Deciding whether to purchase renters insurance may be a bit daunting for some who are recently out on their own and are learning the art of budgeting rent, utilities, groceries, nights out with friends, etc. For others, renters insurance is an obvious, inexpensive way to protect personal items from theft and damage. This renters insurance guide will explain the great benefits to renters insurance in that it not only covers the rented premises, but the rental policy also goes so far as to cover damaged or stolen personal property outside of the rented premises. For example, if a laptop is stolen during a carjacking or while on vacation, the laptop is covered, less the deductible.
The annual cost of renters insurance varies, depending on where you live. According to the Insurance Information Institute, the average annual premium in 2014 was $190. The highest average premium paid was in Mississippi at $262. The lowest average premium was in North Dakota at $114.
A guide to what renters insurance covers
When considering renters insurance, understand that the landlord's insurance on the premises only protects the building itself, not the renter’s personal items. Renters insurance protects the tenant’s personal items. An HO-4 policy is one of the most common renters policies. An HO-4 policy is considered a “named perils policy,” meaning the policy specifically names those perils that the policy insures. Simply put, if the damage results from a peril that is listed on the policy, then the damage is covered. If damage occurs due to a peril not listed on the policy, then the damage is not covered.
What are the 16 types of perils found in a renters insurance policy?
- Lightning or fire
- Hail or windstorm
- Riot or civil commotion
- Damage caused by aircraft
- Damage caused by vehicles
- Vandalism or malicious mischief
- Volcanic eruption
- Falling objects
- Weight of ice, snow, or sleet
- Overflow or accidental discharge of steam or water from an appliance, heating, plumbing, air conditioning, or automatic fire-protective sprinkler system.
- Sudden and accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system, an air conditioning or automatic fire-protective system.
- Freezing of a heating, air conditioning, plumbing, or automatic, fire-protective sprinkler system, or of a household appliance.
- Sudden and accidental damage from an artificially generated electrical current.
These 16 perils do not include damage caused by floods, earthquakes, mudslides, landslides, war, nuclear hazard, neglect of property (e.g. failing to protect your property at the time of loss or soon thereafter), intentional loss or destruction of property, and governmental action. One caveat to flood damage is that although damage caused by flooding is not covered, damage caused by a named peril that results in flooding, for example a burst pipe that floods a home, that damage is covered up to the policy’s limits.
How much damage is covered if you have a claim?
A renters insurance policy will state the amount that it will cover for damaged or stolen belongings. For example, if the policy states that it allows $75,000 in coverage, that means you have a maximum of $75,000 that can be allotted for replacing damaged or stolen belongings.
However, to determine how much an insurance company will pay out on a renters insurance claim, two things must be determined. First, determine what the deductible is, and secondly, what type of cost coverage the policy has.
1. Renters insurance deductibles
A deductible is the amount that is “deducted” from the amount of the claim owed by the insurance company. It is the amount that the renter is responsible for. For example, if your deductible is $500, and the damage that is covered by your policy is $5,000, then the renter is responsible for the first $500, and the insurance company is responsible for paying the remaining $4,500.
- Tip: if you are looking to save a few dollars, then increase your deductible amount, the amount that you will be responsible for if you have a claim. The premium is partially based on the amount of the deductible. If your deductible (the amount the renter is responsible for) is high, then the premium will be reduced. If your deductible is low, then the renter will pay less on a claim, but the annual premium cost will be higher. For example, based on the earlier example above, if the same $5,000 damaged property had a higher deductible of $1,000, then this renter would pay the first $1,000, as opposed to $500, but this renter with the higher $1,000 deductible would pay less for the annual premium than the renter with the $500 deductible.
2. Actual cash value versus replacement cost coverage
A renter must then determine how to cover his belongings, either by actual cash value (ACV) or replacement cost coverage.
If the renter files a claim, the ACV coverage will only cover what the value of the damaged property was worth at the time it was damaged or stolen. For example, if you purchased a new bike for $2,000 three years ago, that bike would be worth less today. Although you may need to spend $2,000 to replace the bike, the renters insurance policy would only pay what the bike is worth today, less the amount that the renter owes on the deductible.
On the other hand, replacement cost coverage pays out what it actually costs to replace the damaged item, less the deductible, up to a preset limit. In the above example, the insurance company would pay however much it costs to replace that same bike, less the deductible and up to a preset limit.
- Tip: ACV will cost less in annual premiums. Replacement cost coverage will result in a higher annual premium. Additionally, for any valuable items, contact your insurance company or agent, as they may only be covered up to a certain amount. For example, you will likely need an additional rider for an engagement ring or expensive electronics. Check the policy’s limits on specific items.
What if a visitor is injured while on my property?
Many renters insurance policies will extend liability protection (or liability insurance) and medical payments for a non-resident’s accident that takes place on the property. This coverage extends to those visitors who do not live at the rented dwelling. With this protection, the policy usually covers lawsuits against the renter for a non-resident’s property damage and a non-resident’s bodily injuries. For example, if someone slips and falls on the rented property and sues the renter, then the renter is covered up to the liability limit. The insurance company will also pay for the renter’s legal defense.
What if my property becomes uninhabitable?
Depending on the renter’s insurance policy, if the property becomes uninhabitable due to a listed peril in the policy, the insurer may cover “additional living expenses,” also called “loss of use” coverage. Check your individual policy for this coverage. For example, if the policy covers “additional living expenses” and the rented premise becomes uninhabitable due to a listed peril, e.g. a pipe bursts, then the insurance company may cover your expenses to live in temporary housing.
- Tip: create a list, or better yet, take photos and video tape all of your personal belongings and all of the rooms in the rented dwelling in case your property does become uninhabitable. List the value and serial number, if possible, of each personal item. Keep receipts for major items in a fireproof safe, or take a photo of the receipt and keep a file of the receipts with the photos and videos of the personal items. Check out How to Create a Home Inventory to further protect your valuables.
How else can I save on renters insurance?
- Inform your agent about your smoke detectors, carbon monoxide detectors, fire detectors, and security systems. The renter may be entitled to a discount.
- If the renter purchases auto and renters insurance from the same company, there may be a “multi-line” discount available.
- The insurance company may offer a discount if the renter pays the insurance bill in full rather than in installments. If you are unable to pay the entire premium at the time of the initial bill, ask if there is a discount if you set up auto pay with your carrier.
- Check with your insurance carrier or agent to see if there is a discount with any of the professional groups that you belong to, for example a state bar association or AAA.
- Increase your deductible. An increased deductible will result in lower premiums rates. Keep in mind if your deductible increases, then the amount that the renter will be responsible for will also increase if you should have to file a claim.
- Insurance companies will check your credit score when determining the price of your policy. By improving your credit score, you’ll improve your chances of reducing the cost of your premium.
The content on this site is offered only as a public service to the web community and does not constitute solicitation or provision of legal advice. This site should not be used as a substitute for obtaining legal advice from an insurance company or an attorney licensed or authorized to practice in your jurisdiction. You should always consult a suitably qualified attorney regarding any specific legal problem or matter. The comments and opinions expressed on this site are of the individual author and may not reflect the opinions of the insurance company or any individual attorney.