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What Is Renters Insurance and Do I Need It?

May 04, 2021 · 5 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

What Is Renters Insurance and Do I Need It?

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, townhouse, house or condo, here’s what you need to know about renters insurance.

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

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 healthcare bills and legal expenses should that person sue you.

Most policies provide at least $100,000 of liability coverage, along with a smaller amount to cover medical payments. 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 any extra living expenses that occur while you’re unable to reside in the rental property, such as hotels or meals out.

Your Belongings When You Travel

Your personal belongings 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 plumbing 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.

Recommended: What Does Renters Insurance Cover?

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.

Recommended: Why Do Landlords Require Renters Insurance?

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% 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, as well as how much coverage you need.

Depending on the state you live in, the average cost of renters insurance can vary between $12 and $37 per month (or $139 to $442 per year).

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.

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.

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 while you are 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.

Renters insurance can also provide peace of mind, which some renters may feel is worth the cost.

If you decide to purchase a policy, you’ll want to understand what the policy covers, and also ask the company or agent about available discounts, deductibles, and coverage limits.

Thinking about renters insurance but worried about how to fit it into your budget?

You may want to consider signing up for a SoFi Money® cash management account.

With SoFi Money, you can easily see your weekly spending on your dashboard in the app. This can help you stay on top of your spending, and make sure you are staying on track with your budget.

Learn how you can earn competitive interest, spend and save all in one account with SoFi Money.



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