What Is Renter’s Insurance?
Renter’s insurance is property insurance that provides coverage for a policyholder’s belongings, liabilities, and possibly living expenses in case of a loss event. It’s available to persons renting or subletting a single family home, apartment, duplex, condo, studio, loft, or townhouse.
The policy protects against losses to the tenant’s personal property within the rented property. In addition, a renter’s insurance policy protects against losses resulting from liability claims, such as injuries occurring on the premises that are not due to a structural problem with the property (in that case the owner’s—not renter’s—policy would apply).
Renter’s Insurance Explained
Increasingly, proof of renter’s insurance is required by many landlords. Personal belongings within a rented property are typically not covered under the owner’s or landlord’s property insurance. For example, if a flood or fire destroys all the personal property within a rented apartment, the structure would be covered under the landlord’s policy, but the personal property would only be covered through a renter’s insurance policy. Without this coverage, the tenant would be responsible for the loss out of pocket.
In general, renter’s insurance offers three types of financial protection:
- Coverage for personal possessions
- Liability protection
- Additional Living Expenses (ALE) protection
The following questions will help you choose the right coverage when you are shopping around for renter’s insurance or discussing your needs with an insurance professional.
Renter’s Insurance Coverage for Personal Possessions
Renter’s insurance covers your personal property from loss due to theft, fire, and other types of disastrous loss events. You should buy enough renter’s insurance to replace all of your personal 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.
You can choose between replacement cost or actual cash value (ACV) coverage. ACV policies pay only for what an item was worth at the time it was damaged or destroyed. Replacement cost coverage costs more, but it will provide a payout large enough to buy a new item to replace the old one at the current full retail price. If there are abnormally high-value possessions, a renter may want to add a floater, which is a separate policy that provides additional coverage for costly valuables if they are lost or stolen.
Renter’s insurance covers a policyholder against losses from fire or smoke, lightning, vandalism, theft, explosion, windstorm, and certain types of water damage. However, most renter’s insurance policies do not cover floods or earthquakes. Flood insurance is available from the National Flood Insurance Program and a few private insurers. Earthquake insurance can be bought separately or added as an endorsement to your renter’s policy, depending on where you live.8 For example, in California—obviously a high-risk state for earthquakes—the legislature created the nonprofit California Earthquake Authority to help people get affordable coverage.
Renter’s Insurance Liability Protection
Renter’s insurance provides liability protection against lawsuits for bodily injury or property damage done by the renter, their family members, and pets. This coverage covers legal defense costs up to the limit of your policy. A renter’s policy should also include no-fault medical coverage as part of the liability protection. This coverage allows someone who gets injured on your rented property to submit their medical bills directly to the insurance company in lieu of a lawsuit.
Renter’s Insurance ALE Coverage
Additional living expenses (ALE) coverage provides financial protection against an insured disaster that makes it necessary to temporarily live somewhere else. The coverage will pay for hotel bills, temporary rentals, restaurant meals, and other living expenses while a rental home is being repaired or rebuilt. Most policies will reimburse you for the full difference between your additional living expenses and your normal living expenses. There is, however, either a dollar limit on the total amount an insurer will pay or time limit on the ALE payments.