Renters Insurance: How Pennies a Day Can Save You Thousands
Do you have renters insurance? Have you ever even heard of it? If not, you’re certainly not alone as surveys have found that less than 40% of those who rent carry a renters insurance policy. When you consider the fact that 95% of homeowners have homeowner’s insurance, it’s clear to see that renters insurance has a real awareness problem.
Despite its apparent lack of popularity, I’ve had quite a few random run-ins with renters insurance over the years. As I’ve mentioned before, the first of these encounters came while watching an episode of Friends. In this particular episode, Rachel’s father is appalled to learn that the Manhattanite doesn’t have a renters insurance policy of her own. Years later, I ended up participating in a focus group where I offered State Farm my insight on how they could explain the concept of renters insurance to others my age.
Even after those events, it wasn’t until I moved to Missouri when I finally decided it was time to look seriously at renters insurance. That’s when I discovered how inexpensive it really was. Given this realization, I want to take an in-depth look at renters insurance — including what it is, how it works, how to save money on your policy, and more — in hopes that you won’t put off purchasing this important product as long as I did.
Common Renters Insurance Questions
What is renters insurance?
Renters insurance is a policy that’s specifically intended to meet the needs of those who rent their homes as opposed to those who own property. While homeowners insurance policies may mostly be intended to cover damage to the houses and structures themselves, renters are rarely responsible for such things. Because of this, renters insurance policies instead focus on protecting what is in the home — e.g. your possessions.
What does renters insurance cover?
Similar to other types of insurance, there are many different types of renters insurance policies and customers may be able to select the specific types of coverage they’d like. However, a basic policy will still cover your belongings against a number of incidents. From fire damage to theft, you’ll be able to make a claim and be reimbursed if your possessions are affected.
- Renters insurance policies will protect your stuff from these events and more:
- Fires and lightning
- Windstorms, tornados, and hail
- Damage by aircrafts
- Damage by vehicles
- Smoke damage
- Volcanic eruptions
- Falling objects
- Weight of snow, ice, sleet
- Frozen plumbing damage
- Electrical short-circuit damage
What else do renters insurance policies cover?
Something that really surprised me when I first learned about renters insurance is that your items do not need to be damaged at or stolen from your home in order to be covered. Say you’re at a coffee shop and leave your laptop behind only to find it’s been stolen by the time you return. In this case, you could still file a renters insurance claim since the policy covers your possessions regardless of location
Another important aspect of renters insurance is that it may also cover expenses you incur from having to temporarily relocate. Say a fire in your apartment building spares the majority of your items but leaves your unit damaged enough to require a hotel stay until repairs can be made. Once again, this is where your renters insurance policy might be able to help out in cases where your landlord may not be required to cover such displacement costs.
Finally, many renters insurance policies also include liability protection. In short, this coverage is important in the event someone is injured on your property — whether by tripping over a hazard, dog bite, or other incidents you may be legally responsible for. Your coverage would help cover medical expenses as well as any legal fees you may incur up to your coverage limit.
What isn’t covered?
For all that renters insurance does cover, there are some things that it doesn’t — at least not in a basic policy. Two prime examples are floods and earthquakes. In both cases, you may be required to upgrade your policy or retain additional coverage to protect your items against these “acts of God.” You’ll also want to read your policy carefully to better understand what scenarios you’re protected against and which you’re not.
Is renters insurance required for renting?
Unlike in many states where car insurance is required in order for residents to register their vehicle and drive it, there are no laws mandating that you purchase a renters insurance policy in order to rent a property. That said, there are some landlords and rental companies that may make it a requirement of your lease terms. Moreover they may have coverage minimums you’ll need to meet in order to rent from them.
With that said, even if you aren’t required to have renters insurance, it’s often a good investment. That’s because, while it protects you from a number of financial disasters, policies can actually be quite affordable.
How much does renters insurance cost?
This is a tough question to answer because rates can vary greatly by location, insurer, and more. However, according to ValuePenguin, monthly premiums can start as low as $10 a month, with most policies costing less than $20 a month. Overall, the average renters insurance policy comes in at $187 a year, which works out to about $15.50 a month.
States with the highest average policy prices include Mississippi, Louisiana, Alabama, Oklahoma, and Texas where storms and flooding are of higher concern. In Mississippi, the average renters insurance policy costs $244 a year or just over $20 a month. Meanwhile states like North Dakota, South Dakota, Wisconsin, North Carolina, and Utah maintain lower than average policy pricing as concerns over earthquakes and hurricanes are minimal. The average renters insurance policy in North Dakota is just $115 a year — about $9.58 a month.
