The Ultimate Guide to Renters Insurance

Ninety-five percent of homeowners protect themselves with homeowner’s insurance, but a mere 41 percent of tenants carry renters insurance, according to an Insurance Information Institute poll. he numbers are even worse when it comes to millennials. Sixty-six percent of this group of 18-29-year-olds rent instead of own, but a mere third of them carry renters insurance.

  • Thursday, August 3, 2017

  General   

Ninety-five percent of homeowners protect themselves with homeowner’s insurance, but a mere 41 percent of tenants carry renters insurance, according to an Insurance Information Institute poll.[1]

The numbers are even worse when it comes to millennials. Sixty-six percent of this group of 18-29-year-olds rent instead of own, but a mere third of them carry renters insurance.[2]

When you see that number, you might think that millennials and other renters skip the insurance because of the cost, but that’s not the case.

On average, renters insurance costs $187 per year in the United States.[3] That comes out to less than $16 a month, a price that most people can afford.

If cost isn’t the issue, what is?

A lack of understanding is a big issue. Thirty-three percent of renters don’t get renters insurance because they simply don’t understand how it works, and they don’t want to pay for what they don’t understand. The other 26 percent don’t get it because they don’t know where to purchase it.

It’s no wonder that renters insurance is still flying under the radar. While it’s been around for ages, it didn’t really grow in popularity until the 2000s, so people are still figuring it out.

Before the 2000s, landlords took the repair, upkeep, and reimbursement responsibilities upon themselves. They basically had two options when renters damaged property. They could make a claim on their own insurance and hope they were covered, or they could sue the tenant and try to get the money back.

That led to a huge problem. Insurance companies weren’t happy for paying for tenants’ mistakes, and renters usually didn’t have thousands of dollars sitting around just waiting to go to the landlord.

Still, landlords, tenants, and insurance companies engaged in this awkward dance for years until the 2000s rolled around. That’s when the cost of property insurance went way up, especially for apartment complex owners. Many owners chose to offset the costs by opting for high insurance deductibles. Now, it’s not unusual to see a complex owner have a deductible of $100,000 or $500,000.[4]

With deductibles like that, landlords knew they would be stuck paying for rental damages even if they made insurance claims. That’s when they realized that renters insurance could save the day.

By requiring renters’ insurance, landlords don’t have to worry about handling the costs on their own. Instead, they go after the tenants, and the tenants are protected by their coverage. At the same time, this insurance protects the tenants as well, keeping them protected even after something terrible happens.

Renters insurance is the perfect example of a win-win situation for landlords and tenants. Check out what it covers so you can understand how this helps everyone involved.

What Does Renters Insurance Cover?

Renters insurance offers two types of benefits. First, there are the direct benefits to the tenant and then, the indirect benefits to the landlord. Look at what is covered to get a better understanding of how this works.

Personal Property Coverage

Many tenants wrongly believe that their landlords’ insurance policies cover their personal property in case of theft, accidents, leaks, and other issues. In reality, a landlord’s policy doesn’t cover any of the tenant’s personal property unless the tenant can prove negligence on the landlord’s part. For instance, if the landlord failed to provide locks for the windows and someone breaks in, the tenant might have a claim against the landlord. This is very rare, though, so don’t put your eggs in that basket.

With renters insurance, you won’t have to go through a lengthy process, attempting to prove negligence. The insurance helps renters replace their personal items that they lose due to fire, burglary, or other incidents. As long as the incident is covered, you should get reimbursed when you file a claim.

Just how important is this? It’s actually a lot more important than you might think.

Renters own an average of $20,000 in personal property, so they have a lot on the line when they move into a property. In addition, rental properties are 25 percent more likely to be robbed than owner-occupied homes.[5] Since renters have so much to lose and are a target, it makes sense to get this coverage so they don’t have to empty their bank accounts to replace items. Even if they did empty their bank accounts, most probably still wouldn’t have enough money to purchase all of their lost or damaged items, so insurance is critical.

