Renters insurance protects your possessions if they’re stolen or damaged while you’re renting. In addition to burglaries and vandalism, renters insurance protects you against unfortunate events, such as electrical surges, floods, and fires.
While many tenants assume they have ample coverage under their landlord’s property insurance, this is actually not typically true. Without renters insurance, you could take a major financial hit in the event of a burglary or fire by having to pay out of pocket for everything you own that is lost or ruined.
Renters insurance also offers other financial protections, such as covering personal injuries to others and temporary accommodation if you ever need to move out due to home damage.
Whether you rent an apartment, condo, or house, here’s what you need to know about renters insurance.
Key Points
• Renters insurance covers personal belongings against theft, damage, and loss due to other covered events.
• Liability coverage protects against injuries to others on your rental property.
• Policies typically cover fire, smoke, theft, and some types of water damage.
• Coverage for earthquakes, floods, and hurricanes may require additional riders.
• Creating a home inventory aids in determining coverage needs and simplifies claims.
What Is Renters Insurance?
Renters insurance provides a number of protections, which typically include:
Personal Possessions
Renters insurance protects against losses to your personal property (think furniture, clothing, luggage, jewelry, electronics), or items that aren’t built into the property unit.
Even if you don’t own much, it may add up to more than you realize. Losing all or many of your personal belongings could threaten your financial security.
Liability
In the event that someone other than you is injured on your rental property, renters insurance can cover expenses related to personal injuries, such as medical bills and legal expenses should that person sue you.
Most policies provide at least $100,000 of liability coverage. You can purchase higher coverage limits for a fee.
Temporary Living Expense
If your home becomes uninhabitable as a result of one of the covered perils, your renters insurance policy may reimburse you for the cost of temporary housing while you’re unable to reside in the rental property.
Your Belongings When You Travel
Personal belongings and stolen cash are not only covered when you’re at home, but also when you are away from home. Your possessions are typically covered from loss due to theft and other covered losses wherever you may travel.
What Catastrophes Does Renters Insurance Cover?
Renters policies protect against a long list of unfortunate events. While each policy’s level of coverage will vary, a standard rental policy may cover losses to property from perils including:
• Fire
• Smoke
• Theft
• Vandalism or malicious mischief
• Lightning
• Windstorms
• Explosions
• Water from internal sources (such as water leaks)
• Windstorm or hail
• Falling objects
Typically, renters insurance doesn’t cover damage caused by earthquakes or floods from external sources. You may need to purchase a separate policy or rider to get coverage for these events. A separate rider might also be necessary to cover wind damage in areas that are prone to hurricanes.
Rental policies also do not typically cover losses due to your own negligence or intentional acts.
Why Is Renters Insurance Important?
One of the main benefits of renting versus owning is that there is less responsibility involved. If there is a leak in the kitchen or a noisy neighbor causing problems, in theory, the landlord should handle those issues.
When renting, it’s easy to fall under the impression that your landlord will handle everything that goes wrong. Unfortunately, that isn’t always the case. Your landlord’s property insurance policy covers losses to the building itself, whether it’s an apartment, a house, or a duplex.
Renters insurance provides financial protection for many of the things that landlords aren’t insured for, or would likely be willing to cover out of their own pocket.
Is Renters Insurance Mandatory?
In some cases, yes. While renters insurance isn’t a requirement by law, landlords are legally allowed to require it in their rental agreements. Basically, if a landlord says a tenant needs it, they have to get it. If the landlord doesn’t require it in the lease agreement, the choice is up to the renter.
If a landlord requires renters insurance, it’s probably because they are looking after their own best interests. If a tenant has renters insurance, the landlord will be less likely to get hit with a lawsuit regarding injury or theft.
Even in cases where a landlord doesn’t require renters insurance, they may still favor applicants who have it over those who don’t. So if you’re looking to rent a home in a competitive area, having renters insurance may help you stand out amongst a sea of applicants.
Renters Insurance Policy Options
Exactly what renters insurance covers depends on the policy type. There are two main types of renters insurance policies that renters will likely come across:
• Actual cash value: This type of policy pays to replace possessions minus an amount for depreciation up to the limit of the policy. In other words, they reduce the value of the possession based on its age and use.
