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How Much Renters Insurance Do I Need and What Does It Cover?

By Brian Martucci

insuranceIncredible real estate deals in select buyer’s markets notwithstanding, there are plenty of advantages to renting over buying. In most cases, renters enjoy more flexibility and mobility; they also avoid responsibility for the maintenance, repair, and renovation projects in which homeowners (and landlords) are obligated to invest.

But renters do face one apparent disadvantage: They’re not eligible for homeowners insurance. However, thanks to renters insurance, this is no big deal, as it provides many of the benefits of homeowners insurance, including protection from personal liability and coverage for damaged, destroyed, or stolen possessions. For people who don’t own a home, renters insurance is the answer to homeowners insurance.

If you’re wondering whether your current living situation warrants renters insurance, it’s important to consider the benefits, drawbacks, and little-known facts.

Benefits of Renters Insurance

1. It’s Not Limited to Your Apartment’s Interior

When you hear the term “renters insurance,” you probably envision a policy that reimburses you for physical possessions that are lost, damaged, destroyed, or stolen within the confines of your apartment. This is certainly a key function of renters insurance, but it’s not all it entails. Virtually all renters who carry insurance hold a “content insurance policy” that covers (with some exceptions) your TV, stereo, computer, furniture, and other valuable items that stay in your rental unit. Content insurance also covers items that you keep in your car, provided that the vehicle is registered in your name and at your address. If your car is burglarized overnight, while you’re out of town, or during the course of a leisurely meal at your favorite restaurant, you may be reimbursed for the theft of any covered items within it.

Renters insurance also protects you from liability issues that may arise in the course of your tenancy. If a guest sustains an injury during a fall or as a result of some kind of accident at your home – such as a burn from hot cooking oil, or an electric shock – your renters insurance policy’s liability coverage may cover the cost of a potential lawsuit and/or the guest’s medical bills.

Likewise, your policy may cover the cost of fire or water damage sustained by other tenants in your building as a result of faulty plumbing, outdated wiring, leaky floorboards, and other hazards that originate in your unit. Finally, your policy should cover – or should at least provide you with the option to cover – temporary relocation and living expenses that you may incur in the event that your apartment becomes unlivable due to fire, flood, or structural damage.

2. It Can Be Bundled With Other Insurance Policies

Chances are good that your apartment isn’t the only thing you’d like to protect. For example, if you own a car, you’re legally obligated to carry insurance on it. These days, you’re also required to hold some type of health insurance policy. Depending on your age and family situation, you may have life insurance as well. And if you own particularly valuable items like precious jewelry or original artwork, you may need customized policies to cover them.

The good news is that renters insurance can be (and often is) bundled with other types of insurance at a significant discount. Virtually every major insurer offers a multi-policy discount, which is a premium discount for carrying more than one insurance policy with the same company. Since many renters also own cars, it’s especially popular for tenants to bundle rental policies with auto insurance policies. The discounts can be impressive: For instance, Esurance offers a 30% discount on bundled renter-auto policies. Other insurers offer similar discounts on a case-by-case basis.

3. It Offers Protection for Landlord Negligence

Here’s a scenario: You head home from work, looking forward to a relaxing evening of eating takeout and binge-watching Netflix. But as you approach your apartment building, you realize that something isn’t right. Fire trucks and cop cars surround the entrance, and a thin cloud of smoke rises from its roof.

Eventually, investigators determine that a decades-old circuit shorted out, triggering a chain reaction along some old faulty wiring that caused a fire on your floor. The building isn’t destroyed, but your apartment has been brutalized by smoke and heat. Your electronics are useless, and your furniture is irreparably damaged.

Time to put your life on hold? Not if you have renters insurance. Even though this incident is clearly the fault of your landlord, you’d be on the hook for the cost of replacing your damaged possessions without sufficient renters insurance coverage. While your landlord’s policy covers the unit’s structural components and appliances (and furniture, if the place came furnished), it doesn’t extend to anything you own.

apartment fire

Drawbacks to Renters Insurance

1. Collections or Specific Valuables May Require Additional Coverage

Renters insurance covers the cost of replacing everyday possessions and equipment, but it always comes with a coverage limit – it may be as low as $5,000 or as high as $500,000 –  and generally doesn’t cover novel or valuable possessions. For example, if you store multiple pieces of jewelry in your apartment, your renters policy might not cover it (even a regular old engagement ring might not fit the bill). If you have extensive collections of records, stereo equipment, shoes, artwork, even rare books, you might also be out of luck.

You can still cover these items, but it will cost you. Look into purchasing a rider – a supplementary policy that covers specific items and appears on your main policy as a separate line item – or specialized insurance for high-value items. For instance, Allstate offers “high-value item insurance” that allows you to exceed its coverage limits of $1,000 per jewelry piece and $2,500 for all electronic equipment. It also allows you to bundle multiple high-value items such as jewelry into a single group, or take out scheduled personal property coverage that itemizes your premiums for specific possessions.

