What is Renters Insurance and How Much Do You Need?

I’ve never used renters insurance before my move west to the Bay Area.  In my mind, my few years of renting never saw me owning possessions worth more than you would receive from scraping them at the junkyard. However, times change and requirements from landlords do as well it would seem.  Having now been with my wife for almost half a decade, we’ve deliberately acquired some more valuable possessions we’d like to improve our quality of life. Some of them have even risen to the level of needing to be replaced should an unfortunate loss event ever occur. Granted, I wouldn’t be bereft losing them, but I’d certainly like to have the option of recouping any losses we’d experience to our material wealth.  It’s as I always say, “I don’t necessarily want to go to the dance, but I’d like to have an invite.” When we moved into our current apartment, our new landlord required us to carry renters insurance and name them as an interested party.  I’ll confess to not understanding the arrangement at the time but after some quick reading online, found this to be a very common requirement for apartment complexes. When I read around, I shopped through a handful of insurers to receive some competitive quotes and ultimately settled on Liberty Mutual because they offered a bundle discount with my auto insurance held through them. In total, I ended up saving on both policies through the discounted bundle, though they didn’t offer landlord insurance I’d need to carry for my condo I have rented to a tenant. This post examines renters insurance and how it works, how much you can expect it to cost, the coverages you need, as well as some preferred insurance providers to aide your insurance search.

What is Renters Insurance and How Does it Work?

Let’s imagine a dire situation: you’re renting a condo or apartment and your electric stove short-circuits, causing a fire.  The flames take most of your personal property with them and you’re left with mostly-charred remains. In this case, those contents wouldn’t be covered by a landlord insurance policy.  The only way to recoup these losses you’ve experienced is through carrying a renters insurance policy.  The same is true of theft or another catastrophe. The landlord policy held by the unit owner may protect the building you live in, but this landlord insurance will not replace your personal possessions or pay for your temporary living expenses as the building is repaired. In fact, the only reliable way to protect yourself financially against disasters such as these is to buy a renters insurance policy. Renters insurance, sometimes also referred to as tenants insurance, includes three basic types of protection in a standard policy:

1. Personal Possessions Coverage
2. Liability Coverage
3. Additional Living Expenses (Temporary Rehousing)

How Much is Renters Insurance Per Month for an Apartment?

Given the low cost of a renters insurance policy, sometimes under $10/month, it makes sense to carry coverage.  For $7/month, my wife and I carry:

• $100,000 of personal liability coverage (per occurrence)
• $15,000 of personal property coverage
• $3,000 for loss of use of our primary residence
• $1,000 for medical payments made to others (per person)

The low cost of Liberty Mutual’s renters insurance made the decision a no-brainer for us.  To see the insurance declaration pages for our policy with specifics, look at the images below. Page 1:

Page 2: To review these renters insurance declaration pages, the items numbered above include:

1. Insurance Policy Number
2. Total policy premium
3. Effective date of insurance amendment
4. Discount affiliation from group membership
5. Name of insured party covered by policy
6. Mailing address of insured
7. Effective date of declarations made under policy
8. Discounts and Benefits offered on policy
9. Multiple Policy Discount received from bundling insurance coverage
10. Total Discounts and Benefits received on policy
11. Insurer underwriting policy
12. Standard Policy coverages
13. Policy deductibles for coverages
14. Total standard policy premium
15. Additional coverages under the policy above the standard policy
16. Additional coverages you can add through an insurance endorsement or rider

1. Personal Possessions Renters Insurance Coverage

Under a standard renters insurance policy, you will receive loss protection against events such as:

• Fire
• Smoke
• Vandalism
• Windstorm
• Theft
• Explosion
• Lightning
• Water
• Other disasters specified in the policy and relevant to your geographic area (though, flood and earthquakes are not covered loss events)

To receive coverage above these basic minimums (i.e., for flooding and earthquakes), you will need to purchase supplemental insurance.  In New Orleans, the flooding benefit would be strongly considered had we rented there, while the earthquake coverage might be something my wife and I add in the near future. You never know when the big earthquake will hit the Bay Area. Deciding the appropriate amount of renters insurance coverage to buy entails knowing the value of your possessions.  This includes items like:

