Owning a home is often more expensive than renting, but renting is still subject to a handful of additional expenses.
One such cost is renters insurance. According to the Insurance Information Institute, only 37 percent of renters are covered by renters insurance. Is this because it’s unneeded coverage? Is it even necessary to buy renters insurance?
The answer may be more clear-cut than you expect.
Your Landlord’s Insurance Doesn’t Cover You
Your landlord or rental agency owns an insurance policy which covers the property you’re renting. That policy covers only the building; it does not cover property belonging to any of the tenants.
If a tree falls and smashes through your living room, the landlord’s insurance will cover the damage done to the building. It would not compensate you for any personal property that was damaged. You would be fully responsible for fixing and replacing your damaged belongings.
The same rule applies in instances of theft or accidents, such as your bathtub overflowing and flooding the downstairs apartment. In either case, you would be held personally responsible for replacing and repairing any property.
What Does Renters Insurance Cover?
By default, renters insurance covers the gaps left over by your landlord’s property insurance. It covers everything you are responsible for, such as your:
- Personal property
- Additional living expenses
- And liability
Take a look around your apartment or home right now. What property would you find difficult to replace if it were lost in a disaster? If a covered loss occurs (as defined by your policy), renters insurance would pay to replace any lost or ruined personal belongings.
In addition to replacing damaged or stolen property, renters insurance covers the costs of additional living expenses. If your apartment becomes uninhabitable for a period of time, renters insurance would pay to put you up in a hotel until repairs are made.
Coverage doesn’t end as soon as you step beyond the four walls of your apartment, either. Renters insurance provides protection from covered losses even while you’re traveling — whether you’re five miles or 5,000 miles from home.
Liability claims are also covered by renters insurance. Liability issues arise in situations where you would be held responsible for damage to another’s property or self. For example, renters insurance would protect you from the costly medical and legal fees associated with your pet biting a neighbor.
It would also protect you in the event a guest injures him or herself. Renters insurance may even protect you in the event you’re brought to court over allegedly libelous or slanderous statements you’ve made online (or elsewhere) — such as on social media.
Customize Your Coverage With Optional Riders
Renters insurance covers the cost of replacing personal property up to a defined limit. If you have a valuable collection or important items that exceed this limit, it may be worth “scheduling,” or itemizing, them in a rider. (Riders are optional additions to insurance policies that alter or enhance the provided coverage.)
An additional property rider will increase your premium slightly but provide higher coverage limits for itemized property — such as your jewelry collection or expensive musical equipment.
Another available option (depending on the insurer) is replacement cost coverage. Most policies replace covered property based on how much it’s actually worth — taking into account the depreciation and wear and tear of an item (and lowering how large a payout you would receive to replace it).
For example, if you purchased a computer for $1,000 years ago and it’s lost in a covered event, your policy would pay out whatever it’s actually worth. That could be an amount far less than what you initially paid. You would likely find it difficult to replace your computer with something new.
With replacement cost coverage, you would be compensated for the market value of the item. Replacement cost coverage does not take into account depreciation or condition. Your policy would pay out close to what you paid for the original lost or damaged item (after the deductible and within the policy’s limits, of course).
When Do You Need Renters Insurance?
Your landlord may require you to purchase renters insurance in order to rent an apartment or home. In other situations, the decision is left up to you.
The average annual premium for renters insurance is a mere $187 per year. Consider the peace of mind renters insurance affords you. In the event of a disaster, you will have financial help to replace your ruined or lost belongings. You will also be guaranteed a place to live if your rental becomes uninhabitable.
So do you need renters insurance? In the strictest sense, no. But in nearly all situations, you would be better off with renters insurance than without.
After all, if disaster strikes, would your emergency fund be enough to replace your belongings, sustain your lifestyle, and pay for food and lodging?
How to Buy Renters Insurance
Speak with a licensed insurance agent, like those here at Gallo|Thomas. An insurance agent can help craft a versatile renters insurance policy that takes into account your unique situation and needs. An agent will help you identify exactly how much coverage you need, whether you should schedule additional property, and discuss the policy’s limits of liability coverage (or if you’d benefit from an additional umbrella policy).