How Does Renters Insurance Work?

How renters insurance coverage works
How renters insurance costs work
How getting renters insurance works
How paying for renters insurance works
How renters insurance claims and payouts work
How transferring and canceling renters insurance works

How renters insurance coverage works

Renters insurance coverage is a guarantee from your insurance provider that they’ll help pay for any costs you face as a result of a covered renters insurance peril. This extends to the cost of repairing or replacing your personal property and your living expenses if you’re forced to leave your home for a while.

Renters insurance also covers your guests’ medical bills if they’re injured in your home, and your own legal expenses if somebody sues you for injuring them or damaging their property (regardless of where that happens).

Renters insurance goes by a few other names, all of which mean the same thing and offer the same coverage:

What renters insurance covers

Renters insurance provides four types of coverage:

Renters insurance is pretty standardized, which means your policy will largely be the same regardless of which insurance company you choose.

To get a complete understanding of what renters insurance covers, you need to know a few basics about each of these four coverage types and when they apply.

1. Personal property coverage

Under this type of coverage, your renters insurance provider will reimburse you for the cost of repairing your belongings if they’re damaged by a covered peril, such as a fire. You can find a list of covered perils in your policy.

Moreover, renters insurance covers theft, meaning that your insurer will pay to replace your possessions if they’re stolen (even if they’re stolen outside your apartment).

Renters insurance coverage does have some exclusions. For example, your insurer won’t pay to repair or replace items that you lost or intentionally damaged yourself, or items that are damaged as the result of an excluded peril (discussed in more detail below).

2. Personal liability coverage

Every renters insurance policy comes with personal liability coverage, which covers your legal expenses if someone sues you for causing property damage or bodily injury. This coverage even extends to your pet under what’s known as pet liability insurance, meaning that renters insurance covers dog bites and any costs you face if your pet damages someone else’s things.

3. Guest medical coverage

This coverage is exactly what it sounds like — it’s medical coverage for anyone who visits your home. If you have someone over and they get injured or sick, your renters insurance will cover some of their medical bills, even if you weren’t responsible for their sickness or injury. Your insurer will usually cover between $1,000 and $5,000 of their bills, depending how much coverage you opt for when you buy your policy.

4. Loss-of-use coverage

Also known as additional living expenses coverage, the loss-of-use coverage in your renters insurance policy will pay for your accommodation, meals, and other additional expenses if a covered peril (like a fire or tornado) renders your home unlivable.

The amount of loss-of-use coverage you get is typically equivalent to 20%–30% of your personal property coverage. For example, if you have a policy that provides $30,000 in personal property coverage, your insurer will cover up to $6,000–$9,000 of your additional living expenses.

While there are limitations to what you can use the money for, your policy will generally cover the following:

Moving costs
Extra commuter costs
Meals
Parking
Laundry expenses
Pet boarding
Storage
Temporary accommodations (such as a hotel or Airbnb)

Bear in mind that your insurer will only cover expenses that you wouldn’t otherwise have had to pay. For example, if you normally spend $500 per month on food but you’re now spending $800 per month because you have to eat out in restaurants, your insurer will cover the extra $300, but you’ll be responsible for paying the $500 that you would have ordinarily paid anyway.

You should always check with your insurance provider to make sure that a given expense will be covered, because some companies impose certain restrictions. You should also make sure to keep all of your receipts because your insurer will need to verify your expenses when you file your claim.

What perils are covered by renters insurance?

As mentioned, renters insurance coverage is limited to certain situations. Most policies cover damage caused by the following perils:

Fire
Smoke
Explosions
Damage from vehicles or aircraft
Electrical malfunctions
Lightning damage
Theft
Vandalism
Wind damage (including tornadoes)
Many forms of hurricane damage
Volcanic eruptions
Certain types of water damage (e.g. burst pipes and overflowing toilets)
Hail
Damage from snow, ice, and other frozen water buildup
Falling objects or trees
Mold caused by a covered peril (like a burst pipe)

What perils aren’t covered by renters insurance?

