Renters insurance can sometimes be confusing, so it's understandable to have questions. Keep in mind that even if you live in a safe neighborhood and always remember to lock your doors, theft, damage, and other losses can happen at any time. If you've been putting off purchasing renters insurance, you're risking major out-of-pocket expenses due to unforeseen losses. Here are answers to some common renters insurance questions so you can be better informed about your coverage options.
Don't forego renters insurance because you think it's too much of an added expense. According to the 2016 Insurance Information Institute poll, in 2014 the average national yearly premium was about $190, or about 52 cents per day.1
In some cases, you can get discounts by bundling your renters insurance
with other coverage, like car insurance.2
And some insurers might offer reduced premiums if your home has certain safety features like security alarms, sprinkler systems, and fire extinguishers.2
The coverage you need depends on a variety of factors, including things like your net worth, what you protect your property against, the value of your property, how much risk you can handle, among others.3 You should purchase enough to cover the full amount of your personal property, including your clothes, electronics, furniture, kitchenware, and other items you own.
The two types of renters insurance policies are known as replacement cost and actual cash value:
- Replacement cost coverage pays the price of fully replacing your property (up to your policy limit) without taking depreciation into consideration. That means even if some of your property was old or heavily used, you’ll still receive the full amount for new items in case of a loss. These policies cost about 10 percent more than actual cash value coverage.
- Actual cash value coverage is less expensive, but it will take depreciation into account in tabulating how much you get in a loss. That means you’ll only be paid the cost of your items at the time of a claim, minus the reduction in their value, up to your policy limit.
While standard renters insurance can protect your possessions against a variety of events like fire, theft, vandalism, and more, damage from natural disasters like floods and earthquakes is not covered. To protect your property in these events, you’d need supplemental coverage, which is typically provided through the federal government.4
Every time you file a claim for lost, stolen, or damaged items, you’ll be responsible for paying a certain amount of money toward the cost of the claim before any payments from your insurance company kick in. The amount that you’re responsible for is your deductible. If you need to save money on monthly premiums, you may want to consider plans with higher deductibles, since policies with higher deductibles usually have lower premiums.5
Whether you choose replacement cost or actual cash value coverage, you may also want to consider purchasing a rider, which is an add-on that provides extra coverage for items that your renters policy doesn’t provide. Standard renters policies only offer limited coverage for things like jewelry or fine art, so if their value exceeds the limits of your plan, a rider can be a good option for safeguarding those possessions.5 Before you can take out a rider on any item, you typically have to have it professionally appraised.
Most standard renters policies include liability protection, so you could be covered in case you, your family members, or your pets injure someone or their property, resulting in a lawsuit. You might also have no-fault medical coverage, which means your insurance company will foot the bill for friends’ or neighbors’ medical bills if they’re injured in your home.
Your policy’s liability portion could also cover the cost of a lawyer to defend you in court and the cost of court awards, up to your policy’s limit. These limits usually start at about $100,000, but you can choose to buy more coverage.4
In a worst-case scenario event like a fire where you're totally displaced and can't live in your home, your renters insurance may cover your expenses if you have to live somewhere else - like a hotel - for the short term. Most policies will even reimburse you the difference between your new living situation and your previous one, up to a certain limit.5
Now that you know more about renters insurance, you can make an informed decision and purchase a policy that is right for you.