Do I Really Need Renter’s Insurance?

TL;DR - if you rent, then yes, you should probably have renters insurance

If you are a renter, you may think that insurance is something only your landlord needs to worry about. However, the landlord’s insurance policy will only cover the cost of repairing the building and replacing items the landlord owns. The landlord’s insurance policy will not cover the replacement cost of all of your possessions. 

Even if you don’t have a lot of expensive items, having to potentially replace all of your possessions would be very costly.

How does Renter’s Insurance work?

If you have renter’s insurance and your property is stolen or damaged, you can file a claim with your insurance provider and they will reimburse you for those items. Depending on the type of policy, you may be reimbursed for the actual cash value (current value of the item) or the replacement cost (amount to purchase a new replacement). For example, if your couch is damaged, the actual cash value is essentially the amount you could have sold the couch for on Craigslist (before it was damaged) and the replacement cost is the amount it would cost to buy a new couch (same model) at the store.

As with most types of insurance, you will likely have a deductible. This means that you need to pay a certain amount out of pocket first before the policy benefits kick in. If you have a $500 deductible, the insurance will cover the costs over and above $500. Because of this, renters insurance isn’t much help if there is a very small amount of damage (ie a broken dish), but it becomes incredibly helpful in scenarios where there is extensive damage. 

When a loss happens, you will need to file a claim with the insurance company. You will provide details of what happened and what was damaged/stolen. Depending on the situation, you may also need to provide proof of the loss (receipts, photos, police report, etc). 

What else does Renter’s Insurance protect you from?

Beyond the replacement of your personal property, there are two other important elements to renters insurance, displacement costs and liability protection.

If your apartment is uninhabitable while it’s being repaired, your renter’s insurance can cover your Displacement Costs (additional living expenses). This may include the cost of staying in a hotel for a few nights, meals out, boarding for a pet, etc. 

Your renter's insurance policy will also provide Liability Protection. Suppose you are responsible for injuring someone or damaging someone’s property. In that case, your renter's insurance can cover the cost of medical expenses, replacing damaged property, or even the lawsuit and legal fees if you are sued (up to a set limit). This also applies if your children or your property are responsible for injuring someone (or damaging someone else’s property). 

How much does renter’s insurance cost?

Several factors will impact your actual premium costs (location, deductible amount, max policy payout, etc), but you can expect to pay between $10-$30/month for a typical renters insurance policy. 

While that amount isn’t nothing, $20/month isn’t THAT much if it prevents you from having to cover the cost of replacing all of your belongings out of pocket if an unfortunate event were to happen. 

And what if I don’t end up needing it? Isn’t it wasted money?

A common argument for not getting insurance (not just renter’s insurance) is that if you don’t end up needing it, the money is wasted. But that is kind of like saying that if you aren’t in a car accident today, the time you spent buckling your seatbelt was a waste. Statistically, it’s unlikely that you will be in a car accident or that your apartment will be burglarized TODAY. However, if routinely “wasting” the 3 seconds to buckle up or “wasting” $20 a month on renters insurance protects you from catastrophic outcomes in the scenario of a car accident, fire, flood, or burglary, you will be very relieved that you took steps to protect yourself. 

Building a strong financial foundation for yourself isn’t just about growing your assets. It’s also about protecting yourself from devastating situations. While we can’t protect against everything, having renters insurance is a small cost that can protect you from a major financial setback.