Renters insurance refers to property insurance that protects tenants who live in a rented dwelling. Coverage is provided by insurance companies in exchange for premiums paid by people living in apartments, single-family homes, and condominiums. Policies provide coverage for an insured party’s personal property as well as liability claims that are not due to a structural problem with the property. These kinds of policies also cover living expenses that need to be paid out when someone makes an insurance claim after their unit is damaged. Although renters insurance isn’t a legal requirement, some landlords prefer their tenants to have some type of coverage.
KEY TAKEAWAYS
Renters insurance is a form of property insurance that protects tenants who live in a rented dwelling.
Policies cover personal property, liability claims, and additional living expenses when a unit is damaged.
Although it isn’t a legal requirement, some landlords require proof of renters insurance before they hand over the keys.
Renters insurance doesn’t cover floods or earthquakes.
Landlord’s insurance does not cover the personal property of any tenant living on site.
How Renters Insurance Works
Insurance policies cover different types of losses. Life insurance provides a death benefit for a certain amount to an insured party’s beneficiaries. Health insurance mitigates the costs associated with routine and unexpected medical expenses. There are also insurance policies that cover properties. For instance, homeowners insurance protects policyholders against damage to their homes and belongings, as well as any claims filed against them by others for injuries sustained while on the premises.
Renters insurance is a common form of property insurance that tenants take out when they rent a home, townhouse, apartment, condo, room, or another type of dwelling. It’s also available to anyone who sublets a property from another tenant. Policies vary based on the type of coverage a renter chooses—the higher the coverage, the higher the premium.
These kinds of policies protect the insured party against losses to their personal property within the dwelling as a result of loss from theft, fire, and other types of disastrous loss events. The amount of coverage depends on premiums paid and other factors. You should buy enough renters insurance to replace all of your possessions in the event of a loss event. The easiest way to determine this amount is to create a detailed list of all of your belongings with estimated values.
Additional Living Expenses
Policies also provide financial protection against liability claims and additional living expenses (ALEs). Policyholders are covered against lawsuits for bodily injury or property damage done by the renter, their family members, and pets. It also covers legal defense costs up to the limit of a policy. Additional living expenses coverage provides financial protection against an insured disaster that makes it necessary to temporarily live somewhere else.
The coverage pays for hotel bills, temporary rentals, meals, and other costs while a rental home is being repaired or rebuilt. Most policies reimburse the insured for the full difference between the additional expenses and their normal living expenses. There is, however, either a dollar limit on the total amount an insurer will pay or a time limit on the ALE payments.
Renters Insurance and Valuation
Renters can choose between replacement cost value (RCV) or actual cash value (ACV) coverage. The type of coverage for each policy may be substantially different based on how the policy calculates the value of what was lost.
If you have an ACV policy, the insurance company will reimburse you for the value of your belongings at the time of the loss, taking into account depreciation and wear and tear. For example, if your five-year-old laptop gets stolen, the insurance company will consider its current market value, which will probably be significantly lower than the original purchase price. As a result, the payout under an ACV policy might not be enough to replace your belongings with new items.
If you have an RCV policy, the insurance company will reimburse you for the cost of replacing your belongings with new items of similar kind and quality, without considering depreciation. In the same example of the stolen laptop, an RCV policy would provide the funds needed to purchase a new laptop with similar specifications to the one that was stolen, even if the cost exceeds the value of the depreciated laptop.