What is renters insurance and how much does it cost?

When you move into a new place, it’s more fun to imagine future dinner parties than worst-case-scenarios. Maybe that’s why so few renters have renters’ insurance—as of 2014, the Insurance Information Institute (III) reported only 37 percent of tenants purchased it. That’s surprising, since compared to, say, car insurance, it’s relatively affordable: the III also reports that as of 2017, the average cost of renters insurance was just $180 a year, making for a $15 monthly premium. For a little more than your Netflix subscription, you could protect all your personal belongings—and you should.

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Table of contents

What is renters insurance and what does it cover?Does renters insurance extend to my roommates’ belongings? How much coverage should you get?What factors determine your rate?Where should I shop for renters insurance?

What is renters insurance and what does it cover?

Renters insurance is a form of insurance available to people who rent, rather than own, a home.  While your landlord has insurance on the building you live in, their insurance coverage doesn’t extend to you or your personal belongings. Renters insurance covers you and your belongings in the case of any number of emergencies, like damage or theft.

There are three types of coverage included in most policies:

  • Personal property coverage: Protects all your stuff inside the apartment

  • Personal liability coverage: Protects you and your assets when bodily injury or property damage in your apartment is legally proven to be your fault

  • Additional living expenses coverage: Covers costs if you need to pay to live somewhere else after an emergency renders your place unlivable

The III lists the following types of issues included in most policies:

  • Fire or smoke

  • Lightning

  • Vandalism

  • Theft

  • Explosion

  • Windstorm

  • Water damage from burst pipes or flooding from nearby units

Most standard policies do not include protection from earthquakes or floods, and riders for such situations can be added to a policy for an additional fee or purchased through the National Flood Insurance Program. Other natural disasters like wildfires sometimes are covered, so read the fine print. Additionally, losses due to tenant negligence are generally not covered.

Does renters insurance extend to my roommates’ belongings?

Renters insurance policies are meant to be individually held, so if you share a home with roommates, each person must have their own policy. Most renters insurance companies do not allow roommates to share policies, as it can get messy when it comes time to file a claim. Purchasing your own policy as soon as you move into an apartment is important. 

How much coverage should you get?

Here’s how to determine the best coverage limit (i.e. the maximum amount your insurance policy will cover in the event of an emergency) for you.

1. Determine how much personal property you own

First, do an inventory of the items in your home. It’s tempting to ballpark it, but it’s better to take the time to create a detailed inventory. If an emergency does occur, this can help you file your claim and help you get an accurate amount of money to replace your belongings. Here’s how to create a home inventory:

Create a spreadsheet organized either by:

  • Room of your home

  • Type of item (clothing, electronics, etc.)

Include the following information for each item:

  • Name or description of item

  • Approximate date purchased

  • Where you purchased it

  • The serial number, if applicable

  • The price

  • A photo of the receipt (if possible)

  • Note bigger-ticket items, like jewelry, and check if your insurance provider requires these to be insured separately, like the earthquake insurance.

  • Start slowly and maintain the spreadsheet over time, adding purchases every month or so—the III advises that “it’s better to have an incomplete inventory than nothing at all.”

  • You can also take a video of a walkthrough of your house that showcases all your belongings.

Tip: A great time to make or update an inventory is when you are packing, in preparation for a move. Add this step to your moving checklist next time you relocate.

Once you’ve inventoried everything, total up the estimated value (based on purchase price) of all your belongings. This is how much personal property coverage you should get. 

Note: Insurance.com calls a renters insurance policy with $20,000 of personal property coverage a “mid-level” policy.

2. Choose your personal liability amount

Your personal liability amount refers to the maximum your insurance company will pay on your behalf if you’re found to be at fault for something that causes harm to someone in your home—of course, after the deductible (how much you’ll pay out of pocket before the insurance kicks in) is met. You’d want good personal liability coverage if someone comes over and trips over a rug and breaks a bone, or gets bitten by your dog, or gets injured on a sharp corner you didn’t secure. These scenarios could mean high medical bills, and isn’t something you want to skimp on.

Note: Insurance.com calls a renters insurance policy with $100,000 of personal liability coverage a “mid-level” policy. If you have more than $100,000 in financial assets, consider protecting them with more personal liability coverage.

3. Check for additional living expenses coverage

Additional living expenses (ALE) are the extra costs you might incur if a covered event does take place and you can’t live in your apartment for a period of time. Most standard plans come with ALE, but some don’t, so be sure to double-check. If ALE is covered under your policy, the insurance company might reimburse you for bills like restaurant tabs, hotel fees, storage costs, and more. Your policy will generally only entitle you to ALE if:

  • The accident or emergency is covered by your policy

  • The costs are above and beyond your usual cost of living (for example, if you normally spend $400/mo on groceries, but you spent $600/mo during your time away because you couldn’t shop and cook, the insurance policy would likely cover just the $200 difference)

Make sure you check your policy to understand what ALE you might be entitled to before making any reservations or purchases. And if it’s important to you to be covered in the event of these types of expenses, take the time to read the fine print while you’re purchasing your policy. 

Note: Quotewizard.com explains that maximum ALE amounts are usually 10-30% of your total coverage amount. 

4. Choose your deductible amount

A deductible is the amount you will pay out of pocket before the insurance kicks in. The higher your deductible, the lower your monthly premium, and vice versa. 

Note: Most renters insurance policies offer a $500 or $1000 deductible, but you can usually request a deductible as low as $100.

5. Choose your reimbursement type: actual cash value or replacement cost

Most renters insurance companies allow you to choose how much reimbursement you’d receive for your belongings in the event of damage or theft: the actual cash value or the replacement cost of the item. What’s the difference?

  • Actual cash value: Covers the equivalent of the value of your items minus the depreciation. You’ll get less compensation in the event of an emergency, but your monthly premiums will be lower.

  • Replacement cost: Covers the actual value of your items, subject to the upper limits of your plan. You’ll get more compensation in the event of an emergency, but your monthly premiums will be higher.

What factors determine your rate?

Your monthly premium could be higher or lower than the national average based on the following factors.

Your Zip Code

Renters in cities where disasters and crime are more likely to occur, like Los Angeles, Atlanta, New York, or San Francisco will see higher premiums, while less eventful cities like Portland, Seattle or San Diego will see lower ones. 

Your Credit History

Renters with great credit could get lower monthly premiums.

Where should I shop for renters insurance?

US News and World Report lists Lemonade, State Farm, and Allstate as some of the top renters insurance companies in 2020. You can also see if your auto insurance provider offers a bundle that includes both types of insurance. It’s a good idea to shop around for some renters insurance quotes before making a decision.

Don’t be part of the majority of tenants who overlook renters insurance. In the event of an emergency, crime, or accident, you’ll be happy you skipped the equivalent of one fancy cocktail per month to protect yourself and your personal belongings.

Bungalow offers affordable private rooms in shared homes in 10 cities nationwide. Wifi, utilities, and monthly cleaning are set up and included in the monthly rental cost, so that coliving is seamless. Find a Bungalow near you.

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