Tenants often forgo renters insurance under the assumption that either they will be covered under the landlords insurance, or that it’s really not a big deal. But even though you don’t own the building, you still have valuables that may need to be replaced in the event of a disaster, and even potential liability to third parties.

You Aren’t Covered by Your Landlord’s Insurance

If you are a tenant you are NOT covered under your landlord’s homeowners insurance policy. That policy strictly covers the physical structure on the property – the residence and any relevant outbuildings. Since you aren’t the owner of the property, you are not entitled any benefits under the insurance policy.

If a flood or fire were to partially or completely destroy the building, any contents that you have inside will not be covered by your landlord’s insurance policy. For that reason you need to have your own insurance policy, also known as renter’s insurance.

What Renter’s Insurance Covers

Renter’s insurance covers your possessions that are inside the landlords building. This will include furniture, entertainment equipment, clothing, appliances, jewelry and other valuables that you own and store in the property. If the building is destroyed, your contents will be covered by your own insurance policy.

Renter’s insurance also covers theft, vandalism and utility malfunctions, all of which have the potential to destroy your personal property without having much of an effect on the landlords building,

It’s also important to understand that there are two major hazards that your renter’s insurance policy will not cover. These are damage caused by flooding and earthquakes. You can get coverage for those disasters, but they will be specific policies for that purpose. Also understand that like all insurance policies, renter’s insurance will only cover hazards that are specifically listed in the plan.

How Much Coverage Should You Have

Since you are not covering any real estate, your coverage can be far less than what it would be for a homeowners insurance policy. Your primary concern is sufficient coverage for your contents. There are two ways that your contents will be covered:

• Actual cash value. Reimbursement under an actual cash value policy will be for the depreciated value of your contents. For example, if you purchased a refrigerator for $1,000, and the unit is 10 years old and worth only $100, the insurance company will pay you $100 on loss, not the actual cost to replace the unit a retail basis.
• Replacement cost. Under this type of policy the insurance company will pay you the retail value of any possessions that were destroyed or stolen. It will pay the full replacement cost of an item, even if that item is 10 years old and has an actual value of only 10% or 20% of the retail cost to replace it.

How much coverage you need will depend on which of these two options you choose, and what the value of your contents are. Under actual cash value, you’ll need less coverage because depreciation reduces the value of your contents. Under a replacement cost policy, you will need a sufficient amount of coverage for the replacement of your contents at retail prices.

You should have an inventory of your possessions, including photos, so that you will have evidence to provide the insurance company in the event of a claim. You should also keep purchase receipts on any significant items that you need to have covered, such as high-priced furniture, entertainment equipment and jewelry.

Additional Coverage You May Want to Add

We already touched on adding flood or earthquake insurance if you are living in an area that is prone to those disasters. Another you may want to consider is personal liability coverage.

This kind of coverage will insure you if someone visiting your property is injured. It will cover any necessary medical expenses as well as legal costs in the event that the injury involves a lawsuit against you. Though your landlord’s insurance will cover most such liability cases, it is possible that someone can sit on a piece of broken furniture, or even slip on wet floor. Should such an accident occur, you will be covered.

Renter’s Insurance is Fairly Inexpensive

One advantage with renters insurance as compared to other insurance policies is that it’s pretty inexpensive. A stripped down policy can be purchased for as little $10 a month, and one with all the bells and whistles could be more like $40 or $50 per month.

How much money you will pay for a policy will depend upon how much coverage you will need, and additional riders you want to add. Adding liability insurance and flood or earthquake insurance, will put you at the higher end of the price range. A replacement cost policy is also more expensive than an actual cash value policy since it will provide larger reimbursements.

If you’re a tenant you should at least have minimal coverage to protect your contents and to cover you in the event of a personal liability situation. For a few dollars a month, you will be buying yourself peace of mind and protection in the event of a disaster.