Because it’s so affordable, it’s almost always a good idea for renters to carry some form of renters insurance coverage. Many landlords require renters insurance, anyway.
Both household-name insurance companies and startups like Lemonade write renters insurance policies that offer many of the same benefits as homeowners insurance, including protection from personal liability and coverage for damaged, destroyed, or stolen possessions.
Renters coverage takes several different forms, and you owe it to yourself to know the distinctions between them before buying one. Coverage limits and exclusions are critical to mind as well. Here’s what you need to know to determine how much renters insurance you need and ensure your policy includes the appropriate coverages.
Factors That Can Affect Your Renters Insurance Costs and Coverage
Numerous factors affect the cost and extent of renters insurance coverage. To begin with, all renters need to understand the different components of the typical renters insurance policy. Would-be policyholders should know that:
- Liability coverage and contents coverage — coverage for physical possessions — can be purchased separately
- Geographic and construction-related factors may affect renters insurance costs
- Some landlords require minimum renters insurance coverages
- Renters are responsible for keeping track of covered items, regardless of policy type or coverage
Let’s break these issues down in detail.
1. Renters Insurance Policies Have Multiple Components and Two Coverage Types
Renters insurance policies typically have three components, each of which adds to the total cost of the policy:
- Personal Property Coverage (Content Coverage). This type of coverage provides reimbursement for lost or damaged possessions, up to a dollar limit specified in the policy. It generally doesn’t cover loss or damage to extremely valuable possessions, such as jewelry or fine art. High-value items typically require a rider — add-on coverage for an additional premium — or an entirely separate policy.
- Liability Coverage. Liability coverage protects the policyholder against the financial consequences of events for which they can be held legally liable, such as an injury to a guest at a party or damage to a neighbor’s vehicle from a falling object. Liability coverage is typically split into coverage against legal claims (personal liability) and medical expenses (medical liability).
- Loss of Use Coverage (Living Expense Coverage). This type of coverage kicks in if the covered property becomes uninhabitable due to a situation covered by the policy. It reimburses the policyholder for expenses incurred due to temporary relocation, such as a reasonable nightly rate for a hotel or short-term rental.
As you build your renters insurance policy, you’ll choose coverage limits and deductibles for each component. You may also choose to add optional coverages (riders) not included in the typical policy, such as additional protection for loss or damage to valuable items or damage caused by pets.
You’ll also have the option to choose between two broader types of coverage: “named perils” and “all risk.”
“Named perils” only covers issues related to specific events named in the policy. If the issue isn’t mentioned in the policy, you can’t file a claim for any damage or injuries it causes.
“All risk” covers all perils except those specifically excluded in the policy documents. Not surprisingly, “named perils” policies tend to be less expensive than “all risk” policies.
2. Liability and Personal Property (Content) Insurance Can Be Purchased Separately
Many renters purchase content insurance and liability insurance as part of a comprehensive package. If you’re really serious about controlling your policy’s costs, though, you can purchase each one separately and potentially forgo one or the other. Whether it’s wise for you to do so depends on the value of your possessions and the manner in which you use your living space.
If you live in a modern, well-maintained building and own lots of valuable items but don’t host parties or gatherings on a regular basis, you may wish to obtain a contents-only policy. This won’t protect you against liability costs such as injured guests’ medical bills or water damage that originates in your apartment and spreads to other units, but the tradeoff may be worthwhile if you deem such incidents unlikely.
If you live in an older, poorly maintained building and frequently host get-togethers but don’t own a lot of valuable items, you may be a good candidate for a liability-only policy. In either case, it’s best to talk to a representative from your insurance company before pulling the trigger on an incomplete policy.
3. Your Landlord May Require Minimum Renters Insurance Coverage
Landlords typically carry insurance policies that cover their properties’ structural components, infrastructure, and certain elements of liability. But this coverage doesn’t extend to renters’ possessions or personal liability.
Some landlords require that their tenants carry renters insurance policies with specific types and minimum amounts of coverage. There’s no law that prevents them from doing so, although the requirement must be explicitly spelled out in a signed, dated lease. If your landlord won’t agree to renew your lease unless you obtain or upgrade coverage, you may need to do just that.