2. It Doesn’t Cover Everything

If you’ve ever been involved in a car accident that wasn’t covered by your auto insurance policy, you know that simply carrying insurance doesn’t unconditionally free you from financial or personal liability. Depending on the size of your deductible, you must make some out-of-pocket payments before your coverage kicks in. Additionally, in the case of auto insurance, your policy may only include personal liability coverage that protects you in the event of a lawsuit; if you lack comprehensive coverage, you might be liable for all costs related to damage to your vehicle’s glass, collisions with wild animals, and other steep expenses. Therefore, before you take out your renters insurance policy – and for as long as you keep it – you need to expend some effort to maximize the chance that it will deliver when the time comes.

First, this demands a careful look at your coverage limits and exclusions. According to Esurance’s website, the average renter owns personal property worth somewhere in the neighborhood of $20,000. If you’re “average” in this regard, you’ll need at least this much coverage to insulate you against a total loss, and it might be a good idea to take on additional coverage if you anticipate making big purchases in the near future. As noted above, it’s crucial to mind coverage limits on specific product categories as well. Electronics, jewelry, and rare collections stand out here – to minimize the cost of a rider or supplemental policy (by taking advantage of bundling discounts), purchase it at the same time, and through the same insurer, as your main renters insurance policy.

It’s also critical to understand what renters insurance doesn’t cover. Like homeowners insurance, rental coverage is stingy about paying for flood damage and sewer problems. If you live in an area that’s prone to flooding from a natural source such as a river or ocean, ask your insurer whether you’d be covered in the event of a flood; if not, look into supplemental flood insurance policies, which may be subsidized by state or federal programs.

If you occupy a ground-floor or basement apartment that’s prone to flooding or damage from sewer backups, your renters policy may not cover associated cleanup costs. Your insurer should offer supplemental “sewer and drain” coverage.

Finally, when you take out your renters insurance policy, you must choose between a “replacement value” policy and an “actual cash value” policy. In the event of an accepted claim, the former reimburses you for each lost or destroyed item’s value at the time of purchase, which makes it all the more important to save your receipts. The latter, meanwhile, reimburses you for each item’s depreciated value. Depreciation calculations are complex and therefore difficult to make generalizations about, but electronics such as computers and TVs tend to lose most of their value within three to five years. More durable items like couches, tables, and jewelry may retain their value for longer.

While actual cash value policies are significantly cheaper than replacement value policies, they don’t cover the real cost of replacing valuable goods. If you’re an avid user of electronics or a collector of rare, hard-to-value items, it may be worthwhile to invest in a replacement value policy.

3. It Can Be Very Expensive

As noted, rental insurance policies come with coverage limits. With most insurers offering policies of $100,000 or more, it’s likely that you’ll be able to find ample coverage. It’s really a question of what you’re willing to pay. You can reduce your monthly premiums by accepting a higher deductible – the amount that you must pay out of pocket before your coverage kicks in – but this lessens the policy’s effectiveness. And again, standard policies may not cover high-value items, such as $5,000 rings and $10,000 stereo systems. The cost of riders or scheduled property protection can add up quickly.

Your personal and financial profile may introduce additional costs: Renters who have solid credit scores (650 and up) generally pay less for comparable policies than those who have suboptimal scores. And ultimately, your reimbursement for a specific claim may turn on events that aren’t wholly within your control.

To reduce long-term payouts, many insurance companies place a dollar cap or time limit on reimbursements for temporary living expenses. If it takes four months after a fire to restore your apartment to a livable condition and your renters insurance policy only covers relocation expenses for two months, you’ll need to pay out of pocket for those other two. In other words, it’s probably best to assume that your renters insurance policy won’t cover every single expense that arises out of an unfortunate circumstance.

insurance can be expensive

Important Factors to Keep in Mind

It’s not always helpful to see things in black and white. These considerations aren’t necessarily “benefits” or “drawbacks,” but they’re critical to keep in mind.

1. Liability and Content Insurance Can Be Purchased Separately

Many renters purchase content insurance and liability insurance as part of a comprehensive package. If you’re really serious about controlling your policy’s costs, though, you can purchase each one separately. Whether you can do so depends on the value of your possessions and the manner in which you use your living space.

If live in a modern, well-maintained building and own lots of valuable items but don’t host parties or gatherings on a regular basis, you may wish to obtain a contents-only policy. This won’t protect you against liability costs such as injured guests’ medical bills or water damage that originates in your apartment and spreads to other units, but the tradeoff may be worthwhile if you deem such incidents unlikely.

