If you want to know how renters insurance works, you’re in luck. Renters insurance is not only one of the most straightforward types of insurance to purchase, but it’s also quite affordable. Renters insurance protects you in a wide variety of circumstances, from coverage if your laptop is stolen out of your car, to medical payments for your friend who manages to fall and hurt themselves in your kitchen.
While renters insurance is generally clear-cut, there are basics you should understand as you begin shopping for premiums. And knowing what isn’t covered by renters insurance is as important as knowing what is.
Do I need renters insurance?
Obtaining a renters insurance policy makes sound financial sense. Yet an alarming number of renters choose not to obtain one. It could be because there is confusion surrounding the need for a policy. Renters commonly assume landlord’s insurance covers property damage, but this is false. Landlord’s insurance only covers the physical structure of the property, whereas renters insurance covers all the belongings located inside and personal liability.
Many landlords require you to carry renters insurance, but even if they don’t require it, the coverage is not very expensive. For an average cost of $ 180 per year, your belongings are covered if there’s damage from a wide variety of events. Your belongings can be replaced and your property repaired with help from a policy, not to mention the liability protection a policy provides.
If you have any items worth protecting, or have pets and visitors, then a renters policy is worth the investment for your financial protection.
What does renters insurance cover?
Renters insurance covers costs associated with property damage as a result of natural disasters, theft, riots and other specified events. This includes coverage for your personal property too. But the policy goes further and also provides personal liability and medical payments in case someone is hurt inside your rental or as a result of an accident you caused.
Another essential coverage category is the additional living expense (ALE) or loss-of-use. This coverage kicks in if you have to vacate your rental due to damage such as water or fire damage. It provides reimbursement if you have to live elsewhere and incur expenses for hotel bills, temporary rentals, meals and other living expenses.
Renters insurance provides coverage for several major categories, but there are a few more areas a policy provides greater protection.
- Credit cards and forgery: Most policies include protection if your debit or credit card were stolen or you’re a victim of fraud (including identity theft).
- Food spoilage: If your refrigerator dies, the power is out or you’re forced out of your rental due to damage, your policy reimburses you for food lost.
- Replacement value: Another option with renters insurance is choosing Replacement Value (RV) versus Actual Cost Value (ACV). When an item is damaged in your rental due to a covered event and it needs to be replaced, the renters insurance claim payout would either be RV or ACV. If you choose RV, you receive more of a payout, but your premiums are more expensive.
- Personal belongings located elsewhere: If you have personal property located off-premise, it’s still covered by property damage. For instance, if your mountain bike is stored in a storage unit and it’s damaged, it’s covered.
[Read: Does Renters Insurance Cover Storage Units?]
What renters insurance doesn’t cover
There are situations when renters insurance does not provide coverage — and you don’t want to be caught assuming you’re covered. The good news is, even if something is excluded, there are typically policy add-ons available to make your policy more comprehensive.
- Natural disasters such as floods and earthquakes: Although most policies cover a long list of natural disasters, floods, earthquakes,hurricanes and sinkholes are excluded. If you live in an area where these excluded disasters occur, talk to your agent about adding the coverage to your policy.
- Pest damage: If your rental is damaged by bed bugs, termites, rodents or any other creepy crawling insects, your policy does not cover this. However, many insurance carriers offer optional protection against bed bugs and other critters.
- Your roommates: A rental insurance policy only provides coverage for the person whose name is on the policy. This often excludes roommates, unless you sign a join-renters insurance policy together.
- Your high-value items: Any items worth a certain amount, usually $ 1,500 or higher, are considered high-value. You need additional coverage added, otherwise the item is excluded. This applies to items such as jewelry, antiques, equipment and electronics.
- Damage from pets: Damage from your cats and dogs inside your rental is not covered. For instance, if your furbaby chews through the walls of your rental then you’re responsible for the damage. However, if this same furbaby bites your neighbor, any necessary medical treatment would be covered by your policy.
[Read: Defending Against Porch Pirates: What to Do about Package Thefts]
What to look out for when shopping for renters insurance
Like other insurance products, there are specific items you should look for to ensure you’re getting the best policy for your financial situation. For starters, confirm the limits of the renters insurance payouts. Each category has different payout limits, which is the maximum amount paid for a claim. Make sure these limits aren’t too low or too high, and provide the right amount of coverage.
The liability coverage should provide enough protection to equal your net worth. Your net worth is the value of your assets — such as retirement accounts, savings, cars you own free and clear — minus your debt. So if your net worth is $ 300,000, then your liability coverage should be at least this amount. The reason is to protect you in case of a lawsuit from an at-fault accident. If your net worth is higher than $ 300,000, the Insurance Information Institute recommends obtaining an additional liability policy.
Your property damage limit should be high enough to cover replacement of your belongings.
Comparison shopping is a smart tactic to make sure you get the coverage you need. Comparing renters insurance policies not only gives you the most competitive cost on your policy, but your agent can guide you to get the most comprehensive coverage.
[Read: 3 Reasons Why You Should Get Flood Insurance]Too long, didn’t read?
Renters insurance is an inexpensive way to protect your belongings and provide additional liability coverage when you live in a rental, not to mention there are multiple other benefits, such as forgery protection and coverage for your personal items in other places. By working with a knowledgeable renters insurance agent, you can get the guidance you need for the most comprehensive policy.
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