While it’s obvious to see how this benefits the tenant, it’s also important to understand that it helps landlords as well. If a rental property is burglarized or a renter loses personal property due to a disaster, he or she will need to replace it. It will be hard for the renter to replace their personal property and continue to pay rent. This can lead to late payments or a lack of payment altogether. Just imagine if your renter had to come up with $20,000 to replace personal property plus the monthly rent. The rent will probably lose out, and you will be scrounging around to find a way to replace that source of income. That is not how you want to spend your days and nights.

The amount of personal property coverage tenants need depends on their personal possessions. If you go with $30,000 to $50,000, it will likely cover all of your belongings, but it is still a good idea to take the time to inventory your belongings to determine how much you would lose if you lost it all. When you do this, don’t forget to check your closets. You likely have a lot of money put into your wardrobe. Most people have at least $3,000 worth of clothes, while people who wear a lot of suits have around $5,000 in clothing. Check out the brands and look the clothes up online to get an idea of how much they are worth.[6]

After valuing the property, you need to decide what type of personal property policy they want. Some policies let tenants choose between actual cash value and replacement cost coverage for their personal possessions. Replacement cost value coverage uses the current market value when determining the replacement cost, while actual cash value considers the wear and tear that comes with long-term use. Tenants who do not want to lose money due to depreciation need to go with replacement cost coverage. However, it’s important to note that these policies cost around 10 percent more.

Off-Premise Coverage

Most insurance policies also include what is commonly referred to as off-premise coverage. This means that a tenant’s belongings are protected even when they aren’t inside of the rental property. In other words, the tenant would be reimbursed if property is stolen from a vehicle or if items are ruined in a storage unit.

This coverage typically only reimburses the tenant for a fraction of the item’s value though. Often, renters receive 10 percent of the value of the missing or destroyed property when it is located off premise.[7] Some policies pay as much as 20 percent, though, so shop around to get the type of coverage that you need.

This coverage also benefits landlords. While landlords are not responsible for vehicles, it can become a cause of contention between landlords and tenants when something goes wrong in the parking lot. If you have parking lot thief on your hands, you will rest a lot better at night knowing that your tenants are covered with renters insurance. You will also have to field fewer calls demanding that you cover the tenants’ losses.

Personal Liability Coverage

Personal liability coverage is also included in renters insurance. From a landlord’s perspective, this is the most important part of renters insurance. It saves landlords time, stress, and money.

This covers damage caused by tenants. For instance, if a tenant leaves a space heater on and it falls over, causing a fire, personal liability coverage would cover it. If you find yourself in this situation, you won’t have to try to recover damages from the tenant, and you won’t have to file a claim with your own insurance company. You will also be able to fix the property much faster since the money will come from the renter’s insurance policy. That means you can get your tenant back into the property and start collecting rent again.

Personal liability coverage also covers tenants from damages that occur when someone is injured on the property. For instance, if a visitor trips over a box and gets hurt or if someone is bitten by a dog, it will cover the tenant. This is a huge relief for tenants. If something happens without this type of protection, tenants could lose everything they own.  

This coverage is meant to protect a tenant’s assets. Because of that, it is essential that tenants get enough coverage to protect them in case anything happens.

If you’re a renter, take your net worth and subtract your liabilities. Then, multiply your yearly salary by three and add that number to the first number.

For instance, let’s say that you have a net worth of $30,000 and a yearly salary of $40,000. After multiplying the salary by three, you’ll come up with $120,000. When you add $120,000 to $30,000, you get $150,000.

You always want to round up to the next coverage limit. Since carriers typically offer $100,000, $300,000, and $500,000 limits, you would need to get $300,000 in coverage.[8] Then, you would have a safety net of $300,000 in case anything happens.

Additional Living Expenses

If the rental property is damaged by a natural disaster or another covered incident, the tenant might not be able to stay there for a period of time. If the renter doesn’t have insurance, he or she will have to find and pay for a place. However, renters insurance actually covers relocation and living expenses. It might not pay the cost in full, but it will at least offset the cost so the tenant won’t be out much money while the property is repaired.

This is very important for landlords. If a tenant isn’t covered, he or she will find a new place to stay and enter into a new rental agreement. That means the tenant will never come back. On the other hand, if the person is relocated through the insurance company, he or she will come back when the property is ready. That is much easier than having to find a new tenant, especially after dealing with post-disaster repairs.

