What is Renters Insurance
Renters insurance is an insurance policy designed to protect a tenant residing in a rented property. Renters insurance typically provides protection in three categories: (1) personal property – including furniture, electronics, clothing, and other personal items, against perils such as fire, theft, vandalism, and certain natural disasters, (2) personal and medical liability coverage – in case someone is injured on the rental property, and (3) temporary living expenses – in case the rental becomes uninhabitable due to a covered event.
Is it Required By Law
Despite renters insurance providing protection to both the renter and the landlord, it is not required by state or federal law. However, most landlords require tenants to obtain renters insurance as a condition to lease a property. This reduces the landlord’s liability in the event that someone is injured on the rental property and reduces the likelihood of a dispute over damages to personal property.
Cost
The good news is, renters insurance is fairly affordable. Costs of renters insurance will depend on your state, location, and amount of coverage (the more you need to cover, the more it will cost), deductible.
The national average for renters insurance is $18 a month or $215 a year. You can get an idea of the average cost of renters insurance in your state here and get a quote for your area. The cost will also vary based on how large of a policy you obtain.
I have a rental property in San Francisco. It is in a high-rise building. I do require the tenant to get $100,000 worth of property insurance. You never know what happens in a vertical building. One busted pipe from the floor above, and you have a big mess on your hands – so will your tenant. See the latest policy attached below.
You will notice there is also $20,000 coverage for loss of use – to be explained in more detail below – this will help the tenant in case he has to move out immediately due to a covered emergency. And yes, I am aware things are more expensive in San Francisco.
TIP: To save money, renters should attempt to bundle their renters insurance. Many insurers offer a multi-policy discount for those who bundle their auto insurance with renters insurance. A few years back, my wife and I rented an apartment in a suburb, outside of San Francisco. We were required to obtain a renters insurance policy for $100,000. I did bundle the renters insurance with my State Farm auto policy. I don’t remember the exact cost, but we paid around $200 for the policy for the year.
Benefits
Personal Property Protection
Renters insurance will pay to repair or replace your personal belongings if they get damaged, destroyed, or stolen. The landlord will have a minimum coverage requirement, but that may not be enough to cover your personal property. Taking an inventory of your personal items will help you determine how much renters insurance coverage you need.
Liability and Medical Protection
You hope it does not happen. But, someone may get hurt on the rental property – such as a slip and fall. Renters insurance can help pay for defense and court costs if someone brings a claim or lawsuit against the renter. This also goes for damage that may occur away from the property. Let’s say your child is playing baseball outside and throws a ball through the neighbor’s window. The renters insurance policy may cover this. Dog bites are covered – provided the dog hasn’t had a previous biting incident and the breed type is excluded from the policy – again, read the policy and find out the details.
Temporary housing and Emergency Living Expenses – Loss of Use
If the renter’s home becomes unlivable due to covered losses (like a fire or windstorm), ‘loss of use’ coverage can help pay for a temporary place to stay (like a hotel) and basic living expenses such as food, laundry, hotel parking, etc. Coverage will include expenses that exceed your usual living costs, including those related to temporary housing such as hotel bills or the rental of a temporary living space.
Coverage
ALWAYS READ THE POLICY DOCUMENTS when you receive them. Renters insurance policy documents will explain what perils are covered and what are not. Make sure you understand the difference between the following policies: a named perils policy and an all-risk policy.
Named Perils Policy: A named perils policy lists the perils it covers and excludes everything else. In a named peril policy, coverage is explicitly specified for certain perils, such as fire, theft, or vandalism. This means that the insurance only pays for damages caused by events listed in the policy.
All-Risk Policy: An all-risk policy provides broader coverage by protecting against all risks except those specifically excluded in the policy. It offers more comprehensive protection, covering a wide range of potential risks unless they are explicitly mentioned as exclusions. While named peril policies are specific about what is covered, all-risk policies provide more extensive and flexible protection, making them a more inclusive choice for those seeking comprehensive insurance coverage.
Non-Covered Perils
Most renters insurance policies do not cover damage caused by the following:
- Earthquakes
- Floods
- Landslides
- Pests
- Rodents
- Sinkholes
- Mold
If you are a landlord, you should require your tenant to maintain a renters insurance policy while he or she is renting. If you are a tenant, the benefits of having renters insurance will typically outweigh the costs. Just make sure you READ YOUR POLICY and know the coverage and the limits.