What is Renters Insurance?

Renters insurance is insurance purchased by persons who are renting their home. They may live in an apartment, condo, townhouse, flat, or a single family dwelling, such as a house.

Renters insurance is also available to persons who rent space within a storage facility to store their personal or corporate belongings.

Renters insurance protects the insured against damages to their personal belongings in the event of a fire, water damage, vandalism, or theft.

What is the Difference Between Homeowners & Renters Insurance?

A primary difference between homeowners insurance and renters insurance has to do with who is responsible for insuring the dwelling itself. Homeowners insurance covers both the physical dwelling and the contents within the dwelling. Renters insurance only covers the possessions owned by the renter that are kept within the dwelling.

For example, a family is renting a three-bedroom house. During a heavy snowstorm, the roof develops a leak and causes severe damage to the ceiling and one wall in the living room. In addition, the family’s television and stereo system is damaged and rendered inoperable by the water from the ceiling.

The family’s renters insurance would cover the costs to replace their personal property, which is the television and stereo system. The owner of the home would be solely responsible for the damage caused to the roof, ceiling, and walls. Using this same example, if the family living in the home also owned the home, their homeowners insurance would assist with repairing the damage to the building (roof, ceiling, walls) along with replacing the personal property in the home.

Am I Required to Have Renters Insurance?

Renters insurance is not legally required. However, landlords may require tenants to acquire rental insurance as a condition of the rental agreement.

What Are the Types of Coverages Available?

Basic renters insurance includes coverage for personal property along with liability and temporary housing coverage.
  1. Personal Property Coverage
    The most commonly known component of renters insurance includes a personal property coverage plan. Personal property coverage either pays you the current value of your personal belongings or pays to replace them, depending on the amount of coverage you purchase. This coverage kicks in if your personal belongings such as clothing, furniture, electronics, or hobby/sports equipment (to name a few), are damaged, destroyed, or stolen.
  2. Personal Liability Insurance
    Personal liability insurance is included as a standard component within renters insurance. It is also included in homeowners and vehicular insurance policies. Personal liability insurance covers against unintentional injury caused to others (while on or off your property) or damage to their personal property caused by either you (the insured) or a member of your family.
  3. Temporary Living Expenses
    In the event the rental home you are living in is damaged or becomes unlivable, renters insurance will provide monetary assistance for you to find temporary living arrangements while the rental home is being repaired. This may include a daily, weekly, or monthly per diem to offset hotel costs, including meals and other daily expenses.

How Does Actual Cash Value Differ from Replacement Cost Coverage?

Personal property coverage is either Actual Cash Value or replacement cost. The type of coverage determines how much you will be reimbursed when you file a claim for personal property damage.

What Types of Personal Property is Covered?

Personal property includes the entire scope of the personal property you own, even if you purchased it on a credit card or store loan and still owe money on the item.

Here are some examples of personal property that you may own that is covered by renters insurance:

What Types of Personal Property is Not Covered?

When purchasing renters insurance, like any other form of insurance, your should inquire about any exclusions, limitations, caps, and disclaimers of the insurance policy. Unfortunately, many insureds don’t find out these limitations and disclaimers until they file a claim for a loss.

Be sure to read all of the fine print very closely and have your professional insurance agent clearly explain any limitations of your policy before you agree to the purchase.

Here are some common exclusions, limitations, caps, and disclaimers within the insurance industry. Keep in mind that this list varies from state to state and also between the various insurance carriers.
CAUTION: Do not confuse a pet insurance rider with medical pet insurance for your pet. A pet insurance rider does not provide assistance for the care or maintenance of your pet, but rather protects you against any monetarily obligations resulting from the actions of your pet.

What Are Riders and How Do They Work?

As mentioned in the previous section, many insurance companies will limit, cap, or exclude certain personal property, such as fine jewelry or may not cover your loss in the event of a natural disaster, such as a tornado.

That is where a rider comes in. Riders are additional forms of insurance coverage that you can purchase. A rider will further insure specific possessions or specifically protect you against a specific action.

The best way to determine if you need any optional riders, is to speak to your professional insurance agent about the type of dwelling you are renting, the location of the dwelling, and also your work and lifestyle habits.