Medical Payments to Others Coverage

It can be a real nightmare when a guest gets injured inside of a renter’s home or apartment. The injured party will want to be made whole again, and if he can’t get money from the renter, he might go after the landlord even though the landlord is only liable if he or she has been negligent in some way. This can be avoided through renters insurance. While the coverage doesn’t cover medical payments for the renter, it does cover payments for the renter’s guests. This can save the renter thousands of dollars and help the landlord avoid potential lawsuits. Without this coverage, there is no telling what might happen both to the renter and the landlord.

Property Damage to Others Coverage

If a renter doesn’t have insurance, he or she is responsible for any damage he or she incurs on another property. Let’s say you visit your friend’s apartment and take a bath. You leave the bathtub running, and it leaks all over the apartment downstairs. You would be responsible for repairing the apartment downstairs along with any damage done to your friend’s apartment. That could be incredibly expensive.

If you have renters insurance, it will cover you wherever you go. It will pay for the damages even if they occur due to your own negligence.

If you’re a landlord, you will also benefit if your tenants have this insurance. It will save your tenant money, so he or she will have more money to make those rental payments. On top of that, it will protect your other properties. Let’s say that you own an apartment complex. If a tenant damages another apartment in that complex and doesn’t have insurance, you would have to sue the tenant and ruin the relationship.

On top of that, you would likely have to fix the issue while waiting for payment. This can be a costly problem, which is why it is so important for landlords to fill properties with tenants who carry insurance.

Other Coverage Options

While many tenants only stick with the basics when it comes to renters insurance, there are some other options that are worth exploring. If you fail to add these options on, you will not receive coverage for them. For instance, if you don’t add flood coverage onto your policy, you will not be covered if your property is destroyed due to a flood. It is a good idea to talk to your insurance agent to find out if you should add these items to your plan, as the best decision depends on where you live.

Earthquake Coverage

There are around 5,000 earthquakes in the United States each year.[9] While most people are safe from major earthquakes, those who live near a fault line might want to consider adding earthquake coverage to their policies. This add-on covers that damage caused by earthquakes. That includes everything from gas leaks to fires. Keep in mind that the closer you live to a fault line, the more expensive the coverage will be. That’s because it is more important as you move closer and closer to the fault lines.

If you are a landlord with property near a fault line, it is a good idea to mandate this coverage. Earthquakes can destroy everything, and you want to make sure your tenants are covered.

Flood Coverage

Renters who live in areas that are prone to flooding should consider getting flood insurance. This is typically purchased separately and protects the person’s belongings in case of a flood.

Water Backup Coverage

While landlords fix sewer and drain issues, they are not responsible for any damage that occurs to a tenant’s belongings from overflows. Fortunately, water backup coverage does protect those items as long as the tenant’s negligence didn’t cause the problem.

Keep in mind that water backup coverage and flood coverage are not the same thing. If the property floods due to a water backup, flood coverage won’t help.

Insurance Riders for Expensive Items

Renters who have high dollar items should consider getting a rider to cover them. Renters insurance only covers up to a certain amount of personal property, which means renters likely won’t get reimbursed for the total cost of expensive jewelry or other items. Riders ensure that the insured items will be reimbursed. In many cases, the reimbursement is for the full amount.

If you are a landlord, it is important to explain this to your renters. Most people are surprised to learn that they need a special rider to cover costly items.

Now that you know what renters insurance covers, it’s time to look at mandating that renters carry it.

Mandatory Renters Insurance

Landlords are getting a great deal of pressure from insurance agencies to require that all tenants purchase and maintain renters insurance while staying in a property.[10] This goes back to shifting liability from the property owner to the renter. Even if a landlord isn’t feeling the pressure from an insurance agency, it is still a good idea for all property owners to require that tenants carry renters insurance.

In order to do this, the landlord needs to include it in the lease. Lease terms cannot be changed mid-stay, so if it isn’t required at the beginning of the lease, the lease will need to run out and a new one will need to be drafted before it can be required.

Some landlords require that the tenant provides the proof of insurance prior to moving in, while others give tenants up to 30 days to show proof of insurance. If the tenant fails to maintain coverage, he or she has violated the lease, and the landlord can start eviction proceedings.

