How does tenant insurance work? – Forbes Advisor

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If you rent or plan to rent, you may be considering tenant insurance to protect you financially if your belongings are damaged or stolen. Here’s what you need to know about how tenant insurance works.

What does renters insurance cover?

Renters insurance covers your belongings in the event of theft, fire, and other issues listed in your policy.

It also includes renters liability insurance or personal liability coverage, which provides financial protection if you cause injury to someone else or accidentally damage someone else’s property. For example, if someone is injured in your unit due to your negligence, or if you accidentally start a fire that damages another apartment and you are sued, this liability coverage will kick in. It also pays for your legal defense.

Another benefit of renters insurance is that it can pay extra if you can’t live in the house due to damage, such as fire. Here’s a closer look.

Personal Property Coverage

Renters insurance covers your personal property, including furniture, clothing, jewelry, electronics, and even knick-knacks, as long as it’s been stolen or damaged by a problem listed on your policy. Renters insurance will extend to personal effects in your vehicle, such as items stolen from your car.

Your personal property is only covered up to your policy limit and be aware of coverage limits for specific items. Here are some examples of special limits in a standard renter’s insurance policy:

  • $200 limit for cash, banknotes, gift cards and related items.
  • $1,500 limit for stolen jewelry and watches.
  • $2,500 limit for silverware, goldsmithery, platinum and related items that are stolen.
  • $2,500 limit for items used for commercial purposes.

Check your own tenants policy to find its special limits. If you have expensive jewelry or art, you can plan your personal belongings separately, allowing you to fully cover items outside of the tenant policy limit.

Personal liability insurance

The personal liability coverage of a renters insurance policy provides financial protection if you are sued for causing injury or property damage to others.

This could include:

  • A guest slipping and falling in your unit
  • Your dog bites someone, even at the park
  • Your bathtub overflows and damages the unit below you

Liability insurance also pays for your legal defense and can cover damages if the court finds you were negligent. It’s a good idea to buy enough liability insurance to cover what you might lose in a lawsuit.

Coverage of additional living expenses

If your home becomes uninhabitable due to a problem covered by your tenants insurance, additional living expense coverage will cover the cost of living elsewhere until you can return.

Coverage for additional living expenses may include hotel stays, meals, pet boarding costs and other expenses resulting from travel, within the limits of your policy.

This is also called the “loss of use” warranty.

Related: What Renters Insurance Covers

What does renters insurance not cover?

Earthquakes and floods are not covered by standard renters insurance. You would need separate flood and earthquake insurance policies for these disasters.

Renters insurance also generally does not cover:

  • Mold
  • Damage caused by pets, pests or rodents
  • Your roommate’s property, unless it’s also listed on the policy
  • The physical structure of your home (covered by the homeowner’s insurance policy)

How much does tenant insurance cost?

Renters insurance only costs an average of $125 per year for personal property coverage worth $15,000.
Average renters insurance costs

Amount of tenant insurance coverage

Rates vary based on many factors, including where you live, age, credit history, past claims, and the amount of coverage you choose.

Related: How to find cheap tenant insurance

How does tenant insurance work?

If you have a problem covered by your tenant’s insurance policy, such as fire or theft, you can file a claim. Here are some important things to keep in mind.

Submit a claim

After an incident, be sure to collect as much information as possible, including photos and videos of the damage. If you are filing a claim for theft or vandalism, you must also include a copy of the police report. The more details the better, as it will help support your claim.

If your renter’s insurance policy covers damage or theft, you’ll receive a check for your loss, minus your deductible amount.

Renters insurance deductible

A renter’s insurance deductible is the amount that will be deducted from the claim check issued by your insurance company. For example, if your deductible is $250 and your claim is $1,000, the insurance company will send you a check for $750 ($1,000 – $250 = $750).

The higher the deductible, the lower the cost of insuring your renter, and vice versa.

Do you need tenant insurance?

If you couldn’t afford to replace all of your belongings if they were destroyed in a disaster like a tornado, you need renters insurance. If you’ve accumulated assets, ask yourself if losing it all would be a financial disaster.

Here are the questions to consider when deciding if you need renter’s insurance.

What is the total value of your assets?

The best way to decide if you need tenant insurance is to take an inventory of everything you own. Make a list or use a free home inventory app to document each item and estimate its value.

Retain or document important information such as receipts and serial numbers when possible. This information will be useful to you if you ever have to file a complaint.

If you have something particularly valuable, write it down. You may want to plan for high-value items, such as expensive jewelry or high-end computers. You can have them assessed to determine if they need separate coverage, called a rider.

How much would the items cost to replace?

When buying tenant insurance, you generally want to get “replacement cost coverage”.

  • Replacement cost coverage reimburses you for the cost of replacing a damaged item with a similar item in the current market (without deduction for depreciation).
  • Actual cash value (ACV) coverage only reimburse you for the actual value of an item at the time of damage or loss. It is calculated by taking the amount it would cost to purchase the item today and subtracting depreciation for factors such as age and wear.

ACV coverage is less expensive than replacement cost coverage, but it can land you a hefty bill on your own to properly replace your belongings.

Related: Replacement Cost Vs. Actual Cash Value

Are you looking for home insurance?

Compare the rates of participating carriers in your area via Policygenius.com

How Does Renters Insurance Work FAQs

Is tenant insurance compulsory?

Renters insurance is not required by law, but many landlords require their renters to have and show proof of insurance. If your landlord doesn’t require it, the choice is yours.

How much does tenant insurance cost per month?

The average cost of renters insurance is $125 per year for $15,000 of property coverage. This equates to just over $10 per month.

What is the best tenant insurance?

The top renters insurance companies are American Family, Lemonade and USAA, according to a Forbes Advisor analysis of coverage options and available endorsements, prices and discounts. USAA insurance is only available to those with military affiliation.

Related: Best Renters Insurance