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You’re here because you’re wondering, What’s the big deal with renters insurance? Your landlord is responsible for the property, so it shouldn’t matter whether or not you have your own insurance policy, right?
Many tenants assume the homeowner's insurance policy covers them when they move in — it doesn’t. Your landlord's insurance only protects them, not you.
If you’re countering with, all of my stuff is replaceable. So what if a one-in-a-million incident happens — I’m willing to take that chance. To that, I say, hang tight, because there’s a lot more to renter’s insurance than protecting your belongings.
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What Is Renters Insurance?
“Renters insurance is property insurance that provides coverage for a policyholder's belongings, liabilities, and possibly living expenses in case of a loss event.” — Julia Kagan, Investopedia
It’s different from the insurance your landlord has.
What your landlord’s insurance covers.
Simply put, your landlord’s insurance protects the property from damages caused by fire, lightning, hail, wind, etc. It doesn’t cover anything inside the home, except for personal belongings left for the tenants to use like a lawnmower. Beyond the basics, landlords can also add extras to their policy like protection against vandalism, theft, etc.
It doesn’t typically cover your belongings or the maintenance and repair of appliances.
What renters insurance covers.
Renters insurance covers your stuff. It helps ensure that you’ll see financial compensation for stolen or damaged property, liability should accidents happen, and a cushion should the property be unlivable and force you out of the home.
These types of insurance policies do not interact or support one another. They act independently and serve individual purposes.
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Why Should You Have Renters Insurance?
1) Financial compensation should an item be stolen or damaged.
Your landlord’s insurance policy does not include your personal belongings. If, for example, a storm damages the property, the landlord would receive a check from the insurance company to compensate for their loss but not your belongings. If you want to see financial compensation for your things, you need renter’s insurance.
Let’s expand a little because renter’s insurance isn’t limited to living in a rental home.
Let’s say your items are in storage. You downsized during your PCS move to an overseas location. Instead of selling what you didn’t take with you, you’re paying to store it all for another day. But someone breaks in and steals a few of your things (your tools, your grandmother’s hutch, and a few other expensive items). If you have renters insurance, you can file a police report and start the process to receive monetary compensation for your loss. Without it, you count your losses and (hopefully) learn from it and move on.
2) It protects more than just your belongings.
Liability insurance covers you for bodily injury and property damage caused by negligence.
Not sure exactly what that means? Here are a few examples:
- Let’s say you left the water running and your home flooded, leaving the floors saturated and needing replacing or repaired. Renters insurance will help cover the financial repercussions of these simple yet devastating mistakes.
- Or maybe you have a dog, and it got a little protective and bit someone who got too close. Your liability insurance covers that as well.
- Your friend tripped down the stairs and needs medical treatment. Does liability insurance cover that too? Yep. Unless a structural issue is to blame, in which case it would fall under your landlord’s insurance policy.
In each of these scenarios, your renter's insurance will help cover medical fees and help you avoid a potential lawsuit. And no, we never expect accidents like these to happen, but they do.
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3) Includes additional living expenses if your rental home is unlivable.
Stay with me here as we dive into more worst-case scenarios (after all, that’s when the insurance becomes relevant, right?).
Say that the home you’re renting in southern California is damaged by a wildfire. The property isn’t rubble on the ground, but it’s no longer structurally sound. It doesn’t have access to running water, etc. — it’s unlivable. You’re out of a home. Renter’s insurance saves the day with additional living expenses (ALE) coverage.
“Additional Living Expenses will provide you with money to allow you to maintain your usual lifestyle and compensate you for the additional costs of living elsewhere when your home is destroyed or uninhabitable until it is repaired, or until the "Additional Living Expense" or ALE limit is reached on your policy.” — Mila Araujo, The Balance
What does this look like? ALE includes compensation for:
- Hotel costs.
- Eating out.
- Laundry money.
- Rental furniture.
- Pet boarding.
- Moving or displacement costs.
- Storage costs.
Investopedia shares that “although the above costs may be covered by ALE, there will always be an assessment on how claimed costs compare to the normal costs of a policyholder's lifestyle because additional living expenses are meant to cover the difference between what you normally pay and what you now have to pay, due to the fact you're not living at home.”
It will likely only offer coverage for the least amount of time necessary to repair or replace the damage or if the named insured needs to relocate permanently, the least amount of time required for the household to settle at another location.
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4) Your landlord might require it.
It’s pretty standard at this point — most landlords require tenants to have renters insurance. Why?
To mitigate a potential lawsuit. Landlords don’t want the blame if your belongings are damaged. And renters who don’t have insurance to cover such loss are more likely to seek compensation from the landlord.
Protect their deductible in the event the property gets damaged. Remember how renters insurance covers you should you cause damage to the property? Well, it also helps the landlord by covering their deductible that they’d otherwise have to pay to make repairs.
Rachel Brenke says that she requires her tenants to have renters insurance “for any losses (damage or otherwise). I want their insurance financially liable versus my own. Mine is a backup.”
It turns away bad tenants. If the thought of renters insurance turns away potential tenants, it might mean that they can’t afford to rent a property anyway. A requirement for renters insurance can act as another step in a landlord’s screening process.
Eases their responsibility. While some landlords might look objectively at a worst-case scenario, others will feel responsible and help their tenants find another housing solution should their property be deemed uninhabitable. Renters insurance provides support for renters in this way and therefore relieves the landlord of this feeling of responsibility.
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“Armed Forces Insurance requires it for landlords who want an umbrella liability policy. Before AFI will insure landlords for a certain amount of homeowners and umbrella liability insurance, AFI wants the tenants to have a certain amount of personal liability insurance. That tenant's liability insurance usually comes bundled with personal-property insurance as the package of renters insurance.” — Doug Nordman, from The Military Guide and author of The Military Guide To Financial Independence And Retirement and co-author of Raising Your Money-Savvy Family For Next Generation Financial Independence.
5) It’s more affordable than paying the damages.
Less than most phone, internet, and cable bills, at $30 (or so) a month to protect your belongings, renters insurance is more affordable than paying to replace your things or repair the property out of pocket. Not to mention, the peace of mind associated with it — which, in this case, can most definitely be bought.
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Shopping Around for Renters Insurance Policies
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How do you decide which renters insurance policy is right for you? The answer is in the details.
While most plans offer protection over your belongings, liability, and additional living expenses given any number of circumstances, many do not include coverage of flooding and earthquakes — while others do. So, if you live in an area where an earthquake is more than a once in a lifetime occasion or water tends to creep in after a heavy rain, you’ll want to shop around to find a policy that has your back.
Here are a few providers to begin the process:
Feel like you know more about renter’s insurance than you ever wanted to? Good! Understanding what it does and the reason behind it helps you make an educated decision when searching for a policy and helps you understand what you’re paying for.
By Danielle Keech
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