How does renter’s insurance work?

In a nutshell

Renter’s insurance provides important financial protection if your personal belongings are damaged, destroyed, stolen, you’re held liable for someone’s injury or property damage, or you’re forced to pay for a hotel and other extra expenses because your rental unit is damaged.

What is renter’s insurance?

For many people, renting rather than buying a home makes more sense than ever. A 2023 study by Redfin found that the cost to rent a home in most cities is now less than the cost to own one, thanks to the surge in real estate prices and higher interest rates. Beyond the economics, many renters value the freedom offered by renting. Renters can pick up and move much more easily than homeowners, and they rarely have to worry about home maintenance and upkeep.

Still, a renter does have responsibilities. Among them is the need to protect yourself financially with renter’s insurance. It’s essentially a modified homeowners insurance policy that covers your personal belongings but doesn’t provide coverage for the structure of the building in which you live (that is the landlord’s responsibility). A renter’s insurance policy also provides personal liability and additional living expense coverage.

Let’s take a closer look at how renter’s insurance works.

What does renter’s insurance cover?

Similar to a standard homeowners insurance policy, a renter’s insurance policy includes multiple coverages. Each provides financial protection in a specific situation.

Personal property coverage

Personal property coverage reimburses you if your belongings are stolen or damaged or destroyed by fire, severe weather, explosion, vandalism, a water leak, or other incident.

Covered items may include things such as:

• Clothing.
• Furniture.
• Electronics/computers.
• Jewelry.
• Artwork and home décor.
• Any kitchen appliances you own.
• Bicycles, skis and other sports equipment.
• Hobby equipment, such as musical instruments.

A renter’s insurance policy typically provides reimbursement for these items based on their depreciated value, also known as actual cash value or ACV. However, many policies offer optional replacement value coverage, which bases a claim payout on the cost to replace the damaged item with a brand-new item.

Personal property coverage has a maximum amount the insurer will pay if you have a claim. You choose the limit when you buy the policy. The higher it is, the more you’ll pay.

Personal property coverage also has a deductible. You select it when you buy the policy. The insurer usually provides options ranging from $250 to $2,500. When you file a claim, the insurer will subtract the amount of the deductible from any payout.

For example, say you buy a renter’s policy and choose a $500 deductible. Six months later a kitchen fire destroys some of your furniture and electronics, with the total valued at $5,000. The insurer agrees on a $5,000 claim settlement but pays you only $4,500 after subtracting your deductible. The remaining $500 needed to replace the damaged items will come from your own pocket.

Choosing a higher deductible means you pay more out of pocket in this situation. However, a higher deductible typically results in a cheaper insurance policy. Conversely, choosing a lower deductible means less out of pocket when you have a claim, but you’ll pay more for the policy.

Personal liability coverage

Personal liability coverage pays if you’re held responsible for another’s injury or property damage. Typically, this applies whether the incident occurs on or off the property.

For example, say you’re hosting a party at your rented home. One of your guests slips on a spilled drink and smacks her head on the hard floor. After an ambulance ride, emergency room visit, several X-rays and a follow-up doctor’s appointment, the guest receives bills totaling several thousand dollars. She decides to sue you, claiming you showed negligence by not maintaining a safe environment in your home.

This is when your personal liability coverage would kick in. You’d file a claim with your insurer, and the insurer might agree to cover the cost of the medical bills and any legal bills associated with the lawsuit.

Personal liability does not have a deductible, but it typically has a coverage limit. The Progressive Casualty Insurance Company notes that most companies offer three standard limits: $100,000, $300,000 or $500,000.

Additional living expense coverage

Additional living expense coverage helps reimburse your costs if your rental unit is damaged or destroyed and you’re forced to find alternate accommodations. This can help you pay for things such as a hotel or temporary apartment, dining expenses in excess of your normal grocery or restaurant budget and laundry services. The coverage does not have a deductible, and the amount is usually based on a percentage of your personal property coverage, typically 20%.

Medical payments coverage

Medical payments coverage helps to defray the cost of various expenses if someone is injured on the property. These include ambulance fees and hospital bills. The coverage applies regardless of who is at fault in the incident that caused the injury. It typically applies only to injuries suffered by guests on the property, not to you or other members of your household.

What does renter’s insurance not cover?

As you can see, a renter’s insurance policy provides coverage for a wide range of common situations. Still, it does have some limitations — things that it just won’t cover. These often include:

• Flooding: A renter’s insurance policy may cover damage caused by a burst pipe or an overflowing toilet, but it won’t provide coverage for watershed flooding (for example, a flooded river). If your rental unit is in a flood zone, consider purchasing a separate flood insurance policy.
• Earthquakes: A standard renter’s insurance policy usually won’t cover damage caused by earthquakes. However, many insurers can add earthquake coverage to your renter’s policy or offer it to you as a separate policy. If you live in an area prone to quakes, discuss your options with your insurer.
• High-value collectibles: Your policy may provide only limited coverage for expensive jewelry, artwork, firearms, or other items items. However, many insurers offer optional riders that can boost coverage for this type of property.
• Business property: If you run a business out of your rented home or use it to store inventory, you should consider buying an additional business insurance policy.
• Injuries caused by pets: Your policy’s personal liability coverage may have strict limits when it comes to incidents related to your pets. Check your policy carefully to understand what it will and won’t cover.
• Pest damage: Damage caused by insects, rodents and other pests is typically not covered.
• Intentional damage: Don’t expect your renter’s insurance policy to provide coverage if you intentionally damage the property.
• Normal wear and tear: A renter’s insurance policy typically does not provide coverage for damage related to wear and tear or neglected maintenance.

Finally, keep in mind that a renter’s policy does not cover the structure of the building, roof, siding, walls, flooring, or any permanent appliances or fixtures within your unit that are owned by the landlord.

