What is renters insurance and how does it work?

Our take

Renters insurance is an essential safeguard for anyone renting a home or apartment. It not only protects your personal belongings against risks like theft, fire, and water damage but also offers liability coverage in case someone gets injured on your property. Given the affordability — $29 per month on average — it's a small investment for significant peace of mind. We strongly recommend opting for comprehensive coverage that includes personal property, liability, replacement cost coverage and personal property endorsements for any high-value items that are subject to special limits, like jewelry.

How does renters insurance work?

Renters insurance covers your belongings in a home you rent, whether it's an apartment, a townhouse or a single-family home. It also protects you from liability claims for injuries or damage to someone else and provides additional living expenses coverage.

The main difference between renters insurance and homeowners insurance is that renters doesn’t include coverage for the building. That makes renters insurance much cheaper.

A renters insurance policy may also be called tenant insurance; insurance companies refer to it as an HO-4 policy.

What does renters insurance cover?

Basic renters insurance includes three primary coverages:

1. Personal property coverage
2. Personal liability coverage
3. Additional living expenses coverage

Let's look at the details of each.

Personal property coverage

The personal property portion of your policy covers all your belongings, from your sheets to your big-screen TV. Without a renters policy, there is no coverage for anything you own.

You can choose the renters insurance coverage amount for personal property based on an estimation of the value of your property.

Renters insurance will cover your belongings anywhere in the world, not just in your home. If your laptop is stolen from your car, car insurance won’t cover it, but renters' insurance will. However, there are limitations to coverage outside the home, usually 10% of the overall personal property coverage.

Standard renters insurance coverage is what insurance companies call a broad form policy. That means it’s a named perils policy – it covers you for the perils listed, and anything not listed is excluded.

Some of the perils covered by a broad form policy include:

• Fire
• Lightning
• Explosion
• Smoke
• Vandalism
• Theft
• Water-related damage from sudden and accidental discharge

Like all home insurance policies, there are special limits on certain types of personal property, like jewelry, art, musical instruments and cash or valuable papers. These have a specified limit of up to $2,500, depending on the property type.

If you have high-value items that fall into these categories, you can purchase additional coverage, called a scheduled personal property endorsement (floater), that will cover individual items for their appraised value.

Personal property coverage is subject to a deductible, which you can select when you purchase the policy.

Personal liability coverage

Personal liability insurance for renters covers you when you’re at fault for injuries to someone else or for damage to their property. If someone slips on your kitchen floor and is injured or if your child throws a ball through a neighbor’s window, liability insurance will pay the bill.

Tenants insurance liability coverage is included with your policy. The standard liability limit is $100,000, but you can choose coverage of up to $500,000. Experts recommend at least $300,000.

In addition to the liability coverage in your insurance policy, renters insurance also has no-fault medical coverage called medical payments coverage.

"If someone gets hurt in your home, [they] can submit medical bills directly to your insurance company,” says Angi Orbann, Vice President of property, personal insurance property at Travelers. “This way, expenses can be paid without a liability claim being filed against the renter. It should be noted that this coverage does not pay the medical bills for the renter's own family."

Typically, coverage amounts are between $1,000 and $5,000.

Additional living expenses coverage

Renters insurance also includes additional living expenses (ALE). This coverage, also known as loss of use, pays living expenses if a covered claim forces you out of your home during repairs.

"Additional living expenses on an HO-4 would cover costs associated with hotels, meals, laundry and other expenses that the tenant incurred while their apartment was being repaired, says Travis Biggert, chief sales officer with Hub International, an insurance brokerage.

ALE coverage could also cover costs associated with moving should the apartment not be habitable for an extended period.

Optional renters insurance coverages

You can enhance your renters insurance policy with additional coverage if you choose to do so. There are a few common renters insurance coverage options:

• Personal property replacement cost. Covers your personal property at replacement cost value rather than depreciated value.
• Earthquake coverage. You may be able to add an endorsement for earthquake damage, which is otherwise excluded.
• Scheduled personal property. Insures high-value items for their appraised value.
• Flood insurance. This is a separate policy that is available to renters through the National Flood Insurance Program.

What isn’t covered by renters insurance?

Renters insurance has some exclusions you should be aware of. First, anything not listed as a covered peril is automatically excluded. But there are a few other things that are more specifically excluded. They include:

• Floods
• Earthquakes
• War and nuclear disasters
• Pests, including bugs and animals
• Intentional damage

You will need a separate policy if you live in an area prone to flooding or earthquakes. Flood insurance is available from the National Flood Insurance Program, and earthquake coverage can usually be added as a rider to your policy.

It’s also important to note that while your policy covers family members living with you, roommates are not. Depending on the insurance company's rules, you might be able to share a policy with your roommate.

Does renters insurance cover property damage?

Renters insurance covers damage to your personal property as long as it is caused by a covered peril. It will also cover property damage to others if you are responsible under your personal liability coverage. It does not cover damage to the landlord's property caused by anything out of your control. Your landlord mus have their own policy to cover the structure and their property.

