When a pipe bursts or a fire spreads from the unit next door, a tenant often learns the same thing: the landlord's insurance pays to repair the building and nothing else. According to the National Association of Insurance Commissioners, the group of state insurance regulators, a landlord's policy does not cover a tenant's furniture, clothes or electronics when they are damaged by fire, stolen or lost to another unexpected event. Covering those is what a renters policy is for.

The three parts of a renters policy

  • Personal property. Pays to repair or replace belongings that are damaged, destroyed or stolen. The NAIC says this is the most commonly purchased renters coverage.
  • Liability. Covers a claim or lawsuit if someone is injured, or someone else's property is damaged, because of an accident the renter is responsible for. It pays for a legal defense and for damages if a court finds the renter negligent.
  • Loss of use. Some policies pay additional living expenses, such as a hotel and meals, if the rental becomes unlivable after a covered loss.

Named perils or everything not excluded

The NAIC describes two common policy forms. A broad form covers a list of named events, typically fire, lightning, explosion, smoke, vandalism, theft and water damage from a building's plumbing or utilities. It is the most common form. A comprehensive form covers any cause of loss except those the policy specifically excludes, and its premium is usually higher. The policy's declarations page says which form applies.

Flood is a common gap. FEMA notes that most homeowners insurance does not cover flood damage, and a renter should check the exclusions in their own policy. Renters can buy contents-only flood coverage, up to $100,000, through the National Flood Insurance Program, which is administered by the Federal Emergency Management Agency, and coverage usually starts 30 days after purchase.

Two ways a claim is paid

How a policy values belongings matters more than most buyers notice when they sign up.

  • Actual cash value pays what an item was worth at the time of the loss, after depreciation, minus the deductible. The NAIC's example is a stereo stolen five years after it was bought: the payment reflects its current, depreciated value.
  • Replacement cost pays the cost of a comparable new item, usually after the renter buys it and submits the receipt. It costs more up front and generally pays more after a loss.

Many renters policies pay actual cash value unless replacement cost is added, so it is worth checking which one a quote includes.

What it costs, and the limits inside the policy

The NAIC puts typical renters premiums at $15 to $30 a month, depending on location, the size of the unit and the value of the belongings insured. Policies also carry special limits for some categories of property. Fine jewelry, art collections and similar high-value items may need a separate rider or floater to be covered at their full value. A college student living away from home may be partly covered under a parent's policy, often up to 10 percent of that policy's personal property limit, depending on its terms.

Before you buy or renew

A quick inventory makes both the purchase and any claim easier: walk through the rental with a phone, record what is there, and keep receipts for larger items. With that list, the questions for an insurer or agent are concrete: how much personal property coverage the inventory adds up to, whether claims are paid at actual cash value or replacement cost, what the deductible is, what the liability limit is, and whether any items need a rider.

This article reports rules, data and expert guidance. It is not legal, tax, insurance or financial advice. Talk to a licensed pro, your tax advisor or your insurer before you act on it.

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