How are premiums priced?
An important note when talking about average policy prices is that they will vary depending on the amount of coverage you choose. For example, just like with other types of insurance, you can elect to pay a higher premium (the amount you pay each month for coverage) in order to have a lower deductible (the amount you’ll pay out of pocket before your insurance kicks in when making a claim). As mentioned, you may also wish to add protections to your policy to ensure you’re covered against floods and earthquakes, which can raise your premium price.
Given the affordability of most renters insurance policies, it’s often worth looking into lower deductible options when possible. Additionally, in the section below we’ll explore a few ways you can save money on your renters insurance policy and get even more for less.
What’s the difference between replacement value (RV) and actual cash value (ACV) policies?
Speaking of factors that can affect your policies premium, you may be asked to choose between reimbursement options: replacement value (RV) or actual cash value (ACV). Essentially what this means is, would you rather be reimbursed for what it would cost you to buy brand new versions of your damaged items or receive the amount it would cost to purchase items in comparable condition to what they were before the qualifying incident? With an RV policy, you’ll be reimbursed for what the item goes for new while an ACV policy will factor in depreciation, wear and tear, etc. and reimburse you for just that amount. In either case, any deductible will also affect your payout.
Just as increasing your deductible can lower your premium, so can choosing an ACV policy plan over an RV one. Of course, if you don’t mind spending a little more in order to have your items truly covered, a replacement value renters insurance policy is probably the way to go.
With all that said, one slight misconception about replacement value policies is that your payout will be equal to how much you paid for the item in question. That’s not exactly true as you’ll likely only be paid the value of replacing that particular item — not a newer model — and prices can change over time. A great example of this is, say you paid $1,000 for a new iPhone 11 last year. If you file a claim for your phone and it now retails for $900, your payout would only be $900 (minus your deductible). Obviously this is probably still better than the actual cash value you’d receive but it’s worth noting nonetheless.
Are roommates, spouses, and significant others covered under my renters insurance policy?
Although policies will typically cover the possessions in your home or apartment, that doesn’t necessarily mean that stuff belonging to your roommate is automatically covered. In fact, the majority of policies won’t include coverage for roommates — at least not by default. Therefore you’ll probably want to advise your roomie to get their own policy just in case.
Of course, things may be a bit different if your roommate is your spouse. While you’ll still want to double-check, typically renters insurance companies will allow you to add your spouse to your policy for no extra charge. Meanwhile, when it comes to “significant others,” things are a bit vaguer. For example, while Lemonade allows spouses to be covered for free, there’s an additional charge for significant others (and regular roommates just need to purchase their own policies). So, once again, it’s best to consult your potential insurer to make sure you understand not only what your policy includes but also who it includes.
Saving Money on Renters Insurance
Bundle renters with auto insurance
One of the easiest ways to obtain renters insurance and score yourself a discount in the process is to bundle your policy with your auto insurance. Many top insurers offer both products, while others may partner with another company to offer bundled services. For example, while my auto-insurance is through Geico, my renters insurance policy is actually with Assurant. However, thanks to Geico’s arrangement with Assurant, I still receive a small break on my auto insurance for having a renters policy.
While bundling with your current auto insurance is an obvious first choice, it may not always be the cheapest option out there. That’s why you’ll still want to shop around for a few quotes and see if you may be able to save more money elsewhere.
When shopping around for quotes, make sure it’s an apples to apples comparison. This includes entering matching deductibles, understand what features are included and which you’ll want to add, and more. Additionally, while it is annoying to receive e-mails or even snail mail from multiple companies you’ve requested quotes from, it is important to enter accurate information (since prices can vary by location) to ensure that you’re getting an accurate quote.
Look for discounts
Beyond bundling, there may be other discounts you can qualify for that will save you money on your policy. In some cases the insurer may have a relationship with certain clubs you’re a member of or businesses you work for. If there’s no luck on that front, others may offer you a slight discount just for signing up for their auto-pay feature.
Another way in which renters insurance is similar to auto insurance is that you may qualify for discounts based on what types of security features your home is equipped with. As time goes on, you may also be able to trim your premium a bit since some insurers give discounts to customers who haven’t made claims on their policies. Just keep in mind that every company is different so you’ll want to inquire about discounts while you’re doing your comparison shopping.