Renters insurance replacement cost vs. actual cash value

Most types of renters insurance use actual cash value to calculate how much the company will pay for your items if they’re stolen or destroyed. However, you can choose to upgrade your policy to replacement cost coverage. 

Actual cash value policies consider depreciation when calculating the value of your possessions. Your insurer will only pay out the equivalent of the belongings' value at the time of the loss. Actual cash value is calculated as the replacement cost of the item new minus depreciation. So, if you have a 10-year-old TV that is stolen, the insurance company would pay for the replacement cost of a similar TV minus 10 years worth of depreciation (and minus the deductible.)

These policies are less expensive, but remember that you will have to cover the difference between what your policy pays and the cost of replacing your possessions with new ones.

Replacement cost coverage reimburses you for the actual cost of replacing your possessions. For example, if your TV is destroyed, your insurer will replace it with a brand-new TV of a similar size and quality. This coverage ensures you receive the full cost to replace your possessions rather than the depreciated value.

You will pay a little more for this coverage, this is a highly recommended renters insurance coverage.

How much does renters insurance cost?

How much does a renters policy cost per month for an apartment or a house? Surprisingly, not much – it’s less than $22 a month.

Based on a 2023 Insurance.com rate analysis, the national average yearly cost for a policy with coverage levels of $40,000 for personal property, a $1,000 deductible and $300,000 of liability protection is $263, or about $22 a month.

Renters insurance rates will vary depending on the amount of personal property coverage you need. They’re also affected by where you live.

How much renters insurance coverage do you need?

Renters insurance covers your personal property if it's damaged, stolen or destroyed by a covered peril. It also provides personal liability coverage in case you injure someone or damage their property. Your landlord's insurance will cover neither of these.

On top of that, it will cover additional living expenses, like a hotel, if you can’t live at home during repairs from a covered loss.

Whether you need apartment renters insurance for your first place or you’re renting a home with your family, the needs of tenants vary through life’s stages. Below, we provide advice for each state, gathered from sources including the Insurance Information Institute, United Policyholders (a consumer group), and William F. Harris, an independent insurance agent in Los Angeles.

Minimum renters insurance coverage

If you are a college student living off-campus or are in your first apartment and don't have a lot of valuable possessions or other assets, the basics will likely be fine. Minimal personal property coverage of $12,000 with $100,000 in liability and a $500 deductible costs about $100 a year.

Increased personal property limits of $20,000 increases the rate to $280 a year. A $1,000 deductible brings that down by $260 a year but may not be worth it if you have a claim.

Note, however, that the average person has at least $35,000 worth of property, according to State Farm. Many other insurance companies echo this, saying a typical renter with a two-bedroom apartment has about $35,000 in personal belongings.

Mid-level renters insurance coverage

For a young family that has acquired more stuff, a policy with at least $50,000 in property coverage and $100,000 or more in liability protection is recommended. In general, for each additional $10,000 personal property coverage you carry, your premium might increase by $20 to $25. Also, insurers suggest raising liability to $300,000 in many cases, which could hike your premium by $50 or more a year.

Renters often increase the deductible to $1,000 while raising the property coverage to $50,000 or $60,000. The higher deductible helps to keep the premium from rising significantly. For example, the national average renters rate for $60,000 in property coverage, a $1,000 deductible and $100,000 in liability is $414, or just about $34 a month. Increasing liability to $300,000 is a minor increase of only about $2 a month.

Higher-end coverage limits for renters insurance

You may need more coverage if you’re renting a large house and have a lot of personal property. As you increase the amount of personal property coverage, rates will go up. To ensure you’re properly protected, make sure you have an accurate inventory of your belongings.

Although insurers recommend $300,000 in liability protection for most people, you probably want higher limits if you have lots of savings or other valuable assets. You may want to buy an umbrella policy, which generally provides $1 million in coverage that pays out once your liability benefits are exhausted.

Are there renters insurance endorsements for high-value items?

A standard renters insurance policy includes coverage for jewelry and other high-value items (furs, watches, and collectibles, among other items). But there are limits on how much your policy covers, which is specified in the contract. For example, the Insurance Information Institute (III) notes that in a typical policy, stolen jewelry is only covered up to $1,500.

Just like homeowners insurance endorsements, renters insurance offers endorsements (or riders) for high-value items. You’ll need an appraisal to prove the value of each item.

"These valuable items need to be 'scheduled,' which means a separate (endorsement) policy for each item," explains III spokesperson Lynne McChristian. "For instance, insurance for jewelry is about one to two percent of the value of the item, so insuring a $50,000 diamond ring could cost between $500 and $1,000 annually."

She adds that "you have the opportunity to select which deductible works best for you and your budget, and the higher the deductible amount means the lower your policy cost (for the endorsement). But it does mean you pay more out-of-pocket if you have a loss."