What is Renters Insurance? A Comprehensive Guide

A renters insurance policy is essential if you don’t own your home. The purpose of a renters policy is to protect your belongings and cover yourself from personal liability. Start with Benzinga’s guide to renters insurance for everything you need to know. 

What Is Renters Insurance?

Quite simply, renters insurance is meant to cover individuals and their personal property from specific causes of loss if they rent a home, apartment or condominium. It's similar to homeowners insurance, but doesn't offer dwelling coverage.

3 Key Components of Renters Insurance

Important Renters Insurance Terms and Definitions

Every industry has technical terms to understand. Here are some of the basic terms and definitions that will help you navigate renters insurance:

What is a premium?

Premiums are the amount of money you pay for an insurance policy. The premium you pay for a renters policy will depend on a few different factors, including where you live and the limits you choose.

What are policy limits?

Policy limits are the amount of coverage you are afforded in the event of a loss. For example, if you chose a policy limit of $100,000 for personal liability, you are covered up to $100,000 if you file a liability claim. The higher the limit, the more the policy premium will be. There are 2 types of policy limits:

Pre-occurrence policy limit: A pre-occurrence policy limit means you are covered up to that limit for every occurrence. If you file 3 claims, for example, you would have that policy limit available for each claim. This is the type of policy limit most often found in a renters insurance policy.

Aggregate policy limit: An aggregate policy limit is the most you are covered for in a specific time period. Any claims you make within that period will be subtracted from the aggregate limit until they are exhausted or the period restarts, whichever comes first. For example, if you carry a $1,000,000 aggregate policy limit and file a claim that amounts to $100,000, you would only have $900,000 in coverage for the subsequent claim until the next policy period.

What is a deductible?

A deductible is your out-of-pocket expense for insurance claims. What is a renters insurance deductible? If you file a claim on your renters insurance policy, you would be responsible for the deductible amount before your insurance company would cover any damage. The standard deductible starts as low as $250 and can be as high as $1,000. But the higher the deductible chosen, the lower the price of the policy.

What are inclusions and exclusions?

Inclusions and exclusions are what is covered in your insurance contract and what is not. The more exclusions on a policy, the less your policy will typically cost. It is important to note what is not covered in your policy to ensure you have what you need.

What is covered or named perils?

Covered or named perils is commonly used to describe certain events you would be covered for in the insurance contract. Some examples of standard named perils in a renters insurance policy include fire, lightning, wind, and hail.

What is an endorsement?

An endorsement is a form added to a policy that usually changes the policy contract in some way. Typically, the purpose of endorsements is to add coverage where coverage has been previously excluded. An example of a standard endorsement to a renters policy is replacement cost coverage.

Types of Renters Insurance Coverage

The types of renters insurance coverage can be broken down into 3 types: personal property, liability and additional living coverages. Each type is explained in detail below.

What is personal property coverage?

Personal property coverage is what covers all of your belongings. This can include the more expensive items such as TVs, furniture, and smaller items such as knick-knacks or books. Personal property is the primary coverage of a renters insurance policy, and the price you pay is largely determined by the limit you select. 

You can choose whatever limit is appropriate for the value of your personal property, but the higher the limit, the higher the policy will cost. In general, renters policies are affordable relative to the amount of coverage it provides. A $100,000 personal property limit can be as inexpensive as a few hundred dollars a year, depending on where you live.

It is also important to note that this coverage is subject to a deductible. As mentioned above, a deductible is your out-of-pocket expense before your insurance company will pay for any damage. If you have a fire in your home that results in $1,000 of damage and you carry a $500 deductible, you would be responsible for the first $500 and your insurance company would cover the remaining $500.

What is liability property insurance?

Liability insurance is another critical piece of your renters policy. Liability will cover you for any bodily injury or property damage for which you are legally responsible. While a renter may not have the same liability exposure as a homeowner, there are still events that could trigger a liability loss. A perfect example would be dog ownership. If your dog bites someone and you are sued, your renters policy could cover you through your liability coverage.

Most renters policies offer liability limits from $100,000 up to $500,000. Some companies may offer higher limits, but it is best to consult with an insurance professional regarding what level of coverage you may need. Like most other coverages, the higher the limit you choose, the more expensive your policy may be.

What is loss of use/additional living expenses coverage?

Loss of use or additional living expenses is another coverage offered by a renters insurance policy. As the name suggests, this coverage provides additional living expenses for the renter beyond everyday expenses in a loss. For example, if there is a loss and your home needs to be rebuilt, loss of use coverage will reimburse you for hotels, increased cost of food and gas and more.

While you can typically select what limits you would like for personal property and liability, the loss of use coverage works a little differently. Most renters insurance companies offer this coverage as a percentage of the personal property limit at no additional charge. This percentage can vary by company but is usually around 10 to 30%. This means that if you carry a $200,000 personal property limit, and the company offers a 20% limit for loss of use, you would have $40,000 towards any additional living expenses.

Photo by Naomi Hébert on Unsplash

Types of Renters Insurance Policies

Most renters insurance policies offer the same types of coverage, but there are also different ways companies can value your personal property. Replacement cost and actual cash value are the two ways companies can determine the value of your personal property. Here is the difference between the two.

What is a replacement cost value policy (RCV)?

Replacement cost is the cost of replacing an item with similar kind and quality without deduction for depreciation. It is the best way to value personal property because it ensures you get the current value of your items. 

