Renting a house or apartment is considerably different than owning a home. As IOA CEO Heath Ritenour points out, both scenarios create bespoke risks and, therefore, require tailored insurance solutions. First, note that the landlord insures the structure and makes repairs to the building, and included equipment, such as a malfunctioning refrigerator or stove.
However, the landlord’s insurance coverage does not include the renter’s personal possessions. If a storm renders the building unlivable, the landlord’s insurance coverage does not apply to anything other than the building and included equipment. If a burglar breaks into an apartment and steals the tenant’s high-end electronics, the tenant must use his or her own financial resources to replace those items.
A well-written renters insurance policy will address those (and other) risks. Insurance Office of America’s Heath Ritenour offers an easy-to-understand overview of renters insurance coverage.
The Function of Renters Insurance
When a tenant resides in a house, condo, or apartment that another party owns, renters insurance (or tenant insurance) provides coverage for the renter’s personal possessions. In addition, renters insurance includes liability protection for certain situations. Insurance expert Heath Ritenour recommends becoming familiar with a plan’s protection limits for possessions, as well as various situations.
Renters insurance does have some similarities to homeowners insurance. To illustrate, a renters insurance policy covers occurrences such as theft or fire. However, renters insurance is much less expensive, as it only covers the home’s contents and not the actual building.
Renters Insurance: The Legalities
There is no legal requirement to purchase renters insurance. However, some landlords require that an applicant provide proof of coverage before signing a lease. Other landlords may allow the renter to purchase the policy within a specific time period.
Types of Covered Occurrences
A typical renters insurance policy covers a variety of events. Following are 10 examples of covered incidents.
- Windstorm or hail
- Fire or lightning
- Weight from snow, sleet, or ice
- Vandalism or malicious mischief
- A falling object
- Vehicle-caused damage
- Civil commotion or riot
Note that each renters insurance policy will specify the covered occurrences.
Four Types of Insurance Coverage
A typical renters insurance policy provides four types of coverage. Each policy’s text should spell out exactly what is and is not included in each coverage category. Insurance expert Heath Ritenour recommends that applicants clarify specific issues with their insurance agent prior to completing the policy purchase.
Personal Property Insurance
A typical renters insurance policy provides reimbursement for the loss or destruction of the tenant’s personal possessions. Examples include clothing, jewelry, electronic devices, furniture, and décor items.
Higher-dollar Personal Items
Some tenants may own items above a certain dollar value, such as valuable artwork or sophisticated computer equipment. Other examples of higher-dollar personal possessions include expensive jewelry, highly prized antique furniture, and collectible vintage firearms. These items may not be covered in a standard renters insurance policy.
However, the policyholder can usually add optional coverage (called riders) for these valuable items. To put a rider into effect, the policyholder will need to provide documentation of ownership for each item. Photographs, receipts, and other evidence are useful. The insurance agency may also require a professional appraisal to establish certain items’ value.
After the insurance agency receives all necessary documentation and the policyholder agrees to the coverage terms, the coverage will go into effect. If the covered items are destroyed or stolen, they are covered up to their respective dollar values.
Actual Cash Value vs. Replacement Cost
There are two types of personal property insurance coverage. There is a direct relationship between the covered items’ value and their insurance premiums.
Actual Cash Value Basis
A policy structured on an actual cash value basis provides reimbursement for used-condition items. Although the renter pays lower insurance premiums, he or she will be reimbursed for used items that may not be in the best condition. Most often, the insurance settlement will be insufficient to buy brand-new replacement items.
Replacement Cost Basis
A policy structured on a replacement cost basis compensates the renter for new-condition items. The insurance premiums are higher, but the proceeds of the claim will be sufficient to replace the claimed items with brand-new ones.
A renters insurance policy also provides coverage for the renter’s personal possessions outside the home. To illustrate, coverage applies if the renter’s bicycle is stolen from a bike rack outside a coffee shop. Coverage also applies to items in the renter’s storage unit.
The renters insurance policy also covers items stolen from the renter’s car when it’s parked at the rental property. The renter’s auto insurance policy covers theft or damage of the renter’s vehicle.
