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Despite an almost all-time high in the number of renters in the United States, only 41% of tenants have renters insurance according to a 2018 Insurance Information Institute poll — and that's even with the average cost of renters insurance premiums dropping, with the average costing just $15 a month. Given the low price of insurance, why don't more people have it?
Considering the relatively low cost of coverage for renters, the discrepancy might be explained by two common myths many renters believe. First, that the building owner's insurance policy will cover their belongings in case of disaster. In fact, the owner's policy covers just the building — not tenants' possessions. The second myth is that people with few possessions have little to gain from renters insurance. A 2020 survey by Assurant found that renters are underestimating the high cost of replacing their belongings (63%) but also don't realize how much is covered by insurance. But even renters who live a minimalist lifestyle can benefit from the other types of protection in a renters insurance policy.
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Policyholders are reimbursed if their personal property is destroyed or stolen as a result of peril such as fire, explosion, smoke, theft, vandalism, falling objects, riots, and freezing. Most policies cover other incidents with slight differences depending on the insurance company and where the renter lives. Often this coverage extends to personal property outside the home, such as a laptop stolen from a car or an expensive camera swiped while on vacation. Double-check that off-premises coverage is part of the policy, because it's not always included.
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Liability coverage helps pay for the cost of a legal defense if the renter is sued. This can be especially important for tenants with limited financial resources; they'll be protected from mishaps such as an accidental fire that damages a neighbor's property. Renters may need to hire a lawyer even for incidents that aren't their fault. An insurance policy can also help pay medical expenses in certain scenarios, such as dropping an item from a window that lands on someone's head. Dog owners, especially, should consider renters insurance. According to the Insurance Information Institute, dog bites make up one-third of all homeowners insurance liability claims. The average cost per claim was $44,760 in 2019, up from $39,017 in 2018. Due to the prevalence of pet-related liability incidents, not all insurers cover them and premiums may rise depending on the dog's breed.
Some renters insurance policies reimburse policyholders if they are unable to use their home — for example, after a fire or because of hazardous conditions. This coverage can help pay for a hotel, meals, laundry services, and transportation that wouldn't otherwise be needed.
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Some policies reimburse guests who are injured while visiting the tenant. There may not be anyone at fault, meaning a liability claim might not be appropriate, but the guest can still be reimbursed for medical expenses.
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There is, of course, fine print to wade through in each individual policy, but there are some common exclusions in renters insurance policies, such as damage from wars and nuclear disasters. Generally, damage from floods and earthquakes isn't covered, although protection can sometimes be added at an additional cost. As mentioned above, the landlord's insurance policy should cover the physical structure, which doesn't fall under renters insurance. It's best to check with an agent or the insurer for other specific exclusions.
Renters insurance premiums vary by insurance company and depend on several factors, only some of which the renter can control. Where the house or apartment is located is one factor, as is whether or not the property has been burglarized (even if the break-in occurred before the current renter moved in). The policy's limits and deductible are significant factors. The policy limit is the total amount of coverage per occurrence. For personal property, this number often is as low as $15,000. According to Bankrate, insurers estimate most renters' possessions to be worth between $20,000 and $30,000. Liability coverage, in the event the renter is sued by a guest, generally starts at $100,000. Property claims also have a deductible, an amount the renter needs to pay before the insurance company reimburses them. The higher the deductible, the lower the premium. Policyholders may be able to choose a deductible of $250, $500, $1,000, or more.
Sometimes a rider or floater can be added to the policy, which costs a little extra. There is often a limit to the amount of coverage on particular types of items — for example, $5,000 for electronics or $3,000 for jewelry. A renter who possesses more than $3,000 worth of jewelry can pay to expand that coverage. Other riders may also be worth considering. Eric Narcisco, CEO and founder of Effective Coverage, a national agency that sells only renters insurance, suggests water backup coverage even for tenants who live in high-rises. He has seen claims where a backup in a downstairs neighbor's drain led to overflowing sinks and water damage several stories up.
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As with many insurance products, there are several ways renters can get discounts on their insurance policies. Typical discounts come from keeping a fire extinguisher in the house, buying multiple insurance policies from the same company, and paying for a year up front. Those unable to make a full year's payment may also receive a discount for setting up automatic payments or paperless billing. Review the insurance company's website and ask an agent for a full list of available discounts.
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Renters insurance automatically covers family members who live with the policyholder and their possessions. However, roommates are a bit different. Ryan Scruggs, who now owns a Farmers Insurance Agency in Peoria, Arizona, found this out the hard way. He took out a renters insurance policy and split the cost with his roommate. After their home was broken into, Scruggs was the only one reimbursed for the stolen items because he was the only person listed on the policy. He split the reimbursement check with his roommate, but a lesson was learned. When available, a non-related roommate's name must be added to the policy in order to cover their possessions and liabilities.
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Personal property is what pops into most people's minds when considering renters insurance. What happens if there's a fire and everything is destroyed, or they're mugged with their laptop, phone, and wallet stolen?
Renters insurance coverage comes in two forms: actual cash value or replacement cost. Consider an HDTV that cost $3,000 four years ago. The TV isn't worth as much now, and an actual cash value policy pays only the TV's current value if it is stolen or damaged. A replacement cost policy would pay for a new TV. Most people would prefer to have a new TV, and replacement cost policies are usually just 10 percent more than cash value policies — often less than $20 a year.