If you live in an older, poorly maintained building and frequently host get-togethers but don’t own a lot of valuable items, you may be a good candidate for a liability-only policy. In either case, it’s best to talk to a representative from your insurance company before pulling the trigger on an incomplete policy.

2. Your Landlord May Require It

Landlords typically carry insurance policies that cover their properties’ structural components, infrastructure, and certain elements of liability. But this coverage doesn’t extend to renters’ possessions or personal liability.

Some landlords have begun to require their tenants to carry renters insurance policies. There’s no law that prevents them from doing so, although the requirement must be explicitly spelled out – along with minimum acceptable requirements for the insurance policy itself – in a signed, dated lease. If your landlord won’t agree to renew your lease unless you obtain coverage, you may need to take the plunge.

3. Policies May Cost More in Certain Areas

The average cost of a renters insurance policy that lacks high-value riders or scheduled coverage isn’t exorbitant. If you live in a city or region with above-average crime rates, your premiums will be somewhat higher than for a comparable policy in a low-crime area. Ditto for premiums on policies in areas prone to catastrophic weather events such as hurricanes, floods, tornadoes, and wildfires.

If your apartment is located in a particularly vulnerable area – for instance, along the hurricane-prone Gulf Coast or on a major river’s floodplain – you may need to purchase a rider that covers weather-related flood damage, wind damage, and other relatively likely occurrences. Fault zones are expensive too, but they may be handled by dedicated, state-run agencies that offer “affordable” policies. For instance, the California Earthquake Authority offers “catastrophic” policies that cover losses related to serious tremors. If you live in the L.A. Basin or the Bay Area, you may wind up dealing with a private insurer for your “regular” renters insurance needs, and the CEA for supplemental earthquake coverage.

4. It’s Your Responsibility to Keep Track of Covered Items

Before you validate your policy, meticulously catalog your apartment’s contents. You need to provide your insurer with a rough accounting of these contents anyway, but a more detailed review is critical for your own records.

Photograph every item of value that you own when your policy goes into effect; to the extent possible, save the purchase receipts for each item as well. Do this for every big purchase that you make after your policy goes into effect too. Make digital/cloud-based backups of these photos, and save your receipts in a fireproof safe or box. It sounds like overkill, but it’s a relatively small investment that can dramatically increase the likelihood that your claim will be accepted.

photograph all of your possessions

How to Determine the Amount of Coverage Needed

Whereas homeowners with active mortgages are generally required to insure their properties, renters with active leases face no such mandate. It follows that renters insurance isn’t as prevalent – at least on a per capita basis – as homeowners insurance. Instead of taking out separate or bundled renters insurance policies, responsible renters – especially those who plan on renting over the long term or who have accumulated valuable possessions – may choose to build up an emergency fund sufficient to cover the cost of replacing their apartment’s contents.

Is this course of action right for you? It depends. First, it’s important to remember that you can insulate yourself from certain types of risk – namely, liability for misfortunes that befall your guests, maintenance workers, and your building’s other tenants – without insuring all of your personal property.

The Benefits of Liability Coverage

You can (and often should) purchase liability insurance separately from content insurance. While it may be difficult for you to make the financial case for carrying content insurance (as opposed to an ample and well-managed emergency fund), it’s harder to argue against the benefits of basic liability coverage on your apartment. For starters, unprotected liability costs can quickly spiral out of control – if an injured guest needs to stay at the hospital overnight, you’re easily looking at a five-figure medical bill.

No matter how close your relationship with the injured guest, you shouldn’t count on good graces to protect you from legal action. When it comes to liability, friendly guests are the least of your worries.

If you or your landlord calls a contractor or service professional to your apartment to address an electrical, plumbing, HVAC, or structural issue, you may be liable for any mishaps – such as serious falls, puncture wounds, blunt-force injuries, or electrocution – that befall them during the course of their work. You’ll also be liable to neighbors who suffer property damage or injury as a result of a hazard that originates within your apartment.

According to Assurant, a property insurance company, the national average cost of a liability-only renters insurance policy with a coverage limit of $100,000 is about $11 per month, or $132 per year. Even if you carry this policy for a decade, spending just over $1,300 in the process, you’ll pay far less – probably an order of magnitude less – than you would to settle a legal dispute over just one overnight hospital stay for which you’re found liable.

Weighing the Cost of Content Coverage

The average cost of a “typical” renters insurance policy – which the Independent Insurance Agents & Brokers of America defines as $30,000 of property/contents coverage,  and $100,000 of liability coverage – is about $145 per year. The average cost of all renters insurance policies, a category that includes policies with much higher coverage limits, is about $185 per year.

In low-crime states that aren’t prone to catastrophic weather events, such as the Dakotas and Minnesota, premiums can be 30% lower than the national average. In more “dangerous” areas along the West Coast and Gulf Coast, premiums can exceed the average by 20% to 30%.

