Renters Insurance 101: A Complete Guide
One of the benefits of renting over buying is that you don’t have to worry about major repairs or dwelling insurance. If anything happens to the home, it’s up to the landlord to cover it, whether they pay for the expenses with their insurance or out of their own pocket. However, neither the landlord nor their insurance company is responsible for damage to personal belongings.
If a fire, flood or storm destroys the house and everything in it, the landlord might be covered through their insurance (assuming they have additional coverage where needed) but that policy won’t protect you or your belongings, which can make these disasters very expensive.
Luckily, there is a type of insurance that can cover you and because you don’t need cover for the whole building, the premiums tend to be much cheaper than what you would pay if you owned the house.
What Does Renters Insurance Cover?
In the insurance sector, a renters insurance policy is known as a HO-4 or a HO-6. The “HO” stands for “homeowner” while the number applies to the type of policy being offered, A HO-4 is the most common and covers the belongings in a property but not the property itself. A HO-6 is pretty much the same but is aimed at condos and co-ops.
A standard HO-4 policy will provide several areas of cover, known as “covered perils”. If your property is damaged by any of the following, you should be covered:
- Fire and smoke
- Hailstorms, windstorms, and lightning
- Falling or out of control aircraft
- Vehicles (bikes, cars, trucks)
- Riots, looting, and vandalism
- Volcanic activity
- Damage from resting sleet or snow (such as a roof caving in)
- Steam or water damage from an overflowing appliance
- Steam or water damage from a broken appliance
- Freezing of an appliance
- Damage from an electrical current
- Falling objects
Renters insurance goes beyond personal property protection. It also provides liability coverage in the event someone injures themselves in your home or using your property. In this case, the renters insurance policy may cover some of your legal bills or medical bills.
However, this isn’t true for all policies and it’s something you will need to discuss with your insurer. They may charge you extra to add this cover onto your policy or they may provide it as standard, as is the case with traditional homeowners insurance.
What Doesn’t it Cover?
Renters insurance only covers the perils listed in the policy. It will not cover you if you drop and break an item, even if that item is part of your covered property. Spilling water on your laptop, dropping your phone in the toilet, sitting on your laptop and cracking the screen—all of this is accidental damage and is not covered by renters insurance.
You’re also not covered for damage to the property itself. If you have homeowners insurance and something happens to the house, not only will the insurer pay to get it fixed (assuming it is a covered peril) but it will also pay for you to stay in a hotel until everything is sorted. However, you’re not provided with these benefits on a renters insurance policy and if anything happens you’ll be forced to cover your own accommodation costs.
Of course, you’re paying money to the landlord every month and if they’re not providing you with the service you’\re paying for, you can insist on some cover or, at the very least, a partial refund. But don’t expect your renters insurance policy to help you here.
How Much is Renters Insurance?
Renters insurance is very cheap and typically costs less than a couple hundred dollars a year, equating to between $10 and $20 a month on average. For this price, you’ll be offered a fixed amount of personal property coverage and a deductible, the latter of which can have a big impact on the price.
Your renters insurance policy may also include a sum of money for liability protection, and this is often 4 or 5 times greater than the sum allocated for personal property coverage.
How do you Get Reimbursed?
Renters insurance policies can offer “actual cash value” or “replacement cost”. Your policy will dictate which one you have and it’s important to understand the differences before signing on the dotted line, as one is considerably better than the other.
While an actual cash policy may seem like the better option, it always takes deprecation into account. In other words, just because you paid $1,000 for a phone 2 years ago doesn’t mean you’ll get a check for $1,000 if it is stolen or damaged beyond repair today. You’ll get a sum based on its resell value, which could be over 50% less due to the rapid way modern electronics depreciate.
A replacement cost policy, however, will give you the full price of the item at the time that you bought it. In the above example, you would get the full $1,000.
Who Needs Renters Insurance?
If you live in student accommodation, share a house with multiple individuals and get by on the bare minimum, you can probably survive without the protection afforded by Renters Insurance. The premiums may be cheap, but if your belongings are just as cheap and amount to little more than a few thousand bucks, it’s probably not necessary.
Of course, these days everyone has smartphones and laptops, especially students, and these devices can cost upwards of $1,000 each. Your finances and your studies can take a serious hit if you lose these devices and are tasked with purchasing new ones. However, renters insurance may not be the best option.
You can often find cheaper and more wide-ranging insurance-related specifically to electronic devices. Apple Care is a good, albeit expensive, example of this. Not only will it cover you for complete loss and destruction of your device, but it will also cover you if the screen breaks or dents, in which case you’ll be offered a brand-new device with no questions asked.
As mentioned above, renters insurance won’t help you if you drop your device, but many product-specific insurance plans will. This is perhaps why fewer than 40% of renters actually have this insurance and why it has proven to be such a hard sell for the insurance companies over the years.
However, if you live in a large family home with lots of belongings, renters insurance could be worth its weight in gold. It might not cover you for everything, but it gives you some much-needed peace of mind and ensures you can quickly get back on your feet again if the worst does happen.