4. Renters Insurance Policies May Cost More in Certain Areas Due to Local Perils
The average cost of a renters insurance policy that lacks high-value riders or scheduled coverage isn’t exorbitant. If you live in a city or region with above-average crime rates, your premiums will be somewhat higher than for a comparable policy in a low-crime area. Ditto for premiums on policies in areas prone to catastrophic weather events such as hurricanes, floods, tornadoes, and wildfires.
If your apartment is located in a particularly vulnerable area — for instance, along the hurricane-prone Gulf Coast or on a major river’s floodplain — you may need to purchase a rider that covers weather-related flood damage, wind damage, and other relatively likely occurrences.
Fault zones are expensive too, but they may be handled by dedicated, state-run agencies that offer “affordable” policies. For instance, the California Earthquake Authority offers “catastrophic” policies that cover losses related to serious tremors. If you live in the L.A. Basin or the Bay Area, you may wind up dealing with a private insurer for your regular renters insurance needs, and the CEA for supplemental earthquake coverage.
5. It’s Your Responsibility to Keep Track of Covered Items
Before you validate your policy, meticulously catalog your apartment’s contents. You need to provide your insurer with a rough accounting of these contents anyway, but a more detailed review is critical for your own records.
Photograph every item of value that you own when your policy goes into effect; to the extent possible, save the purchase receipts for each item as well. Do this for every big purchase that you make after your policy goes into effect too. Make digital or cloud-based backups of these photos, and save your receipts in a fireproof safe or box.
It sounds like overkill, but it’s a relatively small investment that can dramatically increase the likelihood that your claim will be accepted if you experience a loss.
How to Calculate Your Renters Insurance Coverage Needs (Or Decide Whether You Can Do Without It)
Whereas homeowners with active mortgages are generally required to insure their properties, renters with active leases face no such mandate. Not surprisingly, many renters choose to forgo renters insurance altogether. Instead of taking out separate or bundled renters insurance policies, they choose to build up an emergency fund sufficient to cover the cost of replacing their apartment’s contents.
Is this course of action right for you? It depends. First, it’s important to remember that you can insulate yourself from certain types of risk — namely, liability for misfortunes that befall your guests, maintenance workers, and your building’s other tenants — without insuring all of your personal property.
The Benefits of Liability Coverage: Do You Need Content Coverage?
You can — and often should — purchase liability insurance separately from content insurance. Although it may be difficult for you to make the financial case for carrying content insurance instead of keeping an ample and well-managed emergency fund, it’s harder to argue against the benefits of basic liability coverage on your apartment.
For starters, unprotected liability costs can quickly spiral out of control — if an injured guest needs to stay at the hospital overnight, you’re easily looking at a five-figure medical bill.
No matter how close your relationship with the injured guest, you shouldn’t count on good graces to protect you from legal action. When it comes to liability, friendly guests are the least of your worries.
If you or your landlord calls a contractor or service professional to your apartment to address an electrical, plumbing, HVAC, or structural issue, you may be liable for any mishaps — such as serious falls, puncture wounds, blunt-force injuries, or electrocution — that befall them during the course of their work. You’ll also be liable to neighbors who suffer property damage or injury as a result of a hazard that originates within your apartment.
Even if you carry liability coverage for 15 or 20 years before incurring a claim, you’ll almost certainly pay far less than you would to settle a legal dispute over just one overnight hospital stay for which you’re found liable — especially after accounting for legal fees.
Weighing the Cost of Content Coverage: Deductibles and Limits
According to Insurance.com, the national average cost of a renters insurance policy covering liability and personal property with a coverage limit of $100,000 and a $1,000 deductible is about $27 per month, or $326 per year.
In low-crime states that aren’t prone to catastrophic weather events, premiums can be significantly lower than the national average. In more “dangerous” areas where adverse weather events are common and crime is higher, premiums can exceed the average by 20% to 30%.
When the alternative is a total loss of furniture, clothing, and electronics with a collective value of thousands or tens of thousands of dollars, paying $326 per year — or $3,260 over 10 years before inflation — seems like a no-brainer. However, this headline figure is a bit deceptive due to factors such as your policy’s deductible and coverage limits.