Landlords also need to come up with minimum coverage requirements in their leases. Otherwise, the tenants will likely go with the lowest coverage option and might run into problems when they do not get the coverage that they need. For instance, if a tenant goes with the minimum option and loses everything, he or she will still have to pay a lot of money out of pocket, so the landlord will have trouble collecting rent.

The amount required should depend on various factors, including the neighborhood and condition of the property. As a general rule, $300,000 in liability coverage and $30,000 to $50,000 in personal property coverage provides ample protection.  

Requiring insurance in the lease isn’t enough. It’s up to the landlord to keep up with the insurance paperwork to determine that the tenant is covered. There are several options for this. The landlord can speak with the insurance agent over the phone to verify coverage or the tenant can print off a declaration page. The landlord can also get a declaration page directly from the agency. Most landlords do not have the time to field phone calls from multiple insurance agencies proving coverage, and it is a bad idea to let the tenant print something off. It is best to get the proof directly from the insurance company via a declaration page.

It is then up to the landlord to get new declaration pages every time the insurance expires. Failure to do so could cause problems. For instance, you might end up with tenants who let their coverage lapse. Then, they could accidentally set fire to the property.

Subsidized Housing – The Possible Exception to the Rule

While it is a good idea for landlords to require that tenants have coverage, they might run into problems if they rent out subsidized housing. Subsidized housing programs have rules that landlords must follow, and requiring renters insurance is a violation of the rules set forth by some programs. Check your program’s documentation and seek legal counsel if needed.[11]

Where to Get Renters Insurance

Renters often choose to bundle their renters insurance with existing policies, so they simply use their current insurance agencies when buying a policy. Still, it is a good idea for landlords to offer some recommendations for those who do not know where to get renters insurance.

J.D. Power’s U.S. Home Insurance Study – Renters Insurance is a great resource for getting recommendations.[12] According to J.D. Power, The Hartford is the best when it comes to renters insurance. It received a five out of five for overall satisfaction, policy offerings, billing, and interaction. It did take a hit in regards to price, though, so some tenants might need to go elsewhere.

J.D. Power also recommends Erie Insurance. While it doesn’t rate quite as high as The Hartford, it does rate five out of five when it comes to price.

Other top companies include State Farm and American Family.

The Deductible

When choosing an insurance policy, renters also have to choose the deductible. While deductibles vary from one policy to the next, they are typically set at $500 or $1,000.[13]

The higher the deductible, the lower the monthly payment. However, higher deductibles mean less money when claims are made, as the deductible is subtracted from the reimbursement amount.

For instance, if you make a claim and the insurance company owes you $600 but your deductible is $1,000, you will not get any money. On top of that, you will have to pay the full $600 in damages yourself.

It’s important to note that insurance deductibles are not the same as healthcare deductibles. With healthcare, you have a single deductible that you have to pay down over the course of the year. Once it is met, you do not pay it any longer until the following year rolls around. With renters insurance, you are faced with the deductible every time you file a claim.

If you are a landlord, you might want to require that renters get a low deductible. Otherwise, you could end up with some of the same problems you will face if renters don’t have insurance.

Adding Roommates to Insurance Policies

Almost a third of adults in the United States live with roommates.[14] Renters who live with roommates are often confused about how to go about buying renters insurance. Does each roommate have to get his or her own policy?

Most renters insurance companies let roommates share the same policy, but you will need to let the company know upfront or both people won’t be covered. This is a good option for people who want to save some money. One shared policy costs less than two separate policies, and splitting the bill lets the roommates get away with spending a lot less.

There are a couple of things to keep in mind, though. First, all claims go on both people’s records. For example, let’s say Bob and Jim share an apartment. Bob’s laptop gets stolen, and he makes a claim. The claim will go on both Bob and Jim’s records even though Jim didn’t make the claim. If the two men had separate policies, the claim would have only gone on Bob’s record. Your insurance history follows you around and can impact your ability to get good rates or even insurance in the future.

It can also be a bit of a nightmare when determining the amount of coverage to get. One roommate might have a lot of expensive belongings, while the other one might only have a few items that require coverage. The roommates will either have to get more coverage than one person needs or less than the other requires.

