Renters Insurance Guide for Dummies

So you’re smart enough to know you need renter’s insurance, but perhaps you don’t have the time or the inclination to pore over the nuances of the topic. You just need the basics to inform your policy and coverage decisions. If that sounds like you, this post is for you. In what follows, we’ll give you a basic overview of renter’s insurance to help guide you in your search for a policy.

What It Does

Renter’s insurance essentially does much the same thing as homeowner’s insurance in that it is a type of property and liability insurance. However, renters are in a unique situation because their landlords’ policies usually cover structural damage to their buildings, so that just leaves their personal belongings to be insured. Tenants’ possessions are not covered under landlord policies, nor is liability if you are found to be at fault for some mishap or injury. Here are the things a standard renter’s policy will cover:

• Fire or lightning
• Windstorm or hail
• Riot or civil disturbance
• Explosion
• Damage caused by vehicles or aircraft
• Vandalism and theft
• Weight from snow, sleet, or ice
• Wind damage

Types of Coverage

Aside from how much coverage you want and what deductibles you chose, the main decision you have to make vis-à-vis renter’s insurance is whether to purchase actual cash value or replacement cost coverage. These two types of coverage refer to how you will be reimbursed for any losses or damages to your personal belongings. With actual cash value coverage, the insurance company will only give you what the item is worth today, which means they subtract depreciation from the item’s original value. For example, if you bought a $500 computer three years ago, it probably would not be worth much today by actual cash value standards. Even though you would have to spend at least $500 to buy the computer new today, your insurer would only reimburse you for the item’s worth. With replacement cost coverage, on the other hand, your insurer would give you what it would cost to replace the lost or damaged item new today. Replacement cost coverage is more expensive, but it’s probably worth the higher premiums.