Renters insurance, also known as “tenant insurance,” is intended to protect people who rent a home or apartment against unanticipated events, including “named perils” ranging from theft to fire.
In general, there are three areas of coverage under the umbrella of a renters insurance policy: personal property, personal liability and medical bills, and temporary living expenses. In each type, it can be important to find the answers to two different, albeit related, questions:
• What does renters insurance cover?
• What does renters insurance NOT cover?
The personal property portion of the policy generally covers costs associated with repairing or replacing damaged or stolen belongings, up to limits stated in the policy. The belongings can include furniture, electronics, clothing, jewelry, and more. Losses over the coverage amount typically aren’t covered.
As for liability, the policy may cover repairs needed because the policy owner accidentally damages the property of another person or may pay medical bills of guests if the insured is found to be responsible for them. Again, losses over coverage limits aren’t typically covered.
The policy may also cover temporary living expenses, such as the cost of a hotel room if the place being rented has been damaged to the degree that it’s not habitable.
When buying a policy, it’s important to be clear about what’s covered and what isn’t.
Comparing Policies for the Best Fit
In some instances, landlords require renters insurance for their tenants. If it isn’t required, many people still purchase a policy to protect themselves and their belongings.
When deciding the right amount of coverage, consider:
• The value of personal possessions
• What amount would fit within the policyholder’s monthly budget
Policies can range in price and coverage, so it can make sense to compare insurance companies and the policies they offer.
To determine if it makes sense to buy a policy, assuming it’s not required by a landlord, add up the value of your personal possessions and then imagine that they would need replaced.
Compare that figure to what a renters insurance policy would cost each month. Does it make sense to buy that policy?
The average policy for renters costs $15 to $30 a month, according to the National Association of Insurance Commissioners. The association notes that, typically, replacing belongings would cost much more than that—and that doesn’t even factor in the liability costs if, say, someone were injured in your apartment or rented home.
Actual Cash Value vs. Replacement Cost
Reimbursement for lost personal property can be based on actual cash value or the replacement cost , the NAIC says.
If belongings are lost and a renter has an actual cash value policy, depreciation kicks into the calculations. In other words, if a 4-year-old computer and printer were stolen, the policyholder would be given what the two items are worth today, not what it would cost to replace them.
With a replacement cost policy, the policyholder will typically be reimbursed the amount that it would cost to replace the items with new ones at today’s prices. So, in the example being used, a policyholder could buy a comparable new computer and printer and have coverage for that dollar amount.
When choosing a policy, also look at its deductible. This is the amount of money that the policyholder will need to pay before insurance coverage kicks in; this can apply when personal property is damaged or stolen.
Most renters insurance policies come with a deductible, usually $500 or $1,000, although policies are available with higher deductibles. In some cases, deductibles may be set as a percentage of the claim. For example, the policy might list that the renter will pay 10% of the claim.
Examples of Claims
Let’s say a fire damages $15,000 of personal belongings. Because of depreciation, they would currently be worth $10,000. Here’s what reimbursement might look like under two scenarios.
Actual Cash Value, $500 Deductible
$10,000 (depreciated value) – $500 (deductible) = $9,500 reimbursement
When buying replacements at the current prices of $15,000, this means the policyholder would pay $5,500 out of pocket.
Replacement Cost, $500 Deductible
$15,000 (replacement cost) – $500 (deductible) = $14,500 reimbursement
When buying replacements at the current prices of $15,000, the policyholder would pay just the $500 deductible.
There are fewer out-of-pocket costs with a replacement cost policy, although the policies can be more expensive to purchase.
Broad Form vs. Comprehensive Form
When looking at policy options and asking, “Does renters insurance cover damage from (fill in the blank)?” the NAIC points out the difference between broad form and comprehensive form renters insurance policies.
• Broad form: This is the most common type of renters insurance, and it covers personal belongings against loss from specific events like fire, lightning, smoke, explosions, theft, and water damage from burst pipes. Check the policy for specifics.
• Comprehensive form: This tends to be more expensive, but it covers loss from any source unless it’s specifically excluded in the policy.
Making a Choice
Geographical locations can make a difference in the types of coverage you need. In an area where hurricanes or tornadoes are common, storm damage coverage may be important. Renters insurance usually doesn’t cover damage from flooding, sinkholes, and earthquakes. (But you can buy an additional flood policy.)
Also consider what expensive items you have, whether it’s a piece of fine art or an inherited collection of jewelry, and ask the insurance company how to get added coverage (a “rider” or “floater”) on those valuable items.
Check to see if any discounts are applicable, perhaps for having fire/home security alarms, a sprinkler system, deadbolts on exterior doors, fire extinguishers, and so forth.
Using all of the information collected, determine how much renters insurance is needed (and can be afforded) and then apply for the policy that provides the amount of coverage needed.
What does renters insurance cover? Usually it protects a renter’s stuff from loss, shields the policyholder from liability (which may include both medical and legal fees), and pays temporary living expenses if needed.
SoFi has teamed up with Lemonade to make getting renters insurance easy. Prices start at just $5 per month.
Lemonade’s friendly bot, Maya, will craft a policy and issue it to you in as little as 90 seconds. If you need to make a claim, the process can be completed from your smartphone, and you can get paid in just minutes.
SoFi chose to partner with Lemonade for renters and homeowners insurance because both companies value transparency and forward-thinking technology.
SoFi offers customers the opportunity to reach the following Insurance Agents:
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