Guide to Renters Insurance

Audrey M. Jones
Apartment Building

A renters insurance policy protects the personal belongings of an individual who lives in a rented space, such as an apartment. Some policies also provide coverage for injury to third parties while on the premises.

Who Needs Renters Insurance?

Some apartment complexes or landlords may require that renters purchase coverage. In other instances, it may be up to the renter's discretion whether to purchase insurance. Renters insurance is best for individuals who want to protect their personal belongings, including furniture and electronics, from theft or damage while in the rental property. The NW Insurance Council states that renters with cameras, televisions, jewelry, bicycles, or other equipment should purchase insurance. Dirk Wakeham, President and CEO of LeasingDesk Insurance Services, explains a common myth: "There is a common misperception that an apartment owner or landlord's property insurance covers loss of your personal belongings - this is incorrect. Regardless of who causes the damage, you are solely responsible for replacing your personal belongings."

Replacement Coverage

MSN Money recommends that renters who calculate that it would take a long time to replace stolen or damaged property should purchase insurance. The publication also recommends that individuals who are only temporarily renting, such as individuals living in an apartment while waiting for completion of construction on a new home, might find that renters insurance provides the same protection as did their previous homeowners policy.

Individuals renting in areas prone to natural disasters such as hurricanes and tornadoes might also find that insurance is the best way to protect themselves against potential catastrophes.

What Does Renters Insurance Cover?

Renters insurance does not provide coverage for fixtures such as wallboard, cabinets, or carpet, in a rented home. Instead, these policies solely protect the renter's personal belongings. The NW Insurance Council states that many policies protect renter's property against:

  • Theft
  • Explosion
  • Water damage
  • Vandalism
  • Windstorms
  • Fire
  • Smoke
  • Lightening

Additionally, renters insurance policies provide protection in the case of a lawsuit brought against the renter for injury to a third party. This includes injuries from being inside the premises or using any of the renter's belongings.

According to State Farm, a landlord's insurance policy typically only covers the property and its fixtures, such as appliances.

Additional Coverage

Some policies provide additional types of coverage, such as lost luggage protection and food losses due to prolonged power outages. Others provide "loss of use" coverage, which provides protection in case the tenant needs to vacate the property for a period of time. Some items, such as expensive jewelry, may not be automatically covered by a policy.

All policies have a maximum policy limit, which is the total amount of money that the insurance company will pay for damage or loss claims.

Types of Renters Insurance

According to the Texas Department of Insurance, policies can be categorized into two types: named-perils and all-perils.

  • Named-peril policies: Sometimes also called "specified-perils policies," these cover property lost or damaged due to the specific perils listed in a policy, such as theft or fire. Damage or loss due to other perils not specifically listed in the policy contract is not covered.
  • All-peril policies: Sometimes called "open-perils policies" or "comprehensive policies," these cover damage or loss from all types of perils, unless specifically excluded in the policy.

Reimbursement Type

There are also two types of reimbursement that a policy can provide: cash value or replacement value.

  • Cash value: Policies of this type provide holders with the value of the lost property at the time of the loss. Property value is determined by the insurance company and is based on the type of item lost and age of item.
  • Replacement value: Policies of this type provide holders with reimbursement for what it would cost to replace the damaged or stolen item as based on its price in today's market.

The type of policy and reimbursement method offered depends on the insurance company. Some companies offer both types and reimbursement methods.

Typical Cost of Renters Insurance

The cost of renters insurance is based on the amount and type of items you want covered, property, and property location. Newer property with a security system will lead to a lower premium than an older home located in a neighborhood with a high crime rate. Dirk explains: "For approximately the same cost of three trips to your local coffee shop a month, you can have a renter's insurance policy that protects you against personal property loss in the event of an accident. It's already very affordable; for about 60 cents per day you can have the peace of mind knowing you are protected."

According to HomeGuide.com, the Independent Insurance Agents and Brokers of America reported that the average cost for $30,000 of property coverage and $100,000 in liability coverage is $12.00 per month, or $144.00 per year.

Where to Purchase Coverage

Many reputable insurance companies offer renters insurance policies. The companies listed below were all highly ranked by Standard and Poor, a company that ranks companies in the insurance industry according to their financial stability. Ratings range from AAA, indicating a company with strong financial standing that is able to meet its financial commitments, to D, indicating a company that is currently in default on its financial commitments. Ratings can be found via Insure.com.

  • State Farm: This company is ranked AA. It offers policy values for $20,000 up to $50,000, and provides coverage for theft or damage from hailstorms, windstorms, fire, or lightening.
  • Allstate: This company's policies provide guest medical protection, liability protection, reimbursed living expenses, and personal property protection. It is ranked AA.
  • Geico: This company is ranked an AA. In addition to property coverage, most of its policies provide liability coverage.
  • Progressive: This company is ranked AA. Its policies provide property protection, personal liability protection, and damage to the rented property caused by damaged property.

Your Renters Policy

Prior to purchasing a policy, consider the true value of your belongings to determine how much coverage you need. Also consider what type of policy and reimbursement valuation works best for your situation. As Dirk says: "Everyday some type of accident and/or disaster occurs - it may not be a matter of if an accident is going to happen to you, but rather, when, and only about 30% of renters have a renter's insurance policy. What happens if your neighbor has a fire that destroys their apartment and your apartment with all of your personal belongings in it? Who pays for replacing your things? Your neighbor can't afford to because they don't have renter's insurance - but thankfully, you do."

Guide to Renters Insurance