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Insurance

What Is Renters Insurance and How Does It Work?

Do you like your laptop? How about your sofa? Could you afford to replace them if a fire destroyed your apartment? Could you replace your clothes and jewelry if an uninvited guest picks the lock on your door and “borrows” them?

No? Then you definitely need renters insurance. We’ll walk you through everything you need to know to make sure you’re protected.

What Is Renters Insurance?

Renters insurance is a type of property insurance that protects your possessions if they’re damaged, vandalized or stolen while you’re renting. It covers you from unexpected catastrophes like fires, electrical surges, sewer backups and explosions. Without renters insurance, you could easily break the bank paying to replace everything you lost in a fire or burglary.

Many people mistakenly assume their landlord’s insurance will cover them. Nope. Your landlord’s insurance covers the building, not your stuff.

Do You Need Renters Insurance? 

Yes. If you’re renting—and you’re not a total minimalist—you need renters insurance. It’s inexpensive and gives you great protection for your finances when Murphy comes knocking.

Protect your home and your budget with the right coverage!

And frankly, most of us underestimate how much stuff we own, including how valuable it is. So if you’re thinking, Well, it would probably only be $500 or maybe $1,000 tops to replace my things . . . think again. Just because you might have an old couch—or you don’t love that dining room table hand-me-down—doesn’t mean replacing everything you own would be easy or cheap.

How Does Renters Insurance Work? 

Renters insurance is pretty straightforward. (It’s insurance, not rocket science, folks.) Similar to homeowners insurance, it’s a way to transfer risk from you to an insurance company. By paying monthly premiums, the insurer agrees to pay any claims you make for incidents that are covered under the policy.

So if you get robbed, you file a claim, the insurance company reviews it, and (if accepted) will write you a check to replace your belongings.

Like other types of insurance, you have to first pay a portion—called the deductible—before your coverage kicks in. For instance, if you set your deductible to $1,000 and you lost $3,000 worth of stuff, you’d pay $1,000 and your insurer would cover the remaining $2,000. Most policies also have certain limits (for example, $20,000 worth of coverage), so always ask your insurance agent to help you pick the right amount.

What Does Renters Insurance Cover? 

A standard rental insurance policy covers the following things.

Personal Property

Bikes. Kayaks. Your laptop. That awesome vintage record player. Whatever you own, renters insurance has you covered. But be sure to know the difference between actual cash value and replacement cost coverage.

Actual cash value means your insurer will write you a check for what the items were worth when they were lost or damaged, factoring in depreciation. It puts you at greater financial risk since, in some cases, you wouldn’t get enough money to actually replace things like your TV or furniture.

Replacement cost coverage gives you greater coverage. Your insurance company will pay you the full amount it would cost to replace the item you lost. So if your UHD 4K TV was stolen, they would write you a check to buy a new UHD 4K TV. Nice!

Liability Coverage

Renters insurance also covers accidents that happen in your apartment or home, up to certain limits. So if your dog Tiny unexpectedly bites someone, or if someone slips on your floor and breaks his nose, renters insurance would help pay their medical bills.

And if you’re the Humpty Dumpty of your apartment, liability also covers clumsiness. So let’s say you left the water running in a plugged bathtub and your apartment flooded. Renters insurance would not only help pay to put things back together again, it would also pay for the damages you caused to your neighbors.

Additional Living Expenses

Imagine a fire destroys your apartment and you’re left without a roof over your head. Where do you stay? What will you eat? Renters insurance will help pay for these additional living expenses (lodging, clothes and food) until you get in another place.

Theft—From Anywhere

Renters insurance also covers theft in your apartment. But did you know it also covers theft from your car? How about at the airport? Or even in Paris while on vacation? Most policies will cover your stuff—no matter where you take it.

Storage Units Coverage

If you put your stuff in a self-storage unit, renters insurance normally covers a portion of it. It won’t cover all of it, so ask your insurance agent how much to get. It’s usually about 10% of your total personal property coverage. So if you had $50,000 worth of contents coverage, you would have $5,000 in storage unit coverage.

Spoiled Food

Yep. If an electrical surge kills your refrigerator and spoils your chicken salad and frozen tuna steaks, your renters insurance would write you a check for your groceries.

Water Damage

This is a tricky one. Renters insurance won’t cover flood damage (more on this in a bit). But if it’s water damage from structural problems, like leaky pipes or flooded toilets, your renters insurance would cover your stuff. And if you accidentally flooded your apartment, renters insurance would kick in and clean up the mess (financially). However, if you’re not at fault, your landlord’s insurance would cover all structural problems.

What Does Renters Insurance Not Cover? 

Now, let’s take a look at a few of the things renters insurance doesn’t cover.

High-End Items

If you own a rare collection of vintage toys, or more expensive jewelry or art, your standard renters insurance won’t cover these higher-end items. You would need extra coverage.

Business Equipment

If you’re running a business out of your home, and some of your business equipment is stolen (computer, 3D printer, etc.), your renters insurance policy might not cover business losses.

Vehicles

Just because your truck is parked in the driveway of the house you’re renting doesn’t mean it’s covered. (That’s what auto insurance is for.) But stuff inside your vehicle is usually covered by renters insurance.

renters insurance

How Much Renters Insurance Do I Need?

If you’re wondering how much renters insurance to get, a good rule of thumb is to have at least $100,000 in liability coverage. And if you live in a flood zone, you should definitely buy flood insurance.

When it comes to your stuff, the level of contents coverage depends on how much you own. Ask yourself, If I lost everything, how much would I need to get back on my feet? Make an inventory of your stuff, then estimate how much it’s worth to figure out how much coverage you need.

How to Get Renters Insurance 

You’ve worked too hard over the years to have all your stuff disappear overnight. The right amount of renters insurance can turn what would be a disaster financially into just a minor inconvenience. And it’s super affordable.

To get set up with the right amount of renters insurance, we recommend using one of our independent insurance agents. They are part of our Endorsed Local Providers (ELP) program and can help you find the right coverage to fit your specific needs. And they’re RamseyTrusted, which means you can trust them to give you the right advice when it comes to protecting your things and your budget.

Connect with one of our ELPs today!

 

Frequently Asked Questions

Is renters insurance mandatory?

Unlike car insurance, renters insurance is not legally required. However, landlords are starting to ask tenants to buy it before getting a lease.

Can I share renters insurance with my roommates? 

No. If your roommate has renters insurance, she has insurance for her—not you. Some insurance companies offer one policy for multiple roommates. While this may seem like the easiest thing to do, you could find yourself in a bad situation, especially if one roommate makes multiple claims and your rate goes up because of it. It’s always better to just get your own policy.

How much is renters insurance?

Renters insurance is dirt cheap, costing around $15 per month on average.1 Even if you’re paying off student loans or saving for the down payment of your first home, you can put away 50 cents a day to insure $30,000 to $50,000 worth of stuff.

Is renters insurance tax deductible? 

No, unless you’re running a business out of your home. And even then, you can only deduct the percentage of your house you’re using for business purposes.

Doesn’t my landlord’s insurance cover me?

Sorry to burst your bubble, but your landlord’s insurance only covers the brick and mortar building you live in. It won’t cover the loss of your electronics, furniture, jewelry, sports equipment or that pricey Pokémon card collection—no matter who’s at fault.

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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How to Get Renters Insurance

You know you need renters insurance but aren’t sure exactly how to get it. We’ll walk you through everything you need to know to set up a renters insurance policy so your stuff is protected.

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