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 $30 a month.

Based on a 2022 rate analysis, the national average yearly cost for a policy with coverage levels of $40,000 for personal property, a $1,000 deductible and $100,000 of liability protection is $347, or about $29 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?

Coverage needs vary from person to person. There is no minimum coverage amount that is right for everyone. If you have a lot of personal property and valuables, you may need more coverage than someone with a more minimalist lifestyle. A larger home has more rooms and thus more contents than a one-bedroom apartment.

If you’re unsure how to choose renters insurance coverage, creating a home inventory – a detailed list of your belongings and their estimated value – can help you calculate the right number.

You should also consider what you need in terms of personal liability coverage. Anyone with many assets to protect should consider an increased liability limit.

Renters insurance FAQs

Does renters insurance cover hotel stays?

Yes, if you can't live at home due to a covered loss, renters insurance includes loss of use coverage for hotel costs.

Does renters insurance cover lost items?

No. If you lose something, it's not covered by renters insurance. However, loss (mysterious disappearance) is covered if you have a scheduled personal property endorsement, but only for the items listed.

Does renters insurance cover theft?

Yes, renters insurance covers theft of your items either from your home or anywhere else, like your car or a hotel room. You must file a police report for the theft to be covered.

Does renters insurance cover accidental damage?

No, accidental damage is generally not covered. If you drop your TV while hanging it on the wall, it's not covered by renters insurance.