How Does Renters Insurance Work

(The ins and outs of coverage, explained.)

Table of Contents

How does renters insurance work?
Who should buy renters insurance?
What does renters insurance cover?
How do renters insurance claims work?

How does renters insurance work?

As a new renter, I’m curious about renters insurance. I've never purchased a policy before, but I know a lot of landlords and building management companies recommend or require it. Can you break it down for me? I don't know if I'll be required to purchase it, but I might get coverage for peace of mind.

This is a great question that a lot of renters have, regardless of whether they've been renting for awhile. The truth is that few renters purchase a renters insurance policy unless they're required to. 

However, it doesn't cost much (often just a couple hundred dollars a year) and can be a huge benefit if there's some sort of covered disaster.

The gist of renters insurance is that there are disasters named in your policy. If any of them occur, your personal property is covered up to the policy limit (minus any deductible you have to pay). 

Renters insurance also provides coverage if you're responsible for personal property damage or destruction or accidentally injure another person. That being said, you can think of renters insurance as personal property and liability coverage. 

The other thing to keep in mind as a general overview of renters insurance is that it provides coverage even when you aren't at home. If someone steals your laptop while you're traveling, renters insurance covers that personal property. However, you won't be covered up to the full policy limit. 

Instead, you'll receive a percentage of your total coverage. Most policies provide 10% of your policy limit. This means that if you had $25,000 of personal property coverage, you would receive $2,500 minus your deductible to replace your laptop. 

I'll go into more detail below about the ins and outs of renters insurance coverage. If you want to discuss any of this further, your  independent insurance agent is a great resource.


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Who should buy renters insurance?

There are benefits to renters insurance for anyone renting an apartment, home, or possibly just a room. It's important to be mindful that your building or landlord could require that you purchase renters insurance as part of your lease. Even if they don't, you may want to purchase a policy.

The idea with renters insurance is peace of mind. Without a renters policy, you'd be responsible for replacing all of your personal property if there was a break-in or fire. 

You'd also be on the hook for the full cost of someone's medical bills or court costs if someone was hurt while they were at your place. Renters insurance even helps you out if your apartment or home is destroyed by a covered peril and you have to live somewhere else for awhile. 

If you aren't sure whether you want to purchase a policy, your independent insurance agent can walk you through all of the relevant considerations.

What does renters insurance cover?

Renters insurance covers personal property and liability. Remember, liability is just a fancy word for saying you're responsible if someone gets injured at your apartment.

The catch with personal property coverage is that the issue has to be due to a named peril. A named peril is one of several threats that will be explicitly stated in your renters insurance policy. 

If one of those threats occurs and you lose personal property as a result, you can file a claim to replace it. Perils vary by insurer and policy. Here are some of the most common:

  • Fire
  • Lightning
  • Wind
  • Hail
  • Vandalism
  • Theft
  • Snow/ice/sleet weight
  • Appliance or system damage
  • Short-circuit damage

If you want a full list of perils, it's best to discuss your policy options with your independent insurance agent.


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How do renters insurance claims work?

Renters insurance claims work a lot like any other insurance claims. The main difference is that what you get from a claim will differ depending on whether your policy is for replacement cost or actual cash value. Here's the difference:

  • Replacement cost: These policies pay you what it costs to repair or replace the item without accounting for depreciation. This means if your television is destroyed in a fire, the policy will pay for the outright replacement value rather than accounting for the television's age and depreciation.
  • Actual cash value: These policies pay you what the item is worth with depreciation factored in. If that television is destroyed, you'll get the cost of what the television was worth at the time of destruction rather than what it was worth when you bought it.

Replacement cost policies are more expensive because they pay out more. This is another consideration you can discuss with your independent insurance agent. Whichever policy you choose, filing a claim is pretty straightforward:

  • Notify your landlord, building manager, or the police (if you want or need a police report).
  • Contact your insurance company immediately after the loss. Some policies limit the time during which you can make a claim.
  • Complete the form your insurance company provides.
  • Collect the claim amount.

Again, your independent insurance agent is the best resource for additional information about collecting on a renters insurance claim or how renters insurance works generally.

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