• Furniture
• Clothing
• Electronics
• Appliances (if you own them)
• Kitchen utensils and equipment
• Linens and sheets
• Bikes

Go through these items and determine how much it would cost to replace all of them and use this sum to gauge the level of coverage needed.  When my wife and I purchased our policy, we opted for higher personal possessions coverage because we knew a baby was on the way and we’d need to purchase a lot of items in preparation of his arrival. Size up your insurance needs and whether you think this limit will be adequate over the term covered by the policy.  Maybe you’re planning to downsize and won’t need to carry a high amount through the duration of the policy. The easiest way to handle this process is to create a budget in Excel which would cover all of the items and what you think each would cost to replace.  I would suggest saving this in your Google Cloud or other cloud account in the unfortunate event the loss event claims your computer as a victim. Fortunately, I use Google’s G Suite to hold all of my files to prevent such a loss from happening.  This list will come in handy should you need to file an insurance claim because it can hasten the claims process.

2. Liability Coverage

Most renters insurance policies come with standard liability protection coverage which cover against legal actions stemming from bodily injury or property damage you or your kin may cause to others on-site.  By extension, this also covers against any damage which may be caused by a pet. For example, if you decide to attend a neighbor’s housewarming party and your dog decides to ruin the event by relieving himself on the expensive rug, you’ll have coverage against that incident.  Were it your own rug being soiled, you wouldn’t be protected under this liability coverage. Spike should have known better in both instances, but you’re only covered in one scenario. The liability portion of a renters insurance policy provides coverage for both:

1. the cost of defending you in court, and
2. any awards made by the court, up to the policy limit.

In general, liability limits under a renters insurance policy start at $100,000, but some may also go up to $300,000 like mine.  To be safe, if the cost difference is negligible, it might make sense to pay up a bit more to get the additional per event, per occurrence protection. Before discussing umbrella insurance below, another element about liability coverage under a renters insurance policy includes No-fault Medical coverage.  This coverage works to protect against payments incurred as a result of an injury or medical condition being triggered by a visit to your covered property.  Instead of paying their medical bills out of pocket, you can submit these medical bills directly to your insurance company up to a specified limit. For example, if your friend visits for a backyard BBQ and stumbles down the steps, breaking his arm, you can submit the resulting medical bills for payment to your renters insurance company.  You can generally receive $1,000 to $5,000 worth of this coverage on your renters insurance policy. Personally, my policy pays $1,000 per person. As a note, this doesn’t extend to coverage of your own family or pet, as these costs would need to be covered out-of-pocket if you haven’t met the deductible on your low or high deductible health plan.

Umbrella (Excess Liability) Insurance

As a supplemental level of liability coverage, you can also buy an Umbrella or Excess Liability policy, which provides both higher coverage limits and broader coverage.  Generally, these policies can run in the low hundreds of dollars for an added $1 million of liability protection. Of note for an umbrella policy, if you opt not to carry renters insurance and instead feel comfortable only carrying umbrella coverage, the insurance company will likely not cover the first $100,000 (renters insurance liability coverage) and only pick up from after that point ($100,001+).  The renters insurance policy acts as the base line coverage and absence of this coverage does not then automatically default to the umbrella policy. Recently, my wife and I bought a new vehicle and added it to our Liberty Mutual auto insurance policy.  Because my wife and I could fear our liability coverage on the policy might not be sufficient for our needs ($500,000), we decided it would be in our best interest to purchase an additional $1,000,000 of liability coverage under an umbrella policy. Making this decision would cover us against more now that we have more to lose with a baby in the picture.  The simple addition only cost a few hundred dollars extra because it came bundled with several other coverages we carry. The one kicker came when I also needed to have it cover against any potential liability stemming from my condo rented out in New Orleans.  This triggered a $125 premium. Regardless, we carry the reasonably-priced umbrella insurance policy on top of our other coverages for the added peace of mind in case the existing liability coverages proved insufficient. As mentioned above, there are multiple carriers who provide umbrella coverage, and quite often they can bundle with existing policies and potentially result in a bundle discount. Related: Are Life Insurance Proceeds Taxable? The Complete Guide

