The big mistake everyone makes when buying renters insurance

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The big mistake everyone makes when buying renters insurance

The first mistake of renters insurance is not buying renters insurance. (Seriously, nearly 60% of tenants forego a policy.) But the second mistake of renters insurance - which protects your property and personal liability for injuries — could lead to something even more infuriating: a denied renters insurance claim. I mean, you're paying a premium so your stuff gets repaired or replaced, right?

Why renters insurance claims get denied

A renters policy covers a whole bunch of incidents, known unaffectionately as perils, but it doesn't cover damage done by everything and anything. Like other insurance policies, there are always at least some exclusions. Common uncovered perils, for instance, include flooding, earthquakes and hurricanes. But — and this is where we get to the second mistake of renters insurance — people have a very bad habit of buying a policy without understanding what exclusions apply.

That confusion is particularly prevalent when we're talking about property and casualty policies, like renters, homeowners and car insurance, since they're usually purchased on a tight deadline. You need homeowners insurance in order to get your mortgage approved, for instance, or car insurance to drive a new ride off the lot.

Renters insurance, too, often gets purchased on the fly as some landlords require you to have coverage as part of a lease. But, on top of that, there's a trick to understanding what perils your policy does — or doesn't — insure.

How to tell what your renters insurance covers

If you have a named perils policy, your insurance only covers damage or theft stemming from the perils it specifically names.

If you have an all risk policy, your insurance, conversely, covers every peril, minus any specifically listed exclusions.

It's important to keep this jargon in mind as your comparison-shop. (We can help you get some renters insurance quotes here.) If you have a policy already, you should be able to figure out what's covered by checking its fine print. You can also call your insurance broker or agent to discuss your coverage directly. And, if you determine it's inadequate, you can always up your limits or add a rider for the coverage you need. People who live in flood zones, for instance, can get flood insurance as a rider or separate policy. You can go here to learn more about figuring out how much renters insurance you need.

Remember, there are other reasons a renters insurance can get denied – or not pay out as much as you like. For instance, you might have an actual cash value policy, which only covers what the item is currently worth, not how much it actually costs to replace. (You need replacement cost renters insurance for that.) Or you may have exceeded an individual coverage limit on an extra-valuable item, like a piece of jewelry. You can learn more about what renters insurance does — and doesn't cover — here.

Image: Michael Krinke