Adjust your deductible
This one comes with an asterisk as it can save you money in the short term but potentially cost you in the long run. As I mentioned earlier, most insurers will allow you to select from a number of deductible options. By raising your deductible, you’ll likely lower your monthly premium.
Say, for example, that your $1,000 computer is stolen and you put in a renter’s insurance claim. If your deductible is $200, your policy will provide you $800 to replace it. However, if your deductible is $1,000, you’ll end up buying your new computer completely out of pocket.
Keep this in mind as you’re looking to lower your premium and be sure to compare your options. In some cases, it may only be a couple of dollars more a month to have a much lower deductible, so choose wisely!
Know what you actually own
Finally another way you can save money on renters insurance is to have a realistic total of how much coverage you need. One of the ways policies are priced is by determining the value of what’s being covered. Because of this, if you presume you have about $20,000 in possessions when you actually only have $10,000, you could be overspending.
What Else You Should Know About Renters Insurance
Documenting ownership of your possessions
Speaking of knowing what you own, something you’ll want to do before applying for a renters insurance policy is to take inventory of what you own. Cataloging your belongings will not only be helpful when purchasing your policy but will also be extremely helpful should you need to make a claim. While you can always use a regular spreadsheet to keep track of everything, there are also smartphone apps like Encircle that can help make the process a bit easier. Considering how easy it is to take pictures and video these days, it’s probably a good idea to have those on hand as well. Also, for items you purchase over $250, it’s also helpful to keep receipts.
As I mentioned, Encircle is an app that makes it easy to inventory your home and, in turn, provide your insurer with plenty of info should you need to file a claim. Personally, there are a lot of cool features I think are worth mentioning.
First, the app allows you to sort your inventory by room. After selecting a new room, you can then add items while taking a photo of each. What’s nice is that, you can actually take all of the needed photos in row and then fill out the item data afterward.
Once items are added, Encircle also includes some handy features for documenting details — and even finding replacement value info. By tapping the Edit Details button, you can enter an item description, the manufacturer, the purchase date, and even the serial number and/or model number. There’s also a spot to include a photo of a receipt. As for replacement value, while you could simply add this info manually, tapping the Prices button (back at the item’s homescreen) will allow you to search the web to find your item. After selecting from a list of retail sites or just going with the Google option, Encircle will search for your item based on the description you provided. Then, as prices display on the page, they’ll be highlighted in yellow. All you need to do is tap the correct price and it will be automatically applied to your item.
Finally, while you could just use the app, there’s also a desktop site version of Encircle. By logging in, you’ll be able to sync your data from the app. This could be helpful for those who prefer to fill in the necessary item info using an actual keyboard instead of their smartphone screen. Also on the desktop site, you can generate a spreadsheet view of your inventory
All in all, while Encircle’s interface isn’t perfect, it definitely has some useful features that help you inventory your possessions. On that front, you may consider using the app to calculate the value of your items before taking out a policy so that you know how much coverage you need. But, since Encircle may not be around forever (although the service has been making regular updates as of June 2020), you may want to keep backups of all of the info you collect just in case.
Finding the Right Renters Insurance Policy
As I mentioned, a great place to start when looking to add a renters insurance policy is your auto insurer. Of course there are plenty of other options when it comes to obtaining a policy as well. Some popular providers include:
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You can also try out sites like Policygenius that will help you compare policies.
An Interesting New Option: Lemonade
One of the more interesting renters insurance companies around these days is Lemonade. Technically they operate under a peer to peer insurance model where premiums paid by members help fund claims from others (minus a flat fee that Lemonade takes to cover their operating costs). On top of that, the company donates any money left over in the fund to charity at the end of each year. For 2019, this amounted to $631,540.
The downside is that Lemonade is not yet available in all states. In fact, it’s only recently come to my resident state of Missouri. Having tried out their application process for myself and taken a look at their rates, I’ve been considering making the switch. Of course, I’ll also be keeping an eye on how they grow in the coming months and years.
Final Thoughts on Renters Insurance
Given the numerous benefits that renters insurance policies can provide, it’s truly surprising that more individuals don’t carry coverage. The bottom line is that, for likely less than $20 a month, you can help protect your possessions against damage and theft, allowing you to replace them with little out-of-pocket costs. Additionally, with liability coverage and displacement reimbursement, having renters insurance is not only responsible but smart. Therefore I’d recommend that all renters look into obtaining their own policies as soon as possible.
Also published on Medium.