Perils that aren’t covered by standard renters insurance policies include:

Earthquakes
Floods
Sump-pump failure
Sewage backup
Structural damage to your home

You can sometimes purchase extra coverage to get protection from those perils. However, structural damage to your home is always your landlord’s responsibility. Your renters insurance policy will never cover it because you’re not obligated to pay for it in the first place.

Named perils vs. all-risks policies

When signing up for renters insurance, bear in mind that there are two types of policies you can get: named perils policies and all-risks policies. A named-perils policy covers only the perils that are included in your policy terms, whereas all-risk policies cover everything that isn’t specifically excluded in your policy terms.

Most renters insurance policies offer named perils coverage. All-risks renters insurance policies are very rare.

How to get extra coverage

If you want more coverage than what you’d get with a standard renters insurance policy, you can get a rider or endorsement. Riders are optional add-ons that insurance companies offer for an additional fee.

This is something you should consider if you want protection from perils that are normally excluded, or higher coverage for specific items.

If you need more coverage for specific items

Renters insurance companies generally impose sub-limits on the amount of money you can claim for items in a certain categories, such as:

Cash
Jewelry and watches
Collectibles
Expensive appliances
Furniture
Fine art
Musical instruments
Electronics
Firearms
Business property
Clothing

For example, let’s say you have $30,000 in personal property coverage but your policy has a $1,500 sub-limit on electronics. If someone breaks into your apartment and steals your brand-new $2,000 TV, then your insurer will only give you $1,500 to replace it (and that’s before you subtract your deductible — so you’ll potentially receive even less).

You can get full coverage for that TV by getting a scheduled property rider to increase your electronics sub-limit (which also increases coverage for your other electronics), or by getting a specialized add-on known as a floater for the TV alone. These add-ons will increase your renters insurance premium, but it might be worth the peace of mind you’ll get knowing that your most valuable belongings are covered.

If you want coverage for excluded perils

If you want coverage for a peril that renters insurance doesn’t usually cover, then you may be able to add a rider to your policy to fill in the gaps in your coverage. Insurance companies differ in terms of the types of riders they offer, but these are some of the most common riders you can get:

Earthquake rider
Water backup rider
At-home business rider
Sinkhole rider
Flood rider
Identify theft rider (which also covers credit card fraud)
Cybercrime rider
Pet damage rider (to cover damage your pet does to your own property)
Assisted living care rider
Refrigerated property rider

How renters insurance costs work

The average price of renters insurance is around $20 per month, making it one of the cheapest types of insurance out there. However, costs vary widely depending on where you live, what insurance company you choose, and what level of coverage you need.

To get a complete understanding of how policy pricing works, you also need to understand what renters insurance deductibles and premiums are.

How premiums and deductibles work

Premiums and deductibles are the two fees that you have to pay for renters insurance.

Premium: This is the amount you pay your insurer each month for renters insurance.
Deductible: This is the amount of money you need to pay out-of-pocket to replace your property before your insurer will reimburse you for the rest.

Deductibles are a little more complicated than premiums, so to demonstrate how they work, let’s say you have a $500 deductible and your $2,000 laptop is stolen. When you file a renters insurance claim, you’ll need to pay $500 on your own. Your insurer will give you the remaining amount ($1,500).

Insurance companies usually offer different options when it comes to your deductible. Choosing a lower deductible means that you’ll need to pay a higher premium and vice versa.

Factors that affect the cost of renters insurance

As mentioned, the amount you pay for renters insurance depends on several factors. These include:

Where you live

Your location has a major impact on the cost of your renters insurance policy for two reasons. First, if there’s a high crime rate in your area, you’re more likely to file a claim due to theft or vandalism. Second, your location affects the risk that you’ll be hit by damaging (and expensive) natural disasters, such as:

Earthquakes
Heavy rainfall and storms
Volcanic eruptions
Tornadoes or cyclones
Wildfires
Hurricanes

Your credit score and claims history

Insurers usually run your credit when you apply for renters insurance, although there’s a handful of states where you can get renters insurance with no credit check. Unless you live in one of them, your insurer will probably charge you more if you have a low credit score.