When the alternative is a total loss of furniture, clothing, and electronics with a collective value of thousands or tens of thousands of dollars, paying $185 per year – or $1,850 over 10 years, or $3,700 over 20, before inflation – seems like a no-brainer. However, this headline figure is a bit deceptive due to factors such as your policy’s deductible and coverage limits.

As you weigh the costs and benefits of purchasing content coverage, it’s useful to break your options into these broad but well-defined categories:

  • Top-Tier Policies With a low deductible (between $0 and $300) and high coverage limits (more than $50,000 in content coverage), these policies are designed to minimize your financial exposure to a total loss, as well as itemized losses on high-value items. Premiums on these policies are far higher than the national averages quoted above, but the tradeoff for this expense is peace of mind. If you feel like you need a top-tier policy, you probably have some expensive or rare possessions, and you may need to investigate riders or supplemental insurance to ensure that they’re adequately covered.
  • Family Policies. These policies come with low to moderate deductibles (between $300 and $500) and high coverage limits (more than $50,000). They’re especially useful for families or middle-class couples who plan to rent for the long term; typical policyholders have lots of stuff to protect, but may not be able or willing to pay for top-tier coverage. It’s a good idea to complement this type of policy with an emergency fund, which a growing family should probably have anyway.
  • Middle-of-the-Road Policies. With larger deductibles (between $500 and $1,000) and lower coverage limits (between $20,000 and $50,000), these policies are popular with younger, upwardly mobile renters who earn decent incomes but haven’t yet accumulated lots of high-value possessions or started families. They’re useful for protecting electronics, clothing, and other important (but not incredibly valuable) items. Given the size of the deductible and the potential for the cost of a total loss to exceed the policy’s coverage limit, your middle-of-the-road policy should be paired with an emergency fund.
  • Low-Cost Policies. Similar to “catastrophic” health insurance policies, these instruments come with high deductibles ($1,000 or more) and relatively low coverage limits (less than $20,000). They’re ideal for lower-income folks, such as students and recent graduates, who haven’t accumulated high-value possessions and won’t be crushed by the prospect of paying out-of-pocket to replace specific items. With a low-cost policy, you might not be able to afford to replace all of your possessions at once. If you’re looking to get back on your feet quickly after a mishap, then it’s essential to have a robust emergency fund to complement your policy’s relatively low payout.

If you’re willing and able to pay for a top-tier policy – with or without attendant riders and supplemental insurance – that’s adequate to replace all of your possessions, it may make more sense for you to bundle your liability and content coverage in a single package. If you don’t own a lot of expensive equipment or accessories, it may be better to forgo content insurance, purchase a liability-only policy, and use an emergency fund to cover the cost of lost, damaged or stolen items on an as-needed basis. But the ultimate decision should be reached after careful examination of your situation and priorities.

writing a check

Keeping an Emergency Fund In Lieu of Content Coverage

Another option for content coverage is to start or augment an emergency fund that’s specifically earmarked for unexpected expenses related to your apartment and its contents. You could do this in place of purchasing renter’s insurance, the premiums essentially going toward your fund instead of the insurance. However, you really don’t want to forgo liability coverage or try to save for it on your own given the costs involved with medical bills and/or potential lawsuits.

Any emergency fund should be held in an FDIC-insured savings account from which you’re permitted to make withdrawals at your discretion. While it might be tempting to seek higher returns on your “investment,” liquidity is a crucial aspect of your emergency stash. One of the benefits of an emergency fund is that your funds aren’t limited to an apartment emergency, but can be ready for other emergencies as well.

However, accumulating an amount to cover the cost to replace your contents may take years. If you decide to go without content coverage, be sure that you’re able to accept the risk that comes with leaving your non-essential possessions uncovered.

Another option is to ask your insurer about only insuring your most valuable items such as your computer, cell phone, or tablet computer. This coverage is often extremely affordable.

Final Word

For some renters, renters insurance is a useful tool that can hasten recovery from an unfortunate incident and lessen the financial impact of theft, property damage, and liability. For others, it may be less useful than a stable, well-managed emergency fund that’s specifically earmarked for similar purposes.

Ultimately, your choice to obtain renters insurance is a personal one that turns on the nature and value of your apartment’s possessions, as well as your perceived exposure to liability issues. If you already have ample savings or a robust emergency fund, you may well be able to get by without it. Then again, it never hurts to request quotes from reputable insurers – especially if you’re looking to bundle your renters insurance policy with additional policies.

Do you feel like you need renters insurance? Or would you rather maintain a separate emergency fund instead?

Brian Martucci
Brian Martucci is a freelance journalist and branding consultant who loves to provide practical personal finance advice for regular people. When he’s not writing about frugal living, long-term investing, or consumer-friendly financial products, he’s probably out exploring a new trail or sampling a novel cuisine.

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