Renters’ Guide: Renter’s Insurance
Renter’s insurance is a form of property insurance that provides coverage for losses to the tenant’s personal property and losses resulting from liability claims, such as injuries occurring on the premises that are not due to a structural problem with the property (for which the landlord would be responsible). Many landlords require proof of renter’s insurance since the landlord’s property insurance will not cover losses to the tenant’s belongings or certain liability cases. For instance, if the entire building burns down, the landlord’s policy will cover the structure; the individual renter’s policy would cover the personal contents of the rented unit.
A renter’s insurance policy protects against losses to the tenants personal property including items such as clothes, luggage, computers, furniture and electronics. The policy may also cover the contents of the policy holder’s vehicle and luggage while traveling. A standard HO-4 policy designed for renters covers losses to personal property from perils such as:
- Fire or lightning
- Windstorm or hail
- Riot or civil commotion
- Damage caused by aircraft
- Damage caused by vehicles
- Vandalism or malicious mischief
- Volcanic eruption
- Falling objects
- Weight of ice, snow or sleet
- Accidental discharge or overflow of water or steam from sources including household appliances, plumbing, heating, air conditioning or fire-protective sprinkler systems
- Sudden and accidental cracking or breaking of steam or hot water heating systems, air conditioning, or fire-protective sprinkler systems
- Freezing of plumbing, heating, air conditioning, fire-protective sprinkler systems or household appliances
- Sudden and accidental damage from artificially generated electrical current
Losses resulting from floods and earthquakes are not covered in standard policies. A separate policy or rider is required for these perils. In addition, a separate rider might be needed to cover wind damage in areas from hurricanes.
If the unit becomes uninhabitable due to one of the covered perils, the policy may cover “additional living expenses” including the costs associated with living somewhere else temporarily.
Liability coverage is also included in standard renter’s insurance policies. This provides protection if someone is injured while in the rented unit, and it pays any court judgments as well as legal expenses, up to the policy limit.
What’s Not Covered
Like other policies, a renter’s insurance policy provides coverage for losses resulting from a covered risk or peril. The covered risks are specified in the policy (see “What’s Covered” for a list of standard covered risks). Losses resulting from a non-covered risk are not covered by the policy.
Renter’s insurance policies also do not cover losses caused by the tenant’s own negligence or intentional acts. For example, if the tenant falls asleep with a lit cigarette and causes a fire, the policy most likely will not cover the damages.
Individuals can obtain renter’s insurance by contacting a reputable insurance company (or contacting several to compare policies and prices). A separate application will have to be completed for each company. In many instances, the entire application process can be performed online; however, some companies wish to speak with customers over the phone or even in person.
The renter will typically have the option to elect replacement cost coverage or actual cash value (ACV) coverage. Replacement cost coverage pays the actual costs to replace damaged or lost items, and ACV pays based on what the item was worth at the time of the loss. For example, if a computer that cost $1,000 two years ago is stolen from an apartment, replacement cost coverage will pay for a new, comparable computer. An ACV policy, on the other hand, will cover the estimated value of the computer, which will likely be much less than it will cost to buy a replacement. The replacement cost coverage policy may cost more in premiums but will generally pay out more if a claim is ever filed.
Renters will also be able to select a deductible – the amount of money for which the policy holder will be responsible for each claim. A higher deductible will result in lower premiums; conversely, a lower deductible cause higher premiums. Renters must weigh the financial pros and cons of each to determine the deductible level that will work best for him or her.
To ensure that there is enough insurance to cover all belongings, renters may wish to purchase a separate rider for valuable items such as jewelry, photography equipment, musical instruments and antiques. Renters’ Guide: Trading Rent For Mortgage Payments