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Renters insurance protects your personal property, offers liability coverage and will help pay for living expenses if a covered loss forces you out of your home.

Renters insurance works just like homeowners insurance, with the exception of coverage for the home itself; the landlord is responsible for protecting the building.

You'll choose a coverage amount for your personal property, a liability limit, and a deductible. If something happens to your property that's covered by the policy, you can file a claim. Read on more more details on how renters insurance works.

How does a renters insurance policy work?

Like a home insurance policy, renters insurance works by setting a coverage amount to protect your personal property. There are a list of covered perils included in the policy, and it will pay out to replace or repair your items if they're damaged by any covered peril.

Renters insurance usually works on an actual cash value basis, which means it will pay out the depreciated value of your items rather than what they would cost new. However, you can upgrade your renters insurance policy to cover replacement cost; you'll pay a little more in premiums but get a lot more coverage.

Renters insurance also provides liability coverage, which will pay damages if you cause injury or property damage to someone else. It also pays for you to live elsewhere, like a hotel, if a covered loss makes your home uninhabitable during repairs.

How do renters insurance claims work?

Renters insurance reimburses you for damaged or stolen personal property. You have to file a claim with the renters insurance company, including information about the covered loss.

Here’s how to file a renters insurance claim:

  • If it’s a theft or break-in, notify police and file a police report.
  • Notify your landlord. The landlord may need to file a separate claim with their insurance if there’s structural damage.
  • Take photos or videos of the damage. Make a list of stolen or damaged possessions. Don’t throw away damaged items until the renters insurance company tells you to discard them.
  • Contact your renters insurance company. Don’t wait to notify the insurer. Renters insurance policies may only give you two or three days to report a loss.
  • Fill out the claims form with the applicable information. The insurance company will review and contact you about the process. A claims process can take hours to days depending on the severity of the claim.

Filing a claim may increase your renters insurance rates. Insurance companies base rates on risk. If you've filed a claim, an insurer may view you as a bigger risk. Hence, the higher renters policy rates.

Before filling an insurance policy claim, think about how much the company may reimburse you for the loss and whether it's worth it to file the claim. If a thief stole a 20-year-old TV and you have actual cash value coverage, you may get very little.

How do renters insurance policy payouts work?

The renters insurance company will review the claim. It may send a representative to review the situation.

If the renters insurance company approves the claim, the company will offer a payout amount.

One major factor of the payout amount is whether you have full replacement cost or actual cash value coverage. Full replacement cost reimburses you for what the damaged or stolen items are worth new. So, if a thief steals a TV you bought for $1,000 three years ago, the renters insurance company would pay you the full amount to replace the TV.

Actual cash value pays the depreciated value. So, a three-year-old TV that you bought for $1,000 will be worth less. Full replacement coverage is more expensive but may be worth it to get full reimbursement for stolen or damaged property.

Once you agree to the payout, the renters insurance company will provide a check for the amount minus your deductible. The deductible is what you have to pay after you file a claim.

How does renters insurance work with roommates?

Renters insurance companies may allow you to add a roommate to your renters insurance policy, but you want to be careful about signing up for a policy with someone else. Adding another person to a renters insurance policy increases the insurance company’s risk, so you’ll pay more for coverage.

The average renters insurance rate is $326 annually or $27 a month. Costs vary by coverage and location. So, getting a policy on your own won’t cost you much.

Your landlord may require that you have a renters policy. You may decide to share one with your roommate, but it’s usually a better idea to get separate policies.

With your own renters insurance policy, you can make a list of your possessions and get coverage for those personal property. Your roommate can also get their own policy for their possessions. That’s usually a better idea than adding a roommate to your policy.

Renters insurance covers your personal property inside the apartment and elsewhere, but that coverage comes with limits.

Here’s what renters insurance policies cover:

  • Personal property -- Helps you if your contents are stolen or get damaged by fire, water damage or other covered causes.
  • Liability -- Protects you if someone gets hurt in your apartment or you cause damage to others outside of your apartment, such as damaging someone else’s property. Liability coverage protects from lawsuits, so make sure you have enough coverage to cover your belongings adequately. Liability coverage is usually between $100,000 and $500,000. If you have more liabilities than $500,000, renters insurance companies offer umbrella coverage. Umbrella policies are often between $1 million and $5 million.
  • Additional living expenses -- Provides reimbursement for living expenses if you lose use of your apartment, such as following a fire or serious storm. Renters insurance can help with paying for lodging, meals and other associated expenses.

In addition to those key parts of renters insurance, some policies offer additional benefits, including identity fraud protection and reimbursement for food spoilage if you lose power. Read on to more about what does renters insurance cover.

What does renters insurance not cover?

Renters insurance lists covered perils on the policy. Covered perils are what the policy will cover, such as fire and storms.

Perils not often covered by renters insurance include:

  • Flood damage
  • Earthquakes
  • Mold
  • Intentional acts by the insured
  • Neglect

Also, renters insurance usually puts limits on personal property that it covers. For instance, jewelry and other high-price items often have coverage limits of $1,000 or $2,000. If you have high-priced personal property worth more than your coverage limits, talk to your renters insurance company to see if you can add endorsements to cover those items properly.

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