3. Additional Living Expenses Coverage

An often forgotten component of your renters insurance policy is the additional living expenses coverage (ALE).  This coverage works by covering the cost of incidental housing costs incurred as a result of losing your primary covered residence under the renters insurance policy. For example, if your apartment complex burns down and you’re no longer able to live there, while you find alternative accommodations and live somewhere else, your ALE will cover hotel bills, temporary rentals, restaurant meals and other incidental expenses incurred while your home is being rebuilt. Policies will generally reimburse you for the difference between your additional living expenses incurred as a result of this circumstance and your normal living expenses.

Two Types of Renters Insurance Policies Exist

Before buying your renters insurance from a recommended provider below, be sure to understand the two types of renters insurance policies that exist.

• Actual Cash Value – This type of policy pays to replace your possessions minus any related depreciation up to the policy limit
• Replacement Cost – This renters insurance policy type pays you for the actual cost of replacing your lost possessions without consideration for depreciation, up to the policy limit.  In general, because you’re receiving a larger payout for this added reimbursement, you will tend to pay more for Replacement Cost renters insurance policies.

Is Renters Insurance Really Necessary?

Some people enjoy risk and can tolerate loss.  While I’ll admit to having some risk tolerance, for the low cost of renters insurance, I find the added $5-7/month as a pleasant peace of mind.  However, in our case, it was a requirement of living in our apartment. Regardless, I still think the small expense would have fit into our personal budget plan and more than offset any expense should a claim be made against the policy.

Does Each Person Need Renters Insurance in an Apartment?

Generally, yes, assuming the tenants aren’t related.  If unrelated, each roommate should purchase separate renters insurance policies, unless they are listed on the policy.

How have Renters Insurance Costs Trended?

Compared to homeowners insurance costs, renters insurance premiums haven’t moved in the last decade since the Great Recession according to data from the Insurance Information Institute. In fact, as you can see below, the average premium for a renters insurance policy has remained essentially flat, going from $182 in 2007 to $185 in 2016. Adjusted for inflation, that’s actually a decline in real terms.

How to Buy Renters Insurance

If your experience is anything like mine, getting renters insurance is simple and painless.  There are many providers you can select from who offer landlord insurance, homeowners insurance, auto insurance, and renters insurance (among many more types). In the case of homeowners insurance vs. renters insurance, the policies are almost identical except that a renters policy doesn’t include coverage for the building as that is owned by the landlord.  In fact, the landlord might carry landlord insurance if s/he doesn’t live on-site.

Comparison Shopping

Because prices can vary by insurer, it makes sense to shop around for the best price.  I’d recommend getting quotes from at least three insurers. I’m glad I did, because my first two quotes came back at $175 and $190 while my third through Liberty Mutual came in at $91, half the price for more coverage than the others! However, as I mention above, you want to comparison shop.  There are numerous providers in this area, and some other insurers include Lemonade and Allstate. Each service offers competitive rates to meet your needs.  Check with these providers to see which offers the best coverage for your needs and also the potential to bundle with existing policies you may carry with them.  This is how I received a major discount from Liberty Mutual.  

Ask Your Insurer How You Can Save Money

When you do proceed with an insurer and getting a quote, make sure you aren’t afraid to ask for the available discounts applicable to your situation.  In my case, I attended Penn State for graduate school and received a hefty discount through membership in their alumni network. If you attended a major school, work for a large employer, or have an affiliation with some large organization, memberships in any of these areas can lead to discounts. Further, you can save money by working to adjust your policy deductible.  For instance, if they quote you on a $500 deductible, you can ask for a comparable quote under a $1,000 deductible and how this impacts the premium.  Assuming you can tolerate the added expense, this might be another lever for bringing down the cost on your policy. But, as I mentioned above, your best discounts likely will come from bundling services under one insurer.  Also ask if you can receive a quote for all coverage coming from this insurer and compare across your total insurance needs.