Guide to buying renters insurance

What does renters insurance cover?

Renters insurance covers most of the same things a homeowners insurance policy does, except the building itself. It’s also known as tenant insurance or an HO-4 policy.

A renters policy includes three basic coverages:

• Personal property. This covers any damage or theft of your personal property, from your dishes to your laptop.
• Liability. Personal liability insurance covers injury or property damage done to others for which you are responsible, such as a dog bite.
• Additional living expenses (ALE). Also called loss of use, ALE covers any extra living expenses you incur while you’re unable to live in your home due to a covered claim, like hotel bills.

Renters insurance usually covers your personal property on an actual cash value basis. This means you’ll be paid the depreciated value of your belongings. You can upgrade your coverage to replacement cost, which will pay the full amount to replace your items brand new.

Renters policies are what is known as broad form coverage. That means they cover damage from a specific list of perils. Anything not listed isn’t covered.

What does renters liability insurance cover?

Perhaps the most underrated benefit of renters insurance is liability coverage. Even if you don’t have costly possessions, an expensive lawsuit could drain your finances for years. Your liability coverage protects you from lawsuits – the cost of your legal defense and judgments or settlements up to your policy limit.

The low end of the liability coverage is about $100,000, and many experts recommend purchasing at least $300,000 in protection. If you have a high income, you might want to extend this coverage with an umbrella policy – $1 million extra protection costs $200 to $350 per year.

Your policy also likely provides $1,000 to $5,000 of no-fault medical coverage. So, if a visitor is injured on your premises, you can submit the medical bills directly to your insurer for payment.

What does renters insurance not cover?

Although broad form coverage means anything not listed as a covered peril is excluded, there is also a specific list of excluded perils. These perils are excluded in every renters policy:

• Flood damage
• Earthquakes
• War
• Nuclear hazards
• Government action
• Losses from intentional acts (by the insured) or neglect
• Mold and rust

In addition to exclusions, renters insurance policies also limit coverage for specific categories of possessions – lost or stolen jewelry coverage, for instance, may be capped at $2,500, and protection for computers and electronics may also be subject to limits.

You can add a scheduled personal property endorsement to cover high-value items outside the included limits.

Finally, if you do any business out of your home you may need to add incidental business liability or business merchandise coverage.

What is the average cost of renters insurance?

The average cost of renters insurance, based on the most recent Insurance.com data, is $347 a year, or about $29 a month. That’s the national average renters insurance cost for a policy with coverage levels of $40,000 for personal property, with a $1,000 deductible and $100,000 of liability protection.

The cost of a renters policy depends on how much coverage you need, where you live, and personal factors like your claim history. However, renters insurance rates are generally very low and affordable since there’s no dwelling to protect.

Increasing the personal property portion of the coverage will have a greater effect on the cost than increasing liability, which generally only adds a few dollars a month to the premium.

How do I buy renters insurance?

Knowing how much coverage you need and comparison shopping are the keys that will help you find the right renters insurance policy at the best price.

Start by doing an inventory of your possessions and estimating their value. Remember to include things like dishes, linens and clothing, not just big-ticket items like electronics. You’ll also have to decide how much liability insurance you need and choose a deductible.

Once you’ve decided on coverage levels, compare rates from multiple companies to see which one offers the best deal. You might want to start with the company that handles your auto insurance. Many insurance companies offer a bundling discount for auto and renters insurance.

Even if your auto insurance company offers you a good deal, you should still shop around and compare renters insurance quotes from a few other companies. It's also a good time to compare car insurance quotes; you might save on both policies.

Is renters insurance required?

Renters insurance is not mandated by law in any state.

Landlords, however, often require renters to buy insurance. Requiring renters insurance protects landlords from lawsuits due to the renter’s actions and ensures there is no confusion about what’s covered by the landlord’s policy.

The landlord is responsible in some situations, such as unsafe property conditions, causing an injury. However, if the renter is at fault, such as when their child breaks a neighbor’s window, the landlord’s policy won’t cover it.