What renters insurance covers, and what it doesn’t

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What renters insurance covers, and what it doesn’t

Renters insurance is one of the most valuable and overlooked pieces of financial protection available to renters.

Renting is on the rise. According to The New York Times, the U.S. rental market has grown over the last decade at the fastest rate relative to homeownership since the 1980s.

Yet a 2014 survey by Nationwide found that 56 percent of renters between the ages of 23 to 25 don’t have a renters insurance policy. Renters may falsely believe that their landlord will insure their belongings, or that their stuff isn’t worth enough to insure.

But think of it this way: If you’re a renter, living paycheck to paycheck, or you’re saving up to buy a house, you’re likely living on a budget with little leeway in your finances to replace everything you own in the event of unexpected damages. According to the Federal Reserve, homeowners have an average 36 times as much accumulated wealth as renters. Renters insurance is a highly cost effective, affordable investment to keep you and your possessions protected.

Dispelling some renters insurance myths

Before looking at what renters insurance covers and what it doesn’t, remember that some of these myths aren’t true:

Your landlord will pay for the damages. A landlord or property manager is responsible for damage to the apartment itself, but not your property. So when your neighbor’s plumbing explodes, your landlord’s insurance will pay to replace the pipes -- but they’re not responsible for losses or damage to any of your belongings from the water. Your renters insurance covers water damage to your stuff.

Your lease agreement and monthly rent also won’t stipulate any kind of renters insurance coverage, unless your landlord requires you to carry it.

Renters insurance is too expensive. Plugging in the numbers on the PolicyGenius renters insurance calculator, a basic renters insurance policy for a single apartment in the Los Angeles area will cost $17.50 per month or $210 per year, with $10,000 in personal property coverage and $100,000 of liability coverage after after a $250 deductible. (Don’t worry, we’ll explain all these terms later.)

Annual renters insurance premiums are considerably more affordable than the cost of replacing individual items. Of course, the lower the value of your property, the cheaper your insurance premium will be.

What’s does renters insurance cover?

Your personal property
A comprehensive policy will cover costs to replace your belongings, like your furniture, electronics, computer equipment, your clothes, jewelry and appliances. Basic renters insurance will reimburse you for the loss of property (up to your policy’s coverage limit) if destroyed, damaged, lost or stolen in any one of 16 different events:

  • Fire and lightning

  • Windstorm and hail

  • Explosions

  • Riots

  • Damage by aircraft

  • Damage by vehicle (not your own)

  • Smoke damage

  • Vandalism

  • Theft

  • Volcanic eruption

  • Falling objects

  • Weight of snow, ice, sleet

  • Damage from steam-heating/water-heating appliances/systems

  • Leakage or overflow of water or steam

  • Freezing of plumbing, heating, air conditioning

  • Short-circuit damage caused by electrical appliances

Renters insurance can also cover property when it’s not even in your home, like if your laptop is stolen while you’re on vacation; since it’s considered insured property, it’s still protected whether it’s inside your dwelling or not.

A renters policy can protect property damage to others. If a broken pipe in your apartment flooded your neighbor’s residence below, your insurance policy should cover damages to their property.

Personal liability and medical bills
A good insurance policy will also cover costs you may be legally responsible for paying if someone is injured in your apartment. If someone slips, falls and is hurt on the premises, or if your overzealous dog or cat bites a visitor and sends them to the ER (which regrettably happened once to yours truly), your policy should contain medical coverage to cover injuries without a lawsuit being involved, and liability, in the event you are sued over a mishap.

Temporary living expenses
If your residence has been made uninhabitable, renters insurance can also help pay for a temporary place to live. It may compensate you for everything from hotel bills to the cost of food if it exceeds what you’d normally pay through your grocery budget. Otherwise known as loss-of-use coverage, it’s one benefit of having renters insurance until you’re able to move back in (or find a new apartment).

Other types of coverage
Renters insurance protects against other losses you may not have thought of, giving more value to the idea of taking out a policy:

  • Credit card/bank forgery coverage: Your insurance policy safeguards against theft, but can also reimburse you for losses incurred if a thief burglarizes your home, steals your credit card or checkbook, and goes on a fraudulent spending spree.

  • Other people’s property: It’s not just your property renters insurance covers. Say you borrowed a friend’s home gym equipment, or they loaned you their tablet, some LP records or books; if a fire or faucet flood damages them, your policy will cover to replace your property and theirs.