Is renter’s insurance legally required?

In general, renter’s insurance is not required by federal or state law. However, it’s not uncommon for landlords or property management companies to require tenants to buy renter’s insurance, with mandated minimum levels of coverage, as a condition of the lease.

The landlord may even insist on being listed on your policy. Why? It provides them with added protection if you’re sued and they are dragged into the lawsuit.

Do you need renter’s insurance?

Even if your landlord does not require rental insurance, it’s something you should consider. Look around your home and add up the cost to replace your belongings: clothing, electronics, sports and hobby equipment, etc. Is this a cost you want to bear if there were a fire or some other catastrophe?

How much does renter’s insurance cost?

The good news is that renter’s insurance is fairly affordable. According to a recent study by MarketWatch Guides, the average annual cost of a renter’s policy in 2024 is $180. That’s less than 50 cents per day. Here are rates from several popular companies mentioned in the study.

Rates are based on having personal property coverage with a $30,000 limit. Be aware that your rate may vary from what is shown here.How to get renter’s insurance

There is more good news: Renter’s insurance is also fairly easy to buy. As when shopping for any type of insurance, it’s a good idea to check with at least three or four companies. Renter’s insurance rates vary as shown above, so shopping around can help you be sure to get the coverage you need at the lowest possible price. When doing so, consider the following strategies.

Check with your auto insurer

Many car insurance companies, including leading providers such as State Farm, Progressive and GEICO, also sell renter’s insurance. It’s also typical for companies to offer a “bundling” discount for buying both policies.

Get quotes online

The internet can be your ally when comparison shopping for renter’s insurance. Many companies such as Lemonade offer fast and free online quotes. Just be sure that as you move from company to company, you’re quoting the same coverage limits and deductibles to ensure an “apples to apples” comparison.

Contact an independent agent

Independent insurance agents typically represent multiple insurance companies. They’re not only insurance experts who can help you get the coverage you need; they also can shop among the carriers they represent to help you get the lowest price. The bottom line is that you save time and effort and are even more confident that you have the right policy for your needs.

How much renter’s insurance do I need?

As you shop for a policy, you’ll want to have a good sense of your coverage needs. An important step is to complete an inventory of your possessions. This should include each item’s age and current value. You may also want to take pictures of items and save any receipts. Such an exercise can help you determine the overall value of your possessions, which can, in turn, help you calculate an adequate personal property coverage limit. Insurer State Farm has additional tips for completing an inventory.

You should also consider your personal liability. Renter’s policies typically provide a standard limit of $100,000 for personal liability coverage. If you entertain frequently or have savings and other assets in excess of your policy’s standard limit, consider bumping up that amount.

What else should you look for in a renter’s insurance policy?

Aside from ensuring that you get the amount of coverage you need, there are a few things you’ll want to consider as you shop for renter’s insurance.

Discounts

See if your insurer offers discounts for things such as paying in full, bundling with other policies, or living in a home with a security system and smoke detector.

Reputation

Third-party reviews can give you a strong sense of a company’s reputation and commitment to customer satisfaction. J.D. Power’s annual home insurance study includes a category for renter’s insurance companies. You can also find consumer reviews of insurers on sites like Trustpilot.

Financial strength

Buying from a company with a high level of financial strength means you can be confident the company will be there for you when you have a claim. Ratings by AM Best are the most widely respected indicators of such strength. You have to have a subscription to see the ratings, but insurers will often publish their AM Best ratings on their websites.

Is renter’s insurance tax deductible?

Renter’s insurance is generally not tax deductible. However, if you dedicate space in your home to running a business, you may be able to include a portion of your renter’s insurance premium as a tax-deductible business expense. Be sure to consult with a certified tax professional or an accountant to better understand your options when filing your taxes.

The AP Buyline roundup: Renters need insurance, too

Just because you rent doesn’t mean you don’t deserve to have the peace of mind insurance can offer. A renter’s insurance policy provides financial protection if your personal possessions are stolen, damaged or destroyed. It can also help you if you are sued or forced out of your home while it's being repaired. Fortunately, it’s easy to buy and fairly affordable.

Frequently asked questions (FAQ)

Is the renter responsible to pay for renter’s insurance?

Unless a landlord is particularly generous, the renter is responsible for buying and paying for renter’s insurance.

What does State Farm renter’s insurance cover?

State Farm renter’s insurance covers the tenant’s personal belongings, financial liability if the tenant is accused of unintentionally harming someone or damaging their property and loss of use if the rental unit cannot be occupied.

How much does GEICO's renter’s insurance cost?

According to another recent study by MarketWatch Guides, GEICO renter’s insurance costs an average of $22.34 per month ($268.08 per year).

How much does Allstate renter’s insurance cost?

Allstate is charging an average of $14.16 per month ($169.92 per year) for renters insurance, according to the same MarketWatch Guides study.

What is personal liability coverage for renter’s insurance?

The personal liability coverage on a renter’s insurance policy applies if you’re held liable for someone’s injury or property damage. Imagine that you’re sued by a handyman who’s injured after falling off a ladder while doing work at your rented home. Your personal liability coverage could help pay for the damages and any legal fees.

How does a renter’s insurance deductible work?

The personal property coverage on a renter’s policy typically has a deductible. When you buy a policy, you select the deductible amount from options provided by the insurer, usually in increments between $250 and $2,500. Then, if you file a personal property claim, the insurer will subtract the amount of the deductible from any payout.

For example, say you purchase a policy with a $250 property damage deductible. One night a water leak damages your brand-new laptop beyond repair. You file a claim, and the insurer agrees to a $1,500 settlement. They send you a check for $1,250 to put toward a new laptop. You pay the remaining $250 out of pocket.