Carrying a replacement cost endorsement on your policy means that if your 10-year-old TV were damaged in a fire, you would be compensated for that same TV set brand new. Or you could be compensated for a different one that is similar in price. But both options are subject to your deductible.

Insurance companies typically evaluate property on an actual cash value basis, meaning that they take depreciation into account. To be covered on a replacement cost basis, you usually need to add a specific endorsement to your renters policy at an additional cost. The cost of this endorsement can vary by company but is worth adding, especially in a significant loss where many of your items are damaged at once.

What is an actual cash value policy (ACV)?

Most renters insurance policies will cover your personal property on an actual cash value basis unless a replacement cost endorsement is added. Actual cash value differs from replacement cost in that it considers depreciation. Using the same 10-year-old TV above as an example, you would receive less money if it were damaged in a fire as it would have depreciated over time. If the TV is now only worth $100, that is the amount you would receive, subject to your deductible.

What Does Renters Insurance Cover?

Renters insurance will cover your personal property from specifically named perils in the policy. The following is a list of some common perils covered from a standard renters policy:

• Fire or lightning
• Windstorm or hail
• Explosion
• Riot or civil commotion
• Aircraft
• Vehicles
• Smoke
• Vandalism
• Theft
• Weight of ice, snow, or sleet

Special limits of liability

Renters insurance also has a clause in the contract discussing “special limits of liability.” The special limits are for certain types of personal property such as money, jewelry, firearms, silverware, and business property, among others. These special types of property are limited to specific coverage amounts and, in some cases, certain perils. 

For example, most renters insurance policies have a special limit for jewelry theft, typically up to $1,500. If you happen to own a piece of jewelry worth over $1,500 and it is stolen, you would only receive that amount.

Optional riders and extra coverage

There is an option on most policies to insure special items like jewelry or silverware separately to combat these limitations. In these cases, you provide an appraisal specifying the value of the item. There is an additional charge to do this, but you will be covered for the item’s total value in a covered loss, usually on an “all-risk” basis. “All risk” means you are covered for everything except what is expressly excluded in the contract.

Does renters insurance cover flooding?

Renters insurance expressly excludes flooding as a covered peril. If you live in an area prone to flooding, flood insurance may be a good idea. It is offered through FEMA and can usually be purchased through an insurance agent.

Does renters insurance cover bed bugs?

The standard renters policy offered by many companies does not include coverage for bed bugs, unfortunately. However, some companies do. Speaking to an insurance professional is the best way to determine what insurance company will cover this scenario.

Does renters insurance cover mold damage?

Most renters insurance policies will exclude mold damage unless hidden within walls, ceilings or flooring. If you suspect mold damage within your home, you should address it with your landlord as part of routine maintenance. If the mold is hidden but ultimately causes damage to your personal property, this may be something your policy would cover.

Does renters insurance cover dog bites?

Dog bites are covered by most renters insurance companies under personal liability. However, some companies have specific dog breed exclusions. For example, pit bulls, Rottweilers, German shepherds and Akitas are breeds insurance companies consider aggressive. For this reason, if you own one of the excluded breeds, any bites would not be covered. Check with an insurance professional or your agent to ensure your renters policy does not exclude your dog.

What Does Renters Insurance Not Cover?

In general, most insurance policies will exclude the following:

• Anything considered routine maintenance: Failing to protect your personal property from further damage at the time of a loss
• Intentional damage: If you purposely set fire to your furniture in the hopes of collecting the insurance money
• Catastrophic losses too risky for the company to insure: Events like war or nuclear hazard likely not covered
• Possessions that are typically covered a specialty insurance policy: Potentially certain types of watercrafts or boats

Another vital exclusion on most insurance policies is earthquakes. A separate policy or, in some cases, an endorsement can be added to your policy to cover this exposure.

Is Renters Insurance Required by Law?

Insurance is a tightly-regulated industry, and laws can vary by state. Generally speaking, renters insurance is not required by law in most states. 

But this does not mean your landlord will not require you to carry insurance. If your lease specifies that you must carry renters insurance, the law would require you to comply with the terms of your lease and purchase a renters policy.

Also, having renters insurance on hand may put your ahead on the competition when applying for an apartment. Read this guide from the U.S. Department of Housing and Urban Development for some tenant tips.

How to File a Renters Insurance Claim

Hopefully, you will never need to use your renters insurance, but if you do, the steps to file a claim are straightforward. First, you should protect your personal property from any further damage. If a hurricane breaks a window, for example, and rain is pouring into your home onto your furniture, take any steps necessary to stop the rain from damaging anything else. Try to board up the window and move the furniture. 

Second, notify your landlord so they can correct any damage related to the home itself. If there is a need to notify the police (usually in cases of theft), you should do that as well.

Next, call your insurance company or agent to describe the type of loss that occurred. The more information you can provide, the better. Take inventory of all the items that were damaged and the estimated value of each. Gather any receipts or bills of sale you might have for any damaged property. Taking photos of the damage is also a great idea. The insurance company may ask for this information, but if not, it will still settle the claim quicker.

Do not forget that you will need to hit your deductible amount before the company will cover any damage. If you think the damage to your property is minimal and less than your deductible amount, it may be better to replace or repair the items yourself.

Protect Yourself With the Right Renters Coverage

As a renter, to protect your personal property and personal liability from causes of loss, a renters insurance policy is your best bet. The best renters insurance will allow you to tailor your coverages to match your needs. 

Frequently Asked Questions