From selecting the right property to keeping up with monthly expenses, renting often involves many responsibilities and considerations. Yet, one crucial safeguard renters often overlook or underestimate is renters’ insurance.
Renters’ insurance offers financial protection against unexpected events like theft or liability claims, but many tenants might wonder if it’s truly worth the cost—especially in tough economic times. To make this decision easier, Point2Homes takes a deep dive into renters’ insurance, what it does, and how it can save you money and stress in the long run.
Understanding the Basics: What Is Renters’ Insurance?
Renters’ insurance, also known as tenants’ insurance, is designed to protect renters and their belongings from various issues. It doesn’t usually protect the actual building like home insurance would—that’s usually covered by the landlord’s insurance policy.
A renters’ insurance policy typically addresses:
- Replacement or repair of any of the contents of the home that have been stolen or damaged.
- Legal protection against liability if someone is injured while visiting the rented property.
- Coverage for additional living expenses if temporary relocation becomes necessary due to issues beyond the renter’s control, like disasters.
How Does Renters’ Insurance Work?
The majority of renters’ insurance policies provide the three types of aforementioned protections:
- personal possessions
- personal liability
- additional living expenses
Policies are available in two main types: Actual Cash Value and Replacement Cost Value. The difference is how much the insurer will pay to replace your possessions should they be damaged, destroyed, or stolen.
1. Actual Cash Value Policies (ACV)
With an ACV policy, the insurer will reimburse the cash value of the possessions at the time of loss. It takes into account depreciation and wear and tear.
For example, if your ten-year-old guitar is destroyed in a fire, the insurer will consider the current value rather than the purchase price. The current value is likely to be much lower than the purchase price, and, as a result, the payout may not be enough to buy a new replacement.
2. Replacement Cost Value Policies (RCV)
An RCV policy will cover the cost of replacing items with new equivalents, disregarding depreciation. It will cover the actual cost of replacing the items with those of a similar kind, quality, and specification. So if that same 10-year-old guitar gets destroyed, it can be replaced with a brand-new one.
While RCV policies tend to be more expensive (typically around 10% more than an ACV policy), they can prove advantageous by ensuring sufficient funds to replace belongings.
What Renters’ Insurance Covers
When comparing options, some policy providers, such as ResidentShield, may offer customizable renters’ insurance plans designed to suit various budgets and coverage needs. But typically, renters’ insurance will offer three major protections:
1. Personal Belongings
Personal belongings refer to all the possessions within a home. Policies typically protect possessions such as:
- furniture
- electronic devices
- musical instruments
- kitchenware
- bedding
- clothes
- valuables (typically capped at $1,500; additional coverage can be purchased )
- bicycles and other sports equipment
- borrowed or rented items in your possession (typically also covered under a standard policy)
The cost to replace or repair these items will generally be covered in the event of fire, smoke, lightning, and, in some cases, water damage. A good renters’ insurance policy should also offer protection against theft and vandalism, as well as disasters such as explosions and windstorms.
Each policy is different, however, and customization options allow for tailored coverage.
2. Liability
A standard renters’ insurance policy will cover any lawsuits for property damage and bodily injury that you or anyone else living in your rental home—including pets—may have caused.
It covers the costs of defending yourself in court as well as any court awards up to the limit of the policy. Liability tends to be capped at $100,000, though you can pay more for a higher level of protection.
In addition to legal costs, a standard renters’ insurance policy should also cover no-fault medical expenses. For example, if a guest is injured on the rental property, they will be able to submit their medical bills to the renter’s insurer. Your own medical bills, or those of anyone else living with you, are not covered.
3. Additional Living Expenses
Should the home become uninhabitable due to a disaster, a good renters’ insurance will cover the additional living expenses. Typically, the difference between your normal living expenses and these additional expenses will be paid out. These may include:
- hotel bills
- restaurant meals
- temporary rentals, and any other necessary living expenses incurred until your home is made habitable
What Renters’ Insurance Doesn’t Cover
Certain items aren’t typically covered by a renters’ insurance. The most common exclusions in most renters’ insurance policies are:
- damage to motor vehicles
- flood and earthquake damage (often requiring separate policies or endorsements)
- high-value items exceeding standard coverage limits without additional riders
How Much Does Renters’ Insurance Cost?
The average monthly cost of renters’ insurance is $23. However, there are many factors influencing pricing, such as:
- location
- tenant’s age
- how much coverage is needed (like the number and value of belongings)
- type of coverage required (ACV or RCV)
- deductible amount (the amount a renter is willing to pay when filing a claim, typically between $250 and $2000; higher deductibles generally lower premiums)
When deciding how much cover you need for personal belongings, it helps to draw up an accurate inventory of all your belongings and their value. This will also help if you need to make a claim.
Do You Really Need Renters’ Insurance?
While not a legal requirement, landlords increasingly require tenants to carry a policy as part of lease agreements. Landlord insurance, which covers the building and certain liabilities, does not extend to tenants’ personal belongings or liability.
Without renters’ insurance, tenants bear full responsibility for losses or legal claims that arise during their tenancy. This is why it’s always a good idea to take out cover: it offers financial protection for you and your belongings, as well as protecting you against legal procedures.
Renters’ insurance is a powerful but often overlooked way to protect yourself as a renter. The best part is that the benefits usually come at a relatively low price.
Image credits: A_stockphoto; klyaksun; KID_A; Vladi108; eamesBot/Shutterstock.com