Then, there could be an issue if one of the roommates decides to move out. You will need to talk with an agent to determine if the policy can be transferred to an individual if that happens.

As a general rule, it is best to get your own renters insurance policy and have your roommate do the same. It doesn’t cost much money, and that way, you will avoid potential problems.[15]

Making Renters Insurance More Affordable

Renters insurance is already relatively cheap, but there are ways to save even more. Many renters choose to bundle their insurance with their auto insurance policy. Insurance companies often give discounts for bundling. It might only save a few bucks, but that is money that you get to keep in your pocket.

Safety features can also lower premiums. Features like smoke detectors, deadbolts, fire extinguishers, and security systems all lead to lower premiums. In addition, living in a safe neighborhood is a good way to pay less for renters insurance.[16]

If you are a landlord, add some features so you can help your tenants lower their premiums. This will make it much easier for you to convince renters to carry insurance.

Using Renters Insurance

If you are a renter, carrying a policy isn’t enough. You need to know how to use it. It’s a good idea for landlords to know this information as well so they can serve as vital resources for their tenants. They can walk their tenants through the process in case they ever have to use their insurance.

Make an Inventory

A mere 33 percent of renters have an inventory of what they own.[17] That means that only 33 percent of renters have the documentation necessary to ensure they get the money they deserve when filing a claim.

Insurance companies require documentation if a claim is made, so renters should go through the entire property and document everything they own that they want to be covered. If you have any receipts, file them away. You should also take a video of all of your possessions. Then, put the receipts and video in a safe location that you can access if anything happens. A fireproof safe is great for this. That way, you can access the list and video even if the property burns down.

If you’re a landlord, be sure to encourage your tenants to make an inventory. They should do it as soon as they move in. You never know when an accident could happen, and they won’t have the necessary proof of ownership if they do not have an inventory.

Filing a Claim – It’s Easier Than You Think

While some people who have renters insurance are lucky enough to never have to file a claim, there is a good chance that people will have to file a claim at some point during the lifetime of the policy. Filing a claim is really simple when you know what to do.

First, tenants need to report the incident to the landlord. Some states require this by law, and most policies also require it. Even if it isn’t required by the state law or policy, it is still considered good form to let the landlord in the situation. Then, the landlord can assess the situation and determine if the property is still safe for tenants.

If illegal activity caused the loss or damage, it also must be reported to law enforcement. For instance, if someone broke into your apartment and stole your TV, you need to call the police immediately.

Renters also must document the damage. This is done with videos, photos, lists, appraisals, and receipts. In addition, if any of the property is damaged, renters must keep it on hand until the adjuster sees it. Otherwise, it might be difficult to get reimbursed for the property. It might not be fun to look at a broken TV every day, but it will be worth it when you get paid for it.

Next, you need to contact the insurer. You typically have to do this within 72 hours, although some insurers require that contact is made within 48 hours. Your insurer will give you claims to fill out. Fill them out and send them back to the insurer. It’s a good idea to do all of this quickly so the claim can be reviewed and paid in a timely fashion.

Is Filing a Claim the Right Choice?

Insurance is there to be used, but you don’t want to be frivolous when using renters insurance. While some people think they should file a claim no matter what happens, that isn’t always the case. While not having renters insurance is risky, there is also some risk involved with filing claims.

The worst-case scenario is your policy will be canceled. If that doesn’t happen, your premium might go up.

Mitigate your risks by following a couple of tips for filing claims.[18] These tips will help you keep your premiums low and your policy in good standing.

First, timing is everything. Insurance companies expect people to make claims from time to time. In their minds, time to time is about once a decade. You might not be able to stick to that timeframe, but avoid making claims within a year or two of each other. If it absolutely cannot be avoided, file the claim but understand that you are putting your policy at risk. Your rates will likely go up if you overuse the insurance.

Second, make sure that the claim exceeds the amount of the deductible. There is no reason to make a claim for $500 when your deductible is $1,000. If you do that, you won’t get any money, but the claim will go on your record.

Simply exceeding the deductible isn’t enough either. You want it to exceed the deductible by a great deal. Don’t waste your time filing a claim for $100 or $200. It will be a strike against the policy, and you won’t have much money to show for it.

