No matter where you live, unexpected events can happen and cause damage to your home and property. As a renter, you can buy a renter’s insurance policy to cover you and your property in the event of an accident like a building fire, water damage or vandalism. Although renter's insurance is usually not required, it is something every renter should have.

What is renter’s insurance?

Renter’s insurance is an insurance policy that protects renters from property and liability risks. A renter’s policy will protect your personal possessions inside the rental property — things like furniture, electronics, jewelry and anything else you personally own and bring into the rental property. If you rent an apartment and there is a fire or other destruction in the building, your personal property could become damaged. A renter’s policy will cover the costs of repairing or replacing that damaged or destroyed property.

Why do I need renter’s insurance?

Renters insurance is a necessity for anyone renting or subletting a home — house, townhouse, duplex or apartment. If you rent your residence, you don’t have to worry about insuring the building. That is the landlord’s responsibility. Anything that you keep inside the rental property, your possessions, is your responsibility to cover. If your apartment had a flood or fire, you could suffer a significant financial loss — being stuck with the high costs of replacing your property. Renter’s insurance protects you from this financial loss.

Another thing renter’s insurance can help you do is protect yourself from personal liability if someone in your rental home is injured — a guest or a neighbor, for example. Lawsuits can be very expensive, so it’s wise to carry liability coverage as part of your renter’s insurance. That will protect you from being liable or legally obligated to pay expenses that result from the injury, up to the amount of coverage.

What does renter’s insurance cover?

When you work with an insurance agent to purchase renter’s insurance, you’ll determine the amount of coverage you need and what you need to be insured against. Your renter’s insurance policy will state exactly what you're insured against. In the insurance world, it's known as named peril coverage.

The named perils in your renter’s policy may include some of the following:

• Fire or lightning
• Wind
• Smoke
• Accidental water damage
• Vandalism
• Theft

A renter’s insurance policy does not cover everything. Most insurance policies will not cover major weather-related floods or earthquake damage. If you live in high flood or earthquake risk areas and want to protect against those risks, you will need to purchase additional riders. If you live in an area that does not have major weather-related events or other natural disasters, you may only need to get basic named peril coverage.

How much renter’s insurance should I buy?

Once you determine your need for renter's insurance, knowing your options will help you choose the best policy. Below are some things to consider when purchasing your renter's insurance policy.

Amount of coverage

You need to determine the amount of your insurance policy. When you do this, you should carefully consider the costs of everything you have in your home. If you are robbed, you will likely only need to replace jewelry and electronics. If you are the victim of a fire, then you will need to replace your clothing, your furniture and other personal effects in addition to your electronics. The cost of that can be surprisingly high, so be careful not to under-insure.

To be sure you are reimbursed for all damaged and destroyed property, you should complete a household inventory of all types of personal possessions such as furniture, furnishings, clothing, appliances, utensils, artwork, and other personal property.

Even if you feel your personal property is not worth enough to insure, the value of having liability coverage is well worth the low price of renter's insurance. Remember, as with all insurance policies, check with your insurance agent on specific coverage. Each policy can vary between companies and states.

• See also: Homeowner’s insurance

It also is important to read your policy carefully. Some insurance companies put a limit on the amount that they will cover, or require an itemized listing in certain categories of items — diamond jewelry or artwork for example — and you might need to purchase additional coverage for those items. If you work from home, be sure liabilities resulting from that use (client visits, for example) is covered and consider the cost of the equipment that you use and keep in your home.

If you have valuable possessions in your home, in storage or carry with you when you travel, you might have to buy special coverage for these items called a personal property floater. A personal property floater is coverage for property wherever it may be located. Most people buy this extra coverage to protect specific items of high value, such as expensive jewelry, coin and stamp collections, fine art, musical instruments and more. Since you are compensated if your jewelry were stolen when on a vacation, a floater requires a detailed description of the items and appraisals to verify their value. Tell your insurance agent about your most valuable possessions to find out if you need extra coverage.

Deductible

The deductible is how much you pay out of pocket before your insurance kicks in. However, you usually don’t have to pay a deductible for liability coverage.

Actual cash value and replacement cost coverage

A basic policy will pay you the actual cash value (ACV) of your personal property — the value of the property at the time of loss minus depreciation (wear and tear). But, you can opt for a policy with replacement cost coverage, which means you will receive a comparable replacement of your damaged item. Replacement cost coverage is well worth the small amount more it may cost for your policy.

Location of rental

If you rent in an area prone to theft, you might pay more for your insurance and may raise the costs of purchasing a policy.

How do I buy renter’s insurance?

You can purchase renter’s insurance from many different insurance companies — just call around to a few agents in your area and ask for quotes over the phone. It’s a relatively inexpensive policy and you may be able to get an insurance discount if you purchase renter’s insurance from the same company you use for other insurance, like car insurance, if you have it.

Here are some online sources for comparing renter’s insurance rates:

• RentersInsurance.net: www.rentersinsurance.net
• netQuote: www.netquote.com/nq/rm-general.aspx
• InsWeb: www.insweb.com
• Insurance.com: www.insurance.com

Words to know

Unsure about something you read? Many of the financial terms you came across in this article are defined in our financial glossary. A-Z Glossary

Links we like

Here are a couple online features you might find useful:

• Insurance Research Council: www.ircweb.org
• Consumer Watchdog: www.consumerwatchdog.org
• RentersInsurance.net: www.rentersinsurance.net
• netQuote: www.netquote.com/nq/rm-general.aspx
• InsWeb Corporation: www.insweb.com
• Insurance.com: www.insurance.com