Similarly, insurers consider your insurance claims history. If you have a history of filing frequent and expensive claims, you’ll have to pay more for a policy, and some insurers may decline to issue you one outright.

How much coverage you need

Of course, the cost of renters insurance depends on how much coverage you buy. Choosing a lot of personal property coverage or getting add-ons like riders, endorsements, or floaters will increase the amount you have to pay.

The price of your policy also depends on whether you opt for replacement cost coverage or actual cash value coverage. Replacement cost coverage usually translates to higher payouts when you file claims for damaged or stolen property because you’ll be given the amount of money it would cost to get a brand new replacement, whereas actual cash value coverage only covers your belongings up to the amount that they’re worth as used items.

The size of your deductible

As mentioned, your premium will be higher if you choose a lower deductible because it means your insurer will be responsible for covering a larger proportion of the costs if you have to file a claim.

The insurance company you choose

Renters insurance is much like any other product or service in that prices vary from company to company. The cheapest renters insurance provider depends on where you live and what your circumstances are. Some companies also offer discounts on renters insurance.

Note that price isn’t always an indicator of how comprehensive a company’s renters insurance policies are. Most insurers cover the same perils in their standard policies, so you might be better off going with the cheapest provider. Low prices don’t necessarily translate to poor service.

For a look at the prices offered by the top renters insurance companies in the US, check out our renters insurance reviews of:

How getting renters insurance works

You can get renters insurance online or through an agent. Your policy will go into effect immediately (unless you specify a later start date, which is a good idea if you haven’t actually moved into the home you want to insure yet).

The process of buying a policy is straightforward:

How to buy renters insurance

Buying renters insurance involves four steps.

Step 1: Figure out how much coverage you need

Make a home inventory to get an idea of how much renters insurance coverage you need to fully protect your possessions. If this sounds too daunting, you can just take note of your most valuable items, like your electronics, jewelry, etc. Take pictures of your belongings and record serial numbers and model types — these will come in handy if you need to file a claim.

Step 2: Gather quotes or call insurers

Once you’ve figured out how much personal property coverage you need, start collecting quotes from different providers. There are two ways you can get quotes:

Online: Visit the websites of various insurance providers and enter your details for a rough estimate of what their policy would cost you.
Through an agent: Call up an insurance agency or visit them in person and ask for quotes from different providers.

We recommend getting a quote online, as it tends to be quicker and easier (it usually takes under 10 minutes per insurer). If you have questions about your quote, you can always call the provider or stop by your nearest branch and speak with an agent.

Regardless of which approach you choose, you’ll need to provide the following information in order to receive a quote:

Basic personal info including your age, sex, marital status, etc
The type of rental unit you live in
Information about your building (e.g. its age) and its safety features
The total value of the belongings you want to insure
The amount of personal liability coverage ou want
Your insurance history
What riders or additional coverage you need

After you get your initial quote, you can experiment with adjusting your coverage and see how it affects your premium.

Step 3: Read the policies closely

After you’ve gotten a few satisfactory quotes, carefully read the terms and conditions of your chosen policies. Pay particular attention to each policy’s sub-limits, which is the area where renters insurance policies are most likely to differ.

Step 4: Purchase the insurance

The last step is to finalize your policy. Sign the agreement with your insurer, and pay the first month’s premium. Once you’ve done that, you’re all set.

How to renew renters insurance

Renters insurance policies generally last for a year. After that, your insurer will either automatically renew your policy or ask you if you’d like to renew it. If they renew it automatically, they’ll notify you before doing so, which gives you a chance to decline.

When it comes time to renew your policy, you should consider the following:

Rates: Your insurer might increase your rates for a variety of reasons, so you should check whether your premium will be higher with your renewed policy.
Coverage: If you’ve acquired more high-value property, you should talk to your provider about buying more coverage.
Discounts: Some providers offer renewal rewards or discounts. Talk to an agent to find out whether they offer any loyalty incentives.

