.
Renter's Insurance Policy Discounts
Once you determine how much renter's insurance you should get, shop around for renter's insurance policies to get the lowest yearly premium. Visit the website of (or make a phone call to) an insurance company to get a quote, and then apply for a renter's insurance policy.
Some companies provide discounts that can further reduce your premium. These discounts often vary by state. For example, you may receive a discount if you get your renter's insurance through the same insurance company where you get your car insurance. Also check for discounts through your job, professional associations, and alumni associations.
Using Your Renter's Insurance
To file a claim with your insurance company, have your policy number and be ready to share the type of property claim and the associated loss. Then, contact your agent. The agent will explain what is covered and may schedule an inspection of the property to assess the loss and estimate the cost to cover it.
Do not attempt to clean up an item or an area until the agent has looked at your property. Likewise, document the damage or other loss with photographs. Be prepared to pay your deductible. The insurance company will issue the appropriate payment, minus your deductible, to cover the loss.