• Replacement cost: This policy pays for the actual cost of replacing the possessions, and doesn’t deduct for depreciation, up to the limit of the policy. Generally, a replacement cost policy costs around 10% to 20% more than an actual cash value coverage policy, but this higher cost may be worthwhile.
How Much Does Renters Insurance Cost?
The price will depend on what type of policy you choose, how much coverage you need, and what state you live in. The average cost of renters insurance in the U.S. is $148 per year, or roughly $12 per month.
To determine how much coverage is necessary, it helps to know the value of all your personal possessions.
Let’s say the worst happens and the rental property burns down to the ground. How much would all of the furniture, electronics, art, jewelry, clothing, appliances, and everyday items like towels cost to replace? Ideally, the policy will be enough to replace all possessions.
Creating a home inventory of all of your personal possessions and their estimated value can help determine this number. Keeping this inventory up-to-date can make it easier and faster to file an insurance claim down the road.
Recommended: Cheapest Renters Insurance: Find Affordable Coverage
How to Buy Renters Insurance
If you decide you want to purchase renters insurance, here are some ways to get started.
Comparison Shopping
Renters insurance policy prices can vary greatly depending on the provider, so it can be worthwhile to shop around. It’s a good idea to get at least three price quotes, but the more the merrier.
You can call the company directly or submit an online form if available to get a quote, and then compare the different offers to see which one provides the best coverage for the best price.
Recommended: How Much is Renters Insurance?
Varying the Search
You may want to get quotes from different types of insurance companies, including those that sell policies through their own agents, and those that sell directly to the consumer without using agents.
You can also consult independent agents who offer policies from multiple insurance companies.
Looking Past Price
While getting the best deal possible sounds great, price shouldn’t be a renter’s only concern. An insurance provider’s customer service, claim process, and customer reviews are all important factors to take into account.
Asking for Referrals
Alongside looking at customer reviews, you may also want to ask friends or relatives for their recommendations. This is especially helpful if they have dealt with processing a renters insurance claim before.
The Takeaway
Renters insurance can provide coverage for your personal belongings, whether they are in your home, your car, or with you on vacation. In addition, renters insurance can provide liability coverage in case someone is injured in your home or if you accidentally cause injury to someone.
To determine if buying renters insurance is worth it for you, you may want to consider whether it would be financially devastating for you to have to replace all, or even some, of your personal possessions if they were stolen or damaged. If the answer is yes, then a renters insurance policy may be a wise investment.
Keep in mind that even if you buy renters insurance, it’s important to have a back-up fund that can cover your deductible and any costs your policy doesn’t cover. In fact, financial advisors generally recommend keeping at least three to six months’ worth of living expenses in a separate savings account earmarked for emergencies (even if you have renters insurance). It’s a good idea to keep these funds in an account that pays a competitive rate but still allows easy access to your money, such as a high-yield savings account or money market account.
When the unexpected happens, it’s good to know you have a plan to protect your loved ones and your finances. SoFi has teamed up with some of the best insurance companies in the industry to provide members with fast, easy, and reliable insurance.
FAQ
What Is a Good Amount of Coverage for Renters Insurance?
A good amount of coverage for renters insurance will cover the value of all your personal belongings. Consider the cost to replace all your items, including electronics, furniture, and clothing. It’s also wise to include liability coverage, at least $100,000, to protect you from financial losses if someone gets hurt on your rental property and decides to take legal action.
What is the Rule of Thumb for Renters Insurance?
The rule of thumb for renters insurance is to cover the full replacement cost of your belongings. Estimate the value of your personal items at today’s prices and aim for a policy that covers at least that amount. Additionally, you’ll want to opt for liability coverage of at least $100,000 to protect against potential lawsuits should someone get injured in your rented space.
What Are the Three Major Parts of a Renters Insurance Policy?
The three major parts of a renters insurance policy are: 1) Personal property coverage, which reimburses you for lost or damaged belongings; 2) Liability coverage, which protects you from legal claims if someone is injured in your rental; and 3) Loss of use coverage, which provides financial support if you need to temporarily relocate due to a covered event.
About the author
Jacqueline DeMarco
Jacqueline DeMarco is a freelance writer who specializes in financial topics. Her first job out of college was in the financial industry, and it was there she gained a passion for helping others understand tricky financial topics. Read full bio.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SOBNK-Q225-052