A renter's insurance policy covers specific perils or risks that are common to individuals leasing residential properties from others. The main goal of all insurance policies is to help policy holders avoid major financial disruptions to their lives when losses occur. For example, if you have a fire in your unit and it damages your clothes, computers, and the neighbor's property, those will cost a lot to replace. When that does happen, your renter's insurance reimburses you and the neighbor for losses to help ease the financial burden.
A typical renter's insurance also excludes coverage for many perils that the insurers have decided are too risky for them to cover. Most are rare events, like earthquakes, but they do happen and unfortunately, if you have one of these losses, you are going to have to cover the burden yourself. Lower down in the article we list the primary perils that are generally not covered by renter's insurance.
Knowing what losses are and are not covered, as well as being aware of your optional coverages, should allow you to make the right decision on the type and amount of insurance that is appropriate for your situation.
The different types of losses noted here are standard to all renter's insurance policies, according to Greg Bowman, a Farmers Insurance Agent in San Diego. Those loss types are:
- Contents Loss On the Premises – These include your clothing, couches, TVs, computers, stereos, books, luggage, tableware, and any other normal items you own.
- Contents Loss Off Premises – These are the same items as the "on premises" items, but include those items that happen to be off your property when the loss occurs. Common items would be laptops, cameras, and bicycles. If they are stolen, damaged, or lost, they may still be covered by your renter's insurance policy even if these items were not on your property when they were damaged or stolen.
- Additional Living Expenses – This would cover living expenses above your normal expenses that are incurred as a result of having to move out of, or be temporarily displaced, from your current residence. For example, this would cover you if you had to live in a hotel for a week or more and primarily eat at restaurants during that time.
- Personal Liability Loss – This covers many issues, whether at your property or off premises, upon which you could get sued – examples are if your dog bites someone; if a visitor trips, gets hurt, and sues; or if your child hits a baseball that injures another child and you get sued. Your policy will have the specific details.
- Medical Payments Loss – This coverage is for payments to others who have been injured on your property or off your property as a result of something that you did.
- Property of Others Loss – This covers other people's property that was damaged due to a loss covered under your policy.
- Optional Coverages for Special Items – This is for items like jewelry, coins, furs, and antiques that have high values – discuss the limits on these with your insurance professional and purchase the proper amount of insurance. There are also other optional coverages if you have non-typical risks, like if you run a business or have substantial cash at the residence. Discuss these with your agent.
If You Have a Loss
- The insurance companies will pay to compensate you for the above categories when certain types of perils occur and cause financial or other damages to you, the policyholder. For example, if the rental unit next door to you has a fire and your personal property gets destroyed due to the fire, water, and smoke, your insurance company will compensate you. This is a covered peril. However, if there is a flood from a nearby river and your personal property gets destroyed due to the water, you will not get compensated by the insurance company because natural floods are generally not covered by standard renter's insurance. The points below shows general examples of what types of perils are covered and what types are not covered.
- Perils Covered – A typical renter's insurance policy covers financial losses from specific types of risks, like fire, theft, vandalism, smoke, burst pipes from freezing, fallen trees, windstorm, lightning, dog bites (certain breeds may be excluded from coverage by certain carriers), slip and fall accidents, and lawsuits (as long as they are not business related) due to your negligence and several other issues detailed in your policy binder. On many items, you are covered regardless of who is at fault, whether it is you, the neighbor, and even if no one is at fault. Your policy and insurance professional can explain the details.
- Theft and accidental damage to products are the most common claims on renter's insurance policies. The average theft claim in downtown San Diego is $2,564, according to Allstate Insurance. And another reason to carry coverage, though rare, is that liability claims average an astounding $60,000.
- Perils Not Covered – A typical renter's insurance policy excludes coverage related to earthquake damage, flood damage, many water-related issues, intentional acts, failure to take reasonable steps to deter a loss, vapors, wear and tear, rust, mold, toxic chemicals, rodents, damage to vacant units, construction issues, seizure by the government, and more.
The written policy binder that is provided to you when you purchase insurance has all of the terms and conditions that dictate your agreement with the insurance company. It is an extensive document that most people set aside and never review. We recommend that you take the time to read through it and understand what protection you receive for your insurance premium.
Know Your Policy Limits
There are also policy limits on the dollar value of coverage for each one of the above loss types. For example, you might decide that based on your personal situation, you should purchase a policy with a maximum personal property loss limit of $30,000. This means that even if you have a loss of $40,000, the insurance company will still only write you a check for $30,000. The higher policy amount you obtain, the better your coverage, but the higher the annual premium.
Understand Your Deductibles
One other choice you have when buying insurance is the deductible you choose. The deductible is the amount you pay for the first X dollars of a claim. If you have a $1,000 loss and a $250 deductible, the insurance company will give you $750. Higher deductibles mean lower risk to insurance company and fewer claims. Due to this, they come with lower premiums to you. State Farm Insurance notes that typical deductibles are $500, $1,000, and $2,000 for renter's insurance. You decide what deductible works for you.