Following are some typical insurance riders that are available:
  1. Scheduled personal property endorsement (personal property floater)
    A scheduled personal property endorsement is the rider used to further protect your possessions of high value. This includes jewelry, guns, art collections, and other forms of personal property that have a value in excess of the stipulated coverage on your particular policy.
  2. Special computer insurance
    Some insurance companies limit or cap the value of computer and other electronic related items. If you have computer servers or high end equipment, such as a high-definition large screen television, you may need a rider to protect your investment.
  3. Theft coverage protection endorsement
    While theft is normally a covered form of protection, it may have limitations. Speak with your professional insurance agent to determine if your policy will have any limitations or caps to the amount covered by theft.
  4. Home business, business merchandise coverage, and incidental business liability
    More and more people are working from home offices or running businesses out of their homes. However, not all insurance policies will cover losses to home business equipment or liability from injury occurring from a home business. If you work from your rental home, you may need insurance riders to protect you against loss to your business equipment or any injury liability to others.
  5. CAUTION: Read your rental agreement carefully and verify that you are not prohibited from running a business out of your rental home. Should loss occur, and a conflict exists between your rental agreement and your insurance policy, you may not be able to file a claim for the loss.
  6. Watercraft and recreational vehicle endorsement
    A watercraft and recreational vehicle endorsement protects your boat, jet ski, or camper from loss while it is parked or stored at the rental property. It does not cover the operation of boats or jet skis, which require their own licensure and insurance.

    TIP: Verify with your automobile insurance carrier if storage of your watercraft or recreational equipment is covered on your auto insurance. You may not need a rider on your rental insurance policy if it is.
  7. CAUTION: Read your rental agreement carefully and verify that you are not prohibited from storing watercraft or recreational vehicles on the rental property. Should loss occur, and a conflict exists between your rental agreement and your insurance policy, you may not be able to file a claim for the loss.
  8. Sewer and drains back-up
    Like flood, tornado, and hurricane disasters, damage from sewer and drains backing up may be excluded on your standard rental insurance agreement. This is especially true if you live in a zone where sewage backups are common. Speak with your professional insurance agent to determine if you will need this form of coverage to protect your personal belongings.
  9. Workers' Compensation
    Workers' compensation is required by law by all businesses with a minimum amount of employees. However, with more and more families opting to hire full time (and live-in) help, it is becoming a necessity for these families to consider purchasing workers’ compensation.

    If you hire a person to live in your home and perform a service on a full-time basis, you may be required to provide workers’ compensation for the individual. Common services include:
    • baby sitters
    • au pairs
    • nannies
    • housekeepers
    • assisted living care givers
    Speak with your professional insurance agent to determine if you should provide workers’ compensation for your baby sitter, housekeeper, or assisted living care giver.

How Much Does Renters Insurance Cost?

Renters insurance is very affordable and is paid by the insured on either a monthly, quarterly, or annual basis. Many factors affect the cost of renter’s insurance. For example:

The Dollar Amount of Coverage

The dollar amount of coverage is one of the leading factors in determining the cost of a renter’s insurance policy. The dollar amount of coverage is the total fixed-price amount representing the entire value of the renter’s personal property.

The easiest way to determine the entire value of your possessions is to create an inventory of all of your tangible possessions and determine the replacement cost for each item, at the time of the inventory. You may use the worksheet provided in Appendix A to help you create a comprehensive inventory. TIPS:

The Deductible Amount

The amount of the deductible you are willing to pay will determine the cost of your insurance premiums. The deductible is the amount of money the renter is willing to pay out-of- pocket before a claim is paid by the insurance carrier.

For example, you submit a claim to replace your water-damaged sofa. The insurance adjustment process identifies that the replacement cost of your couch in today’s market is $1,200. If you have a $500 deductible, the insurance company will deduct the $500 amount and provide you with a check for $700.00.

On the other hand, had your deductible been $250, you would have received a check for $950. Deductibles are standardized across the industry at $100, $250, $500, and $1,000. Some insurance carriers may offer amounts in excess of $1,000.

Generally, the higher the deductible, the lower the premium. However, the higher the deductible, the greater the out-of-pocket risk to the insured.

If the Coverage is ACV or Replacement Cost

The type of coverage you have will also determine your premium amount. Actual Cost Value (ACV) generally costs less because the insurance company is paying you the depreciated amount for your damaged or stolen property. The depreciated amount paid out by the insurance carrier will typically always be less than the cost to fully replacement an item in today’s market. Be aware that some items, such as electronics, will depreciate faster than other items.