As you weigh the costs and benefits of purchasing content coverage, it’s useful to break your options into these broad but well-defined categories:
- Top-Tier Policies. With a low deductible between $0 and $300 and high coverage limits (more than $50,000 in content coverage), these policies are designed to minimize your financial exposure to a total loss, as well as itemized losses on high-value items. Premiums on these policies are far higher than the national averages quoted above, but the tradeoff for this expense is peace of mind. If you feel like you need a top-tier policy, you probably have some expensive or rare possessions, and you may need to investigate riders or supplemental insurance to ensure that they’re adequately covered.
- Family Policies. These policies come with low to moderate deductibles between $300 and $500 and high coverage limits (more than $50,000). They’re especially useful for families or middle-class couples who plan to rent for the long term; typical policyholders have lots of stuff to protect, but may not be able or willing to pay for top-tier coverage. It’s a good idea to complement this type of policy with an emergency fund, which a growing family should probably have anyway.
- Middle-of-the-Road Policies. With larger deductibles between $500 and $1,000 and lower coverage limits (between $20,000 and $50,000), these policies are popular with younger, upwardly mobile renters who earn decent incomes but haven’t yet accumulated lots of high-value possessions or started families. They’re useful for protecting electronics, clothing, and other important but not incredibly valuable items. Given the size of the deductible and the potential for the cost of a total loss to exceed the policy’s coverage limit, your middle-of-the-road policy should be paired with an emergency fund.
- Low-Cost Policies. Similar to “catastrophic” health insurance policies, these instruments come with high deductibles of $1,000 or more and relatively low coverage limits (less than $20,000). They’re ideal for lower-income folks, such as students and recent graduates, who haven’t accumulated high-value possessions and won’t be crushed by the prospect of paying out-of-pocket to replace specific items. With a low-cost policy, you might not be able to afford to replace all of your possessions at once. If you’re looking to get back on your feet quickly after a mishap, then it’s essential to have a robust emergency fund to complement your policy’s relatively low payout.
If you’re willing and able to pay for a top-tier policy — with or without attendant riders and supplemental insurance — that’s adequate to replace all of your possessions, it may make more sense for you to bundle your liability and content coverage in a single package.
If you don’t own a lot of expensive equipment or accessories, it may be better to forgo content insurance, purchase a liability-only policy, and use an emergency fund to cover the cost of lost, damaged, or stolen items on an as-needed basis. But the ultimate decision should be reached after careful examination of your situation and priorities.
Your Emergency Fund: An Alternative to Content Coverage?
Another option for content coverage is to start or augment an emergency fund that’s specifically earmarked for unexpected expenses related to your apartment and its contents. You could do this in place of purchasing renter’s insurance, putting the amount of the premiums toward your fund instead of the insurance.
However, you really don’t want to forgo liability coverage or try to save for it on your own given the huge costs involved with medical bills or potential lawsuits.
Any emergency fund should be held in an FDIC-insured savings account from which you’re permitted to make withdrawals at your discretion. Although it might be tempting to seek higher returns on your “investment,” liquidity is a crucial aspect of your emergency stash. One of the benefits of an emergency fund is that your funds aren’t limited to an apartment emergency, but can be ready for other emergencies as well.
However, accumulating an amount to cover the cost to replace your contents may take years. If you decide to go without content coverage, be sure that you’re able to accept the risk that comes with leaving your nonessential possessions uncovered.
Another option is to ask your insurer about only insuring your most valuable items such as your computer, cellphone, or tablet. This coverage is often extremely affordable.
Final Word
For some renters, renters insurance is a useful tool that can hasten recovery from an unfortunate incident and lessen the financial impact of theft, property damage, and liability.
For others, a full-spectrum renters policy might not be as cost-effective as a liability-only policy paired with a stable, well-managed emergency fund that’s specifically earmarked for similar purposes.
Ultimately, your renters insurance purchasing journey is a personal one that turns on the nature and value of your apartment’s possessions, as well as your perceived exposure to liability issues. If you already have ample savings or a robust emergency fund, you may well be able to get by with less coverage or even no coverage at all.
Then again, it never hurts to request quotes from reputable insurers — especially if you’re looking to bundle your renters insurance policy with additional policies.