Two important conditions apply to off-premises personal property coverage. First, the policy deductible must be met before the coverage applies. In addition, off-premises coverage may be limited. Heath Ritenour, CEO of IOA, reminds readers that many policies cap this coverage at 10% of the total personal property limit.
Loss of Use Coverage
If the rental property becomes unlivable due to a covered incident, according to Heath Ritenour, renters insurance usually pays for additional living costs while the home undergoes repairs. Examples include hotel expenses, restaurant meals, and other expenses incurred while staying at another location.
Note that renters insurance does not provide coverage for a planned move. However, the renter may need to relocate because the home has sustained severe damage and is uninhabitable. In this case, the policy’s additional living costs clause will help cover moving expenses.
Personal Liability Insurance
If another person is injured on the rental property, the renters liability insurance provides coverage for the policyholder. For example, a visitor may slip and fall or burn their hand while grilling burgers and hot dogs for a picnic. Coverage also applies for on-premises accidental damage to another person’s property.
If a lawsuit arises from a covered incident, renters liability insurance generally covers the policyholder’s legal representation. Coverage also applies if the lawsuit results in a financial award to the other party.
An expensive lawsuit may exceed the renters liability insurance limits. If the renter has purchased umbrella insurance, that policy should help to cover the remaining amount of the lawsuit. Again, the umbrella coverage applies up to that policy’s limit.
If the renter’s dog bites the mail carrier or another nonresident on the property, the renters liability insurance may cover the incident. Some policies may cover the victim’s medical expenses and offer protection from related lawsuits.
However, some renters insurance policies do not cover dog bites. Other insurers exclude certain dog breeds from coverage. Renters should clarify this issue with their insurance agent prior to finalizing their policy purchase.
Medical Payments Coverage
This clause ensures that if another person is injured on the renter’s property, their medical payments will be covered up to the specified limit. This coverage applies regardless of who is at fault for the injury. In contrast, renters liability insurance only applies if the renter is found at fault.
Renters Insurance Policy Exclusions
Like other insurance policies, renters insurance does not cover certain types of occurrences. The renter may be able to purchase a rider or an additional policy for these incidents. To avoid unwelcome surprises, Insurance Office of America CEO Heath Ritenour recommends that renters discuss these coverage issues with their insurance agent.
Other Occupants’ Personal Property
Most renters insurance policies include the personal property of the renter’s spouse and relatives (if they also reside at the rental property). However, coverage does not generally include unmarried partners or roommates. Depending on the policy specifics, the renter may be allowed to add those occupants as beneficiaries.
If state law or insurance company policy does not permit this practice, the other occupants will need to purchase their own policies. The renters insurance agent should be able to clarify this issue.
Most renters insurance policies exclude flood damage from coverage. Therefore, the renter must pay out-of-pocket for these often expensive repairs. Renters should consider purchasing a separate flood insurance policy for a property located in a flood-risk area.
Renters insurance policies typically exclude earthquake damage from coverage. Renters located in earthquake-prone areas should consider the purchase of separate earthquake insurance. Alternatively, the renter can add this rider to an existing renters insurance policy.
Ongoing Mold Damage
Renters insurance is designed to cover damage from unexpected severe events. In this case, coverage would likely apply for a burst pipe that floods the rental home’s kitchen and results in widespread mold growth. However, coverage will not apply for mold that results from poor home maintenance or neglect.
Most renters insurance policies do not cover infestations from insects, rodents, or other pests. However, a few specific insurers offer this coverage. Renters are advised to consult with their insurance agent.
Heath Ritenour on Obtaining the Right Amount of Renters Insurance
To choose the proper amount of renters insurance, renters should carefully consider two issues. First, they should determine a realistic value for their personal possessions.
Grouping items into categories and arriving at a value for the group will save considerable time. Photographs and purchase documentation are advisable for large and/or expensive items. Home inventory apps will help to streamline this process.
The renter should also consider their savings and other financial assets. Naturally, the renter wants to avoid depleting these resources because of potentially expensive incidents on the rental property. A well-crafted renters insurance policy, such as one from Heath Ritenour’s Insurance Office of America, will provide comprehensive coverage. In addition, the renter can add certain riders to cover specific situations. Collectively, this renters insurance coverage will provide concrete benefits along with the peace of mind.