  • Items stored elsewhere: Renters insurance doesn’t only cover property inside the walls of your home. Many rental insurance policies will cover for damages to your belongings if they’re stored off-site, too. It may also protect against items stolen from your car, or damaged in a storage facility.

  • Food: If you’re wondering what would happen to the contents of your fridge if it broke down, not to worry: you may be able to claim your groceries on your insurance policy, even if the fridge works but failed due to a power outage. (It should ideally fall under the "short-circuit damage" category.)

What’s not protected under renters insurance

Renters insurance doesn’t cover your belongings under certain circumstances:

  • Natural disasters: Damages caused by flooding, earthquakes, tornadoes, hurricanes and even sinkholes aren’t covered under renters insurance policies. (Though, surprisingly, volcanic eruptions and windstorms covered.) If you live in a flood zone, near a fault line, or in a region prone to major storms, consider buying additional, separate coverage.

  • Property damage caused by pests: They’re pesky and seemingly immune to many forms of extermination, but damages to your property caused by rodents, bugs, pests and other sorts of vermin aren’t covered under renters insurance.

  • Items of high value: Expensive valuables may not be covered under your renters insurance policy, like antiques, art or jewelry, vintage family heirlooms, a rare autograph collection, premium appliances, etc. Insurers may limit the amount of coverage they provide since the value of said items may exceed what they can afford to pay out -- usually $2,500 for electronic items, $1,500 for jewelry. To include pricier items in your policy, you may need to purchase additional coverage called riders for individual items, or standalone policies, like jewlery insurance.

  • Damages from terrorism or nuclear war: Before 9/11, standard renters insurance policies tended to include protection against terrorism at no cost. But today, you’d need to pay an extra cost to receive coverage, and even then, it would only cover damages to your apartment, not to the rest of the building, unless your landlord or property owner paid for separate terrorism coverage.

  • Other exceptions: While renters insurance may cover losses to items stolen from your car, it won’t cover your vehicle; that’s what your auto insurance is for. And while it may protect items you’ve borrowed from someone else if they become damaged in your apartment, your policy won’t automatically cover the property of a roommate. They’d need to buy their own renters insurance to cover their property. Alternatively, roommates can purchase a joint renters insurance policy. If you choose to do this, however, remember that the payout in the event of a claim will be split between you both.

Before buying renters insurance

Take an inventory of everything you own and add it all up. The average renter, according to Allstate, owns $20,000 worth of personal property, but many apartment denizens underestimate the value of their stuff. Itemizing your belongings will give you an idea of how much insurance you need. A site like KnowYourStuff.org can get you started.

And like any other insurance coverage, be it life, auto, health or otherwise, know the type of coverage you’re seeking. Shop around, compare different plans, and weigh your deductibles versus your premiums to see where you can get the best coverage at the lowest price.

Additionally, understand beforehand how renters insurance payouts work.

Generally, when a claim is made and losses are being appraised, your insurance carrier may provide you the choice of two policies:

  • A cost replacement policy to cover the price of replacing your items. If your laptop is stolen, your payout covers the cost of a similarly priced computer

  • A real cash value policy replacing items at their depreciated value. So, if your laptop was a decade old, your policy would pay you out according to its current value. If that’s not enough for a new laptop, you’d need to pay the difference at your own expense.

However, there are two considerations that work with both of these policy types to keep you covered:

  • Named perils, which only cover damage or theft stemming from specific scenarios named in the policy

  • "All risk," which covers every kind of peril except any exceptions named in the policy, like earthquake damage

Also consider other factors that could impact your renters insurance: Just as an alarm system on a car can lower your auto insurance rates, other deterrents to your rental like heavy-duty deadbolt locks, smoke detectors, fire extinguishers, and security systems may help you secure lower rates.

On the other hand, if you own certain pets or breeds of dogs that increase your risk of property damage, your rates could be higher. Depending on the breed, you could even be denied insurance coverage. Consider these factors when you’re shopping around.

Renters insurance is an inexpensive way to protect your stuff and your peace of mind. While homeowners are usually required by their mortgage lenders to carry homeowners insurance, many renters just leave it up to chance. This is affordable way to give yourself peace of mind, and your property, the protection it deserves, to minimize your expenses and saving you money if catastrophe, theft, fires, vandalism or underwater apartments ever cross your path.

Image: Fort George G. Meade Public Affairs