How Renters Insurance Works

Renters insurance is relatively inexpensive and can offer financial security in case of a disaster.
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Written by Sarah Schlichter
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Reviewed by Brenda J. Cude
Professor Emeritus, University of Georgia
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Renters insurance is designed to offer financial peace of mind for people who don’t own the home they live in. If your building catches on fire or your laptop is stolen, the payout from your renters policy can help get you back on your feet. Here’s how it works.

How does renters insurance work?

A standard renters insurance policy has four types of coverage, each designed to pay for different expenses. One type of coverage would pay out if your belongings were destroyed in a fire, for example, while another type would cover your legal expenses if someone sued you.

Each section of your policy will pay only up to the limit of that coverage. The higher the limits you select, the more expensive your policy will be. But a policy with higher limits will offer more financial protection.

These are the four coverage types you’ll find in most renters insurance policies:

Type of coverage

What it does

Covers your clothing, furniture, electronics and other belongings.

Pays for hotel stays, restaurant meals or other expenses if you have to live elsewhere while your home undergoes covered repairs.

Pays out if you're responsible for injuries to other people or damage to their property.

Covers injuries to other people in your home, regardless of fault.

You can also add other types of coverage to these basics. For more details, see our complete guide to renters insurance coverage.

If something happens that you think your policy should cover, you’ll have to file a claim with your insurance company. Depending on your carrier, you may be able to do this online, through an app or by phone.

Provide as much detail as possible to support your claim, including photos or video of the damage, if applicable. A police report may be required for theft claims.

Your insurance company will review your claim. If it’s approved, the company will reimburse you for the damage, minus your deductible. For example, if you have a $1,000 deductible and a claim for $5,000 in property damage, your insurance company will pay $4,000.

🤓Nerdy Tip

There’s generally no deductible for liability, medical payments or loss of use claims.

Is renters insurance required by law?

No, but some landlords require proof of renters insurance before you sign a lease, or within a certain time period. Usually, though, it’s your call.

If your worldly possessions amount to a futon, a coffee maker and a toothbrush, you probably don’t need renters insurance.

But for most renters, it can be a smart (and surprisingly affordable) investment. Having renters insurance could prevent you from paying out of pocket to replace everything that could be damaged or stolen: jewelry, TV, computer, furniture, clothing and so on. A landlord’s insurance policy won’t pay your living expenses while the building is under repair, but renters insurance generally does.

Do college students need renters insurance?

If you're in college, you may not need your own renters insurance as long as your parents' homeowners or renters policy covers your stuff and your liability. But you'll want to check the details.

In some cases, your parents' policy will apply only if you're living in campus housing, not if you have your own apartment off campus. It's also worth asking your parents' insurance agent whether coverage is limited up to a certain amount. If you have expensive computer equipment or a pricey musical instrument, for example, the amount might not be enough.

How much does renters insurance cost?

The average cost of renters insurance is $148 a year, or about $12 a month, according to NerdWallet’s rate analysis. Most insurance companies offer a discount if you bundle your auto and renters insurance policies. They might also reduce your rate if your apartment has a security system, smoke detectors or deadbolt locks.

If you’re looking for more ways to save money, consider raising your deductible. The higher your deductible, the cheaper your premium.

When deciding on a deductible amount, ask yourself: How much can you pay out of pocket if something went wrong? Note that you’ll pay the deductible each time you file a claim for personal items. Your rate is likely to increase after each claim, so weigh carefully whether to file one for an amount close to the deductible.

How to get renters insurance

Ready to buy a policy? Take these steps.

Evaluate your needs

Before you can buy renters insurance, it’s important to figure out how much coverage you need.

First, take stock of your belongings. To get an accurate idea of how much you have, go through each room and take a quick home inventory. (Don’t forget to open your closets and drawers.) Consider taking video of each room — it could be invaluable later if you need to make a claim. Estimate how much it would cost to replace all your belongings, and then round up to the nearest $10,000 to choose a personal property coverage amount.

The default limit for renters liability insurance is typically $100,000. This may be sufficient unless you have a higher net worth that you want to protect.

Finally, consider whether you might need extra coverage beyond standard renters insurance. For example, most renters policies won’t cover flood or earthquake damage. If you live in an area at risk for these disasters, you may want to buy additional coverage.

Research insurance companies

Most major U.S. insurers sell renters policies, including Allstate, Farmers, Geico, Progressive and State Farm. You may also want to consider newer insurance startups such as Lemonade and Toggle, which offer quick coverage, slick apps and affordable rates.

A good place to start researching is with your auto insurance provider if you have one. In some cases, the bundling discount you get on your car insurance can be enough to pay for most or all of your renters insurance premium.

For more ideas, check out NerdWallet’s list of the best renters insurance companies.

Shop around

We recommend getting quotes from at least three companies. You can search for quotes online or call an agent to discuss your options. For a fair comparison, make sure all the policies you’re looking at have the same coverage limits and deductibles.

You may also want to check whether each company will cover your belongings on an “actual cash value” or “replacement cost” basis. This determines how a potential claim would be paid out. Here’s the difference:

  • Actual cash value. With ACV coverage, you’ll be paid only what your items were worth at the time they were stolen or destroyed. For example, the suit you bought a few years ago for $300 is probably worth a lot less now — and an ACV payout wouldn’t be enough to buy a new one.

  • Replacement cost. If you opt for replacement cost coverage, you’ll get enough of a claim payout to buy brand-new replacements for your stolen or destroyed items.

Although replacement cost coverage may be a little more expensive, it could make a big difference if you ever need to file a claim.

Buy your policy

Once you’ve chosen a policy, you may be able to buy it online, through an app or over the phone. Renters policies generally have a 12-month term, though you can cancel them at any time.

If your landlord requires proof of renters insurance, they may ask to be listed as an “interested party” on your policy. That means they’ll be notified if you change or cancel your coverage.

You may also be able to simply share your declarations page with your landlord as proof of insurance. (The declarations page is the part of the policy that lists all your coverage limits.)

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