About 95 percent of homeowners have policies to cover theft and damage caused by fires, windstorms, and other natural disasters, but only 41 percent of renters carry equivalent coverage, according to the Insurance Information Institute.
There’s little reason not to get it: For the price of a few lattes a month, renters can cover their possessions, the cost of accommodations elsewhere if their home becomes uninhabitable, and liability for accidents on the premises. They just need to consider what kind of policy is best.
To help you find the right policy whether you’re a first-time renter, a longtime tenant, or a downsizing homeowner entering the rental market, consider these suggestions:
- Understand what the policy covers. When you have a renters policy, an insurer typically pays for damage to your personal property, the cost of staying elsewhere if your place is inhabitable (say, from smoke damage), and accidents for which you might be legally liable—for example, if a visitor gets hurt or has property damaged at your place and sues. Make sure any policy you buy covers all three.
- Take a close look at which “perils” are covered. Policies generally cover losses from a long list of unfortunate events including fire, theft, vandalism, smoke, hail, explosions, and riots. But some perils—notably earthquakes and floods—generally aren’t covered. If you’re at risk for these, you’ll need separate insurance.
- Realize, too, that renter’s insurance won’t help much when losses are business-related. If you have a lot of work-related items at home or people visiting for business, you may want additional insurance.
- Pick coverage limits that make sense for you. To get a sense of how much personal-property coverage you need, ask yourself, “How much is it going to cost to replace everything in my house right now, brand new?” People are often surprised by the value of what they own once they add it all up.
- Policies cover either the replacement cost of property or its actual value. The latter takes into account that older items may have lost value over time. You might save on your premium by opting for actual-value coverage, but it’s usually well worth the price to go with a policy that covers replacement cost, because that’s what you’ll have to pay to buy new things.
- Most policies limit how much insurers shell out for certain items (often valuable) such as jewelry, watches, furs, silverware, collectibles, firearms, and cash. It’s possible to add more coverage for these items, and it’s often smart to do so, but you’ll have to get that added to the policy—and pay more.
- On the liability side (if someone gets hurt while visiting you and sues for damages), we recommend buying at least $300,000 in coverage, even though many landlords require tenants to insure for only $100,000. The differences in price might be no more than $10 per year, and if something bad happens you’ll be glad to have the higher limit.
- By doing this, you’ll discourage yourself from filing small claims, because filing a lot of claims can increase the price you pay for insurance later. This can be particularly important if the next property insurance you buy is a homeowner’s policy. Because such policies are costlier, lower rates will translate into more savings.
- That said, there are few ways you might lower your rates after the fact. One is to make safety improvements, like installing a deadbolt lock or having a fire extinguisher and telling your insurer about it. You might also get a small discount, along the lines of 10 percent, for “bundling,” or buying your renters policy from the same agency as, say, your car insurance.