If There Are Additional Riders on the Policy

Your insurance premium will also be affected by the type and number of additional riders you have, such as optional pet insurance or a rider to cover a higher value of fine jewelry. The affect these riders will have on the premium amount varies between states and insurance carriers.

The Specifics of Where You Reside

Details about where you reside will also affect your premium. Insurance premiums are based on a series of calculated risks and future assumptions based on historical data. Thus the region where your possessions will be located plays a part in determining the risk calculations. Insureds that are living in areas with a higher crime level will experience higher premium amounts than similar families living in areas where crime is less frequent.

Factors such as whether you are living in a single family dwelling or a multi-family dwelling and what floor you live on will also affect the premium.

Furthermore, even though your renters insurance doesn’t cover the building itself, how the building is constructed can affect the cost of insurance. Building construction plays a role in determining how safe your belongings are. For example, if the apartment next to yours was to catch fire, would your apartment suffer residual damage from smoke and water? Buildings that have greater wall thicknesses and infrastructures are considered less of a risk than those that do not.

The Number of Previous Claims Submitted

Your personal insurance claim history will also be used to calculate your insurance premium. Insureds that have submitted claims in the past generally experience slightly higher premiums than insureds that have not made any claims. However, most insurance carriers will allow one claim per every three years before they include claim history in the rate calculations.

The Insurance Carrier’s Risk & Actuarial Formulas

Insurance is all about risk. And the cost of insurance is directly related to the perceived risk taken on by the insurance company. The risk for the insurance company in providing insurance is equal to the likelihood that an insured will need to file a claim. Insurance companies calculate this risk by using special formulas.

An important thing to remember when purchasing any form of insurance, whether it is auto, home, life, health, or renters insurance, is that the insurance carrier is allowed to create its own risk formulas. And, some insurance carriers are more conservative than others. The more conservative an insurance carrier is, the more expensive the insurance coverage is likely to be.

Are There Tips for Reducing Insurance Premium Amounts?

The best method for paying lower premiums is to shop around and evaluate comparable policies to find the best premium available for the greatest amount of coverage.

If you already own a renters insurance policy, getting a policy check-up may result in lower premiums. As time goes by, your insurance risk may adjust to a lower rate, especially if you have not filed any claims. However, very few insurance companies will monitor and adjust your premium based on history, unless you contact them for a policy review. Unfortunately, insurance for many people is left “as is” for years upon years. You could be saving hundreds of dollars by doing an insurance “checkup” with your current insurer or, even better, shopping around for a new carrier.

A good rule of thumb is to do a policy checkup on your insurance needs every two to three years and compare their rates against other carriers in your market.
Other tips to reduce your insurance premium amount include:

How Do I Find Renters Insurance?

Almost every homeowner and automobile insurance carrier will also provide renters insurance. The best way to find renters insurance is to work with an independent insurance agent.

Independent insurance agents generally sell multiple insurance products through a variety of insurance carriers. An independent insurance agent can provide you with several policies to review based on your insurance needs and quote to you the best price available.

To locate an independent insurance agent in your area, do an internet search for “Independent Insurance Agents city state” where city and state represent your actual city and state.

In Summary...

Glossary of Terms

Additional Living Expense (Loss of Use)
Coverage that pays for above normal costs incurred while the policyholder’s home is being repaired. These extra costs will include expenses such as food and lodging. This coverage generally does not apply to the costs of children living away from home.
A Department of Insurance licensed professional who solicits and services insurance policies.
A demand to an insurance company for financial reimbursement to recover a loss.
Indicates how much protection the insurance policy provides, either in the form of the dollar amount purchased or the type of loss covered.
A fixed amount, specified in the policy, that the policyholder agrees to pay towards the total amount of an insured loss.
The decrease in home or property value, because of age or use, since the time it was built or purchased.
An event or loss that is not covered by an insurance contract. The term can also be used to describe the provision that removes coverage for the event or loss.
Independent Insurance Agent
A licensed insurance agent who is not associated with a specific insurance carrier, but rather represents multiple insurance carriers.
The person or persons covered by the insurance policy.
The company that is underwriting the insurance contract.
List of the insured’s possessions and their values.
Legally enforceable obligations.
Limit (Policy Limit)
The maximum amount the insurance company must pay under the contract for a particular loss.
The cause of a loss, such as theft or fire.
The amount paid by the insured to the insurer in return for insurance coverage.
Additional coverage for special items such as antiques or costly jewelry.
The chance of loss.

Appendix: Inventory Worksheet