Is Renters Insurance Really Necessary?

February 26, 2020

Do you rent your home?

According to a study by Pew Research, the percentage of renters is the highest we’ve seen since 1965 at over 36% of households.¹

Though renting is typically considered common among younger age groups, us more “mature” individuals are also renting in record numbers. According to that same survey, 28% of people between the ages of 45 and 64 rent; and about 20% of people over 65 are renters.

This is not a discussion about whether renting or buying is better (that’s a topic for another day). Rather, we want to point out the following statistic that caught our eye:

Only 37% of renters have insurance. This number is drastically different than the 97% of homeowners that have homeowners insurance.² Why the discrepancy? We have two theories:

Many renters mistakenly believe that their landlord’s insurance will reimburse them for damages, but sadly, this is not the case. The landlord’s homeowner’s insurance covers the structure itself, but the tenant’s worldly possessions aren’t eligible for this protection.
Renters might not think their possessions are valuable enough to insure. Even if you think your possessions aren’t worth insuring, you’d be surprised if you take stock of what you own and start calculating how much it would cost to get all new belongings.

What Is Renters Insurance?

A renters insurance policy not only protects your belongings, but it can also help cover your medical bills and personal liability.

For just a few dollars a month, you can have peace of mind that everything in your home is protected. Plus, your belongings are also covered when you travel. So, if your car gets broken into, your luggage gets stolen overseas, or someone at a café spills coffee on your laptop, then your items are all covered by renters insurance.

What Does Renters Insurance Cover?

There are 16 different events that qualify for renters’ insurance coverage, including fire, theft, vandalism, smoke damage, falling objects, and leaking from overflowing water.

Most people think of renters insurance covering only your personal property, but a policy also affords you other types of coverage as well.

Personal Property

Anything that you own is eligible for coverage, from your furniture to your shoe collection. With the exception of expensive jewelry and valuable collectibles, a basic renters insurance policy will cover the following:

Cash, banknotes, and coins
Personal computers
Other electronics, including your television, smartphone, cameras, etc.
Sports equipment
Furniture
Clothing and shoes
Appliances
Jewelry and art (up to a limit)

Personal Liability & Medical Bills

Accidents happen, and if someone is injured at your home (or you inadvertently injure someone when you’re out on the town), you could be held liable for damages and medical expenses.

Your renter’s insurance would cover you for these instances, but keep in mind that if you’re injured, you won’t get any benefits. Your injuries would default to your medical insurance.

Loss of Use

If your home is uninhabitable as a result of a covered incident, the “loss of use” clause in your policy pays for temporary housing arrangements, including a hotel or a short-term rental. In some instances, you may receive a per-diem to cover food costs, especially if they exceed your typical grocery bill spend.

Other Types of Coverage

Renters insurance can be truly comprehensive and cover circumstances that you might not have thought of:

Other people’s property: If you borrow an item for a friend or neighbor and it gets damaged in a covered event, then your policy would pay for the item to be replaced.
Your property in other locations: Your policy will cover your belongings, even if they’re not inside the walls of your home. This includes your car, your storage unit, or anywhere you travel.
Food: A power outage can ruin all the food in your refrigerator, but thankfully, your renter’s insurance would cover the replacement cost of the groceries that spoil.
Credit card and bank forgery: Though banking companies have stepped up and increased their protection for fraudulent charges, you’ll have peace of mind knowing that your renter’s insurance will also protect you if someone steals your credit card or checkbook.

What Renters Insurance Won’t Cover

Despite how useful and valuable renters insurance is, it doesn’t cover absolutely everything. Before you get surprised by an uncovered event, it pays to know what renters insurance won’t cover:

Property damage caused by pests: Rodents, termites, and other pests and vermin can cause significant damage, but unfortunately, these damages aren’t eligible for reimbursement with renters insurance.
Natural disasters – Floods, earthquakes, and sinkholes won’t be covered, but some natural disasters are still eligible, including volcanoes and windstorms. If you live in an area prone to natural disasters, consider purchasing a separate policy.
High-value items – Basic policies have restrictive limits that might not provide enough coverage for expensive items like antiques, precious jewels, and art. To protect these valuables, you’ll likely need a separate policy.
Nuclear war and terrorist activities – Since 9/11, terrorist activities are no longer included in most policies.

How Much Renters Insurance Do You Need?

When you structure your renter’s insurance policy, the first thing to decide is whether you want actual cash value coverage or replacement cost coverage. Here’s the difference:

Actual cash value coverage – You’ll be reimbursed for the cash value of your items. Keep in mind that this means you’re unlikely to get enough money to replace the item.

Replacement cost coverage – The funds you get will be equivalent to buying a brand-new version of your item so that you can replace it.

Average policies range from about $10,000 to $40,000 in coverage. If you do have expensive items, including collectibles, you can purchase an additional rider to protect your valuables. On average, the value of renters’ items tends to be around $20,000, so that should help serve as a benchmark to get started.

Bottom Line

Unless your landlord requires you to have it, you might not think you need renters insurance. However, given that policies can cost as little as $15 per month or less, it pays to have protection. You never know what can happen, and having to replace all of your items at once can be financially catastrophic. Better safe than sorry!