If you follow these basic rules, you should remain in good standing with your insurance company. You will also limit the number of claims on your record, making it easier to get insurance with another carrier in the future.

 Renters Insurance – The Obvious Choice

As you can see, renters insurance is beneficial to both landlords and tenants. If you are a landlord, consider adding a renters insurance clause to your lease requiring that tenants maintain insurance for the duration their leases. If you are a tenant, consider getting insurance even if it isn’t required. It provides important protection that keeps money in your bank account and a roof over your head. Most importantly, it will give you peace of mind. You will know that you will be covered if anything ever happens. That peace of mind will make it easier to sleep at night, and it will make your stay in the rental property that much more enjoyable.

 

[1] Insurance Information Institute. “Renters Insurance, III.org, http://www.iii.org/fact-statistic/renters-insurance.

[2] Allie Johnson. “Study Shows Millennials Skip Renters Insurance, Putting Finances at Risk,” InsuranceQuotes.com, May 19, 2016, http://www.insurancequotes.com/home/millennials-and-renters-insurance-051916.

[3] ValuePenguin. “Average Cost of Renters Insurance (2017), ValuePenguin.com, https://www.valuepenguin.com/average-cost-renters-insurance.

[4] Karen Aho. “Can a Landlord Make You Buy Renters Insurance,” Insurance.com, August 18, 2015, http://www.insurance.com/home-and-renters-insurance/coverage/can-landlord-force-you-to-buy-renters-insurance.html.

[5] Esurance. “What Does Renters Insurance Cover,” Esurance.com, https://www.esurance.com/insurance/renters/coverage.

[6] Jeremy Herron. “How Much Renters Insurance Do You Need,” BankRate.com, March 12, 2013, http://www.bankrate.com/finance/insurance/how-much-renters-insurance.aspx.

[7] Insurance Information Institute. “Renters Insurance,” III.org, http://www.iii.org/article/renters-insurance.

[8] Effective Coverage. “How Much Liability Insurance Do I Need on Renters Insurance,” EffectiveCoverage.com, https://www.effectivecoverage.com/3572/how-much-liability-do-i-need-on-renters-insurance/.

[9] Rocky Mountain Insurance Information Association. “Earthquakes, Insurance, and Loss Prevention,” http://www.rmiia.org/catastrophes_and_statistics/Earthquake.asp.

[10] “Can a Landlord Require You to Have Renters Insurance,” Apartments.com, April 18, 2013, http://www.apartments.com/blog/can-a-landlord-require-you-to-have-renter-s-insurance

[11] Effective Coverage. “How Do I Tell Tenants Renters Insurance is Required,” EffectiveCoverage.com, https://www.effectivecoverage.com/10856/tell-tenants-renters-insurance-required/

[12] J.D. Power. “U.S. Home Insurance Study – Renters Insurance 2016,” JDPower.com, http://www.jdpower.com/ratings/study/U.S.-Home-Insurance-Study---Renters-Insurance/1502ENG

[13] State Farm. “How Much is Renters Insurance,” StateFarm.com, https://www.statefarm.com/insurance/home-and-property/renters/cost-factors

[14] Les Christie. “The Latest Trend in Housing? Roommates,” Money.Cnn.Com, November 5, 2014, http://money.cnn.com/2014/11/05/real_estate/renters-roommates/index.html

[15] Juan Castillo. “Can I Share Renters Insurance with My Roommate,” Nerdwallet.com, April 4, 2016, https://www.nerdwallet.com/blog/insurance/share-renters-insurance-roommate/

[16] CoverHound. “5 Safety Upgrades to Save on Renters Insurance,” CoverHound.com, May 28, 2015, https://coverhound.com/insurance-learning-center/5-safety-upgrades-to-save-on-renters-insurance.

[17] Leahe. “Renters’ Insurance Statistics: Why Ignore the Facts,” ResidentShield.com, July 24, 2012, https://www.residentshield.com/blog/renters-insurance-statistics-why-ignore-the-facts/.

[18] Kevin Mercadante. “When Should You Actually Make a Homeowners or Renters Insurance Claim,” MoneyUnder30.com, December 21, 2015, https://www.moneyunder30.com/home-renters-insurance-when-make-claim


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