While your rates and coverage can be adjusted online, you may need to speak directly with an insurance agent about discounts if none are listed on the company’s website. If you want to avoid visiting your insurance provider in person, you can call or email their customer service team.

If it’s been more than one year since you bought renters insurance and you aren’t sure whether your policy has been auto-renewed, you can access your insurance account online and check the “effective date” or “start date” on your policy.

How to prove you have renters insurance

Property managers and landlords often require tenants to have renters insurance. This helps to avoid disputes about liability. You can provide proof of renters insurance in the following ways:

Provide an online copy: Go to your insurer’s website and sign in to view your account details. They may have a button that says something like “proof or insurance” or “proof of policy,” which will allow you to download, fax, or print your proof of insurance.
Provide a physical copy: If for some reason you’re unable to get proof of renters insurance online, you can ask your insurer or agent to provide it for you. Make sure you get copies for yourself, your landlord, and anyone else who needs one.
Add your landlord as an interested party: When you add your landlord as an interested party to your renters insurance policy, they’ll be notified if you cancel it or make changes to it. Adding your landlord as an interested party does not extend your coverage to them or allow them to change your policy terms; it only grants them “observer status.”

How paying for renters insurance works

As mentioned, the payment you make for your renters insurance policy is known as your premium.

Many people pay every month, but you can also pay semi-monthly or annually. You may be able to get a discount on your renters insurance if you’re willing to pay for the full year upfront.

Insurers prefer this because it allows them to invest your entire yearly premium right away. It also eliminates the chance that you’ll forget to pay your premium.

Consequences for not paying your premium

Paying late (or failing to pay at all) puts you at risk in four ways:

Your coverage will lapse: Simply put, if you forget to pay for your policy, your insurer will stop covering you. You won’t won’t be able to file a claim if your belongings are damaged or stolen, if you need to relocate, or if you need personal liability or guest medical coverage.
Your insurer might cancel your plan: Your insurance provider has the right to cancel your policy if you’re too late with your payment. To find out what your grace period is, you can check out your insurer’s declaration page.
Future policies will be more expensive: When you buy insurance (any type of insurance), your provider will check your insurance history. They might charge you higher rates if you have a history of late or missed payments on your past policies.
Your credit score will suffer: Not paying your insurance premium on time, or not paying it at all, may negatively affect your credit score, and negative items like late payments can stay on your credit report for up to 7 years.

How renters insurance claims and payouts work

Filing a renters insurance claim can seem daunting at first, but it can be broken down into a relatively simple process.

How to file a renters insurance claim

If there’s an accident and you need to file a renters insurance claim, carefully follow these steps (in order):

Contact the authorities: If your personal property was damaged as a result of theft, vandalism, a fire, or another crisis, the first thing you should do is notify the authorities, e.g. your local police, the fire department, etc. If you file a police report, make sure to save a copy for your records.
Document everything: If your belongings were damaged or stolen, then you should document which items were affected and take pictures if possible. If you’re filing a claim based on a crime or injury, make sure to keep a paper trail of hospital visits, police reports, and any other relevant documents.
Contact your landlord: Regardless of whether your landlord is listed on your policy, you should notify them that an accident occurred on their property. Do this in writing.
Contact your insurer and file a claim: You can file a claim over the phone or in person, but many companies also allow you to file claims digitally through their website or mobile app. Clearly explain what happened and provide any relevant documentation (e.g. the photos and police report you collected in steps one and two).
Provide additional information: Your provider may ask you to provide further documentation, like an inventory of damaged property, purchase dates, and estimated values. To make sure you get a timely payout, provide your insurer with everything they request as quickly as possible.
Update your inventory: If your possessions were damaged or stolen, make sure to update your home inventory after you file your claim.

Your claim might take only minutes or hours to process, but be prepared for it to take longer if it’s complicated or expensive. In some cases, your insurance company may send somebody to your home to investigate your claim.

No matter what, file your claim as quickly as possible. Many insurance companies require claims to be filed within 48 to 72 hours of the incident in question.

