What Is Renters Insurance Coverage and How Much Does a Policy Cost?

apartment floodingAs a renter, and a cheap one at that, I don’t typically spend a lot of money on furniture and other household stuff. When I look around my house, I mostly see garage sale finds, hand-me-downs, and knickknacks I got on super clearance. In fact, the slipcover in my living room is actually worth more than the 10-year-old beat up couch it’s protecting. It didn’t seem to me I really owned anything worth protecting, so I went without renters insurance for years.

Finally, I decided to get a policy just to be on the safe side. The insurance agent told me to add up the cost of every item in my house, not just the big-ticket items. When I itemized it all, I was shocked! The value of everything I own is actually far more than I could afford to replace out-of-pocket.

Half of all Americans living in a rental don’t carry renters insurance, according to a study conducted by Bankrate. While I don’t think every renter must have a policy, more than half of us probably need one.

Here is how to decide what renters insurance policy to get, how much to get, and if you even need it.

Basics of Renters Insurance

A renters insurance policy works much like a home or auto insurance policy. You select a coverage level and a deductible, and then make monthly premiums. Should anything ever happen to your belongings, such as theft, fire, or water damage, you can file a claim. The insurance company will pay you to replace your belongings after you pay your deductible.

Renters insurance can also pick up the tab after a different sort of disaster. If someone falls on your steps and sues you for their medical bills, your renters insurance could cover it. If you have to move out of your home after a fire, many renters insurance policies will cover the cost of a hotel room as well. It’s important, however, to review your renters policy as coverage differs between companies and may be less comprehensive if you pay a relatively low premium.

Policy Types

Insurance companies sell renters insurance based on either the actual cash value or replacement value of your possessions. Both policies work the same in principle, but have very different ideas when it comes to pay out.

  • Actual Cash Value. If you file a claim on an actual cash value policy, the insurance adjuster looks at the damage to your belongings and then deducts the cost of depreciation before offering you a claim amount. For example, the TV you bought for $800 five years ago is only worth $300 today due to depreciation. This means that if your TV is stolen and you file a claim for it, the insurance company will compensate you $300. Chances are, however, that to purchase a comparable TV to the one that was stolen, you’ll have to come up with money out-of-pocket. Therefore, actual cash value policies tend to have lower premiums than their counterpart, replacement value policies.
  • Replacement Value. On a replacement value plan, the insurance company will pay you the actual cost to replace your TV. In other words, if the $800 TV you bought five years ago is stolen, the insurance company will compensate you $800 or however much it costs to get the same TV today. This type of plan typically comes with higher premiums, but is well worth it if you ever have to file a claim.
home burglar computer

Extra Coverage

If you live in certain areas or wish to insure particularly valuable items, you’ll need a policy add-on to guarantee coverage. Some renters insurance policies will cover damage or loss to the structure from home break-ins, fire, and problems within the rental itself. Virtually all renters policies will cover damage to or loss of basic possessions, such as electronics, furniture, and clothing.

If you have anything beyond the norm in your life, however, a typical plan may not provide adequate coverage. For example, I live in New Orleans, which is basically the seventh-layer of insurance purgatory. Because I live both in a hurricane zone and two gazillion miles below sea level, my regular renters insurance plan wasn’t enough. While the regular plan covered theft, fire, vandalism, and problems with appliances or wiring in my house, I had to purchase a policy rider to cover high wind damage (like the kind that comes from hurricanes) as well as a flood policy. If you live in an area prone to natural disasters of any kind, you may need to bump up your coverage.

Many renters also choose to carry an add-on that covers their collections or specialty items. For example, my friend owns over 2,000 DVDs, which he has on a separate policy. If you own expensive jewelry, large collections of anything, or priceless antiques, consider purchasing specialty coverage.

Cost of Renters Insurance

Renters insurance typically comes with relatively low premiums – less than $1 a day in some cases. But your actual monthly rate will vary by provider, where you live, how much insurance you carry, and any additional policies you have.

To get a ballpark figure for premiums, major providers, such as GEICO, Progressive, and Nationwide, provide free online quotes. That said, it’s important to compare specific coverages between companies as they can and do differ.

Do You Need it?

Deciding whether to get a renters insurance policy comes down to evaluating your possessions and personal finances. If you have a small studio apartment with sparse furnishings and no big-ticket items, and you can cover their replacement out-of-pocket, you may not need renters insurance. On the other hand, if you own more than you can afford to replace, you may benefit from a renters policy.

Go through every room in your home, make a list of their contents, and estimate how much it would cost you to replace them. Don’t forget the smaller items, such as clothes, dishes, pots and pans, books, and DVDs. Now, add up the total. If you don’t have cash on hand to replace your inventory, get a quote for a policy and see if you can fit it into your budget.

Final Word

If you decide to get a renters insurance policy, look at the venture the same way you do any type of insurance. Request a quote from several insurance companies and ask the insurance agent about available discounts and exactly what is covered.

Many companies offer discounts for customers who carry multiple policies, such as auto and renters. You can also get discounts if you have or install home security systems, deadbolt locks, smoke detectors, and sprinkler systems.

Most importantly, you don’t want to pay for coverage you don’t actually need. See what your landlord is responsible for repairing or replacing in your rental – this should be addressed in your lease. Moreover, your landlord’s homeowner’s insurance policy should already cover certain damages to at least the exterior and structure of your home.

Do you have renters insurance? If so, have you ever had to file a claim?

  • http://www.rentersinsurance.com Joseph T. Becher

    This is very good information. More renters, Property Managers and Property Owners should read your comments.
    Statistics show that 76% of Apartment residents do not have renters insurance. As you have indicated it is very affordable. So why are so many are uninsured? Some reasons: the resident does not want to ccontact the traditional insurance agent, they think the landlord’s insurance covers them, they don’t have “enough” valuable property, there are many more.
    One more thing to consider, the best renters insurnace policies also cover additional living expenses should the insured premises be uninhabitable due a loss covered in the policy.
    Thanks for writing a very comprehensive article,


    Joesph T. Becher

  • SimpleTruth

    Good post! I had renters insurance when I was renting an apartment awhile ago, and as you mentioned it’s relatively inexpensive… especially when you factor in ‘piece of mind’.

    Fortunately, I never had to use it, but it was nice knowing that I’d be covered if one of my neighbors were to leave the iron on one day. So, I agree… a person should seriously consider getting renters insurance if they are renting.

  • Angela

    If you have a total loss of personal items on a renters insurance policy how do they determine what everything was worth?

  • http://www.rentersinsurance.net RentersInsurance.net

    Many people shopping for renters insurance fail to realize that they can obtain a multi-policy discount if they combine their rental insurance and auto insurance with one company. The good news is that the savings can actually negate the cost of the rental policy.

  • wlg0925

    For someone on a fixed income,renter’s insurance is a luxury. If my disability/retirement check is $635.00 per month and my rent is $495.00 there is $140 left over to buy food, utilities and medication. We are elderly, widows and widowers and/or disabled. The landlord demands that we buy insurance from a company they selected, otherwise they demand that we buy $100,000 instead of $50,000 worth of insurance. Some of us have lived here for over 18 years and now we have to move.
    What would you do buy renter’s insurance or buy heart medication?
    I once stopped and gave a elderly(80s)woman a ride. She was bent over with age, pale, out of breath, and carrying a huge bag of bottles to the store so that she could get the deposit to use for groceries. People are always thinking about themselves. Not everybody has money.