What to do if your insurer denies your renters insurance claim

Your insurer might deny your renters insurance claim, although it’s unlikely if you’ve taken care to follow the steps outlined above.

Claims can be rejected for the following reasons:

You didn’t file it in time
Your insurer doesn’t believe your claim is legitimate
The accident wasn’t caused by a covered peril
The property in question isn’t covered by your policy (e.g. it belongs to your landlord)
The payout would be smaller than your deductible
Your policy wasn’t active because you canceled it or forgot to renew it

The easiest way to avoid these pitfalls is to file your renters insurance claim in an honest, thorough, and timely manner. Also make sure you update your information regularly, keep a detailed home inventory, and pay your premiums on time.

How do renters insurance companies pay out claims?

Once you’ve filed your claim, your provider will conduct an investigation. Once they’ve verified the details of the incident, they’ll send you a check or wire you money.

Replacement cost vs. actual cash value coverage

If you have actual cash value coverage, then your insurer will reimburse you for damaged or stolen items based on the amount they were worth at the time you filed the claim. Because items depreciate in value over time, this means your payout will be smaller than the item’s original purchase price.

If you have replacement cost coverage, they’ll give you a partial payment first (which will generally be the item’s actual cash value). Once you replace it and provide proof of purchase, they’ll refund the rest of the cost.

Claims investigation

You may be contacted by a claims investigator, who will discuss the details of your case with you. They’ll ask you for any documentation you didn’t provide when you initially submitted the claim.

You may also deal with an insurance adjuster, who will inspect the damage you reported to determine how much your insurance company should pay you. If they determine that you weren’t at fault for the damage, they may pursue subrogation, which means they’ll try to collect payment from whoever they believe to be responsible.

Payment process

Once your claim has been approved, the payment process will begin. The time it’ll take to receive your payout depends on your insurance company and the state you live in. Some states require insurers to pay the claimant or send them an update about their claim within a certain time frame.

If you haven’t gotten your payout within a month of the investigation being finalized, contact your provider. Have your policy and claim information on hand so they can check the status of your case.

How transferring and canceling renters insurance works

As with buying a policy and filing a claim, the process of canceling, updating, and transferring your renters insurance is pretty straightforward.

How to transfer your policy

Transferring your renters insurance policy is easy. If you’re moving, all you need to do is update the address associated with your policy. You can do this in person or by phone, email, or written letter. Many insurers also let you do it on their website or via their mobile app.

Remember to remove your current landlord from your policy if they were listed as an interested party and add your new landlord in their place.

Note that if you have a new zip code, your premium may change. If you’re moving out of state, then there’s also a chance that your insurer won’t be able to transfer your renters insurance because they don’t operate in your new location. If this is the case, you’ll need to find a new provider.

How to cancel your policy

Canceling your renters insurance can be slightly more complicated than transferring your policy. Most companies will allow you to cancel online, but some may require you to speak to an agent directly or provide an official letter of intent to cancel. Make sure that they’ve actually canceled your policy before you stop paying your premium to ensure that you don’t face late fees or other penalties.

Canceling your policy before it expires

Canceling your renters insurance early may be necessary if you’re in one of the following situations:

You bought a home: If you buy a house and need to switch from renters insurance to homeowners insurance, consider staying with the same provider. This way, you can roll your current policy into a new one rather than start from scratch.
You’re moving to a new state: As we said, if you’re moving and your current insurer doesn’t operate in your area, then you’ll need to cancel your policy and sign up for a new one with a different insurer.
You’re subletting: Subletting (renting out your home to a new tenant) can be complicated, and some insurers have policies against it. Ask your provider whether they allow subletting. If they don’t, you might need to switch to a new company.

If you cancel your renters insurance policy before it expires, you’ll probably be reimbursed for your unused premiums. However, some insurers will also charge you an early cancellation fee.

Whether you’ll face a penalty depends on your provider, your policy terms, and how much time is left on your policy. Ask an agent about the repercussions of canceling early before you make your decision.