Do You Need Renters Insurance? Factors To Consider

If you buy a house, your mortgage lender will require you to purchase homeowners insurance, but renting doesn’t come with these same requirements. So you may be wondering, do I need renters insurance?

The answer really depends on your finances and whether your landlord provides it or not. Learning more about what renters insurance is and how it works will help you find the best option for your situation.

Reasons To Get Renters Insurance

Renters insurance protects your belongings if you’re renting an apartment or house. If your items are stolen in a break-in or damaged in a natural disaster, renters insurance will kick in to cover the costs.

Most landlords don’t require renters insurance coverage, but it’s a good idea to purchase it anyway. Here are seven reasons to consider buying renters insurance.

1. Your Landlord’s Insurance Won’t Cover You

Landlord insurance only covers the structure of the building, not the personal belongings inside. For example, if the building catches fire and damages some of your items, landlord insurance won’t pay to replace them. It also won’t pay for any damages you accidentally cause to another tenant’s apartment.

2. You Have More Belongings Than You Realize

Odds are, you have more belongings than you realize, and it’s easy to underestimate how much your assets are actually worth. You may not have the funds to replace an entire wardrobe or expensive jewelry after a disaster or theft. Renters insurance protects your belongings from incidents that are out of your control, like fire, theft and water damage.

3. It Can Protect Your Finances

Even if you could replace all of your belongings after a theft, it would probably be a huge financial burden. According to data from the FBI, the average amount lost after a burglary was $2,661 in 2019. Without renters insurance, you’re on the hook to cover these losses on your own.

4. It Provides You With Liability Coverage

Renters insurance also provides coverage if someone is injured in your home or apartment. Without renters insurance, you could be sued for any injuries and medical payments the other person incurs. But since, according to State Farm, a standard renters insurance policy provides liability insurance up to $100,000, you’d be protected from the fallout.

5. It Covers Your Belongings When You Travel

The great thing about renters insurance is that it often provides coverage whether you’re at home or not. For example, if your laptop is stolen while traveling, your policy may accept your claim and cover some of the costs to replace it.

6. It Could Pay For Temporary Housing In Case Of Emergency

Replacing your belongings is stressful enough, but what if you found yourself without a place to live? For example, if your rental unit is uninhabitable due to a fire, you’d have to pay for temporary housing. A renters insurance policy could help pay for a hotel room, meals and other daily services you take for granted.

7. The Cost May Be Less Than You Think

Finally, many people have the misconception that renters insurance is as expensive as homeowners insurance, but that’s not the case. The average renters insurance policy costs about $173, according to the National Association of Insurance Commissioners in 2020. That comes out to about $15 per month. And if you bundle your renters insurance with your auto insurance, you could save even more.

Comparing quotes from different insurance companies will help you find the best deal and coverage. And online comparison tools provide an easy way to compare multiple policies at once.

How Much Renters Insurance Do You Need?

To figure out how much renters insurance you need, start by doing an audit of all your belongings. Do a complete inventory of all your items including how long you’ve had them and the estimated cost of each. This will help you determine how much it would cost to replace everything.

However, that’s just a starting point — you also need liability protection and coverage for additional living expenses. You may want to speak to an insurance agent so they can learn more about your situation and make personalized recommendations.

Replacement Cost Vs. Actual Cash Value

Another thing you need to consider is the replacement cost versus the actual cash value (ACV). The ACV is the value of an item after depreciation. For example, if you bought a couch 5 years ago for $600, it’s worth far less money today.

In comparison, the replacement cost is the cost of replacing your items with new ones of the same quality and value. For example, if your couch previously cost $600, it may cost $1,200 today to replace it.

Most renters insurance policies pay out based on the ACV, but some will let you pay more to upgrade to replacement cost coverage. This upgrade won’t add much to your insurance costs, but it can make a huge difference in how much money you receive if you ever have to file a claim.

Additional Renters Insurance FAQs

Here’s some additional information about purchasing renters insurance.

Is renters insurance required?

Renters insurance isn’t required by law, but some landlords may require you to purchase it as part of the lease agreement. Make sure to check the terms of your lease so you’ll know whether you need to provide proof of insurance before moving in.

What if I don’t have renters insurance?

If you don’t have renters insurance, you won’t have a backup plan if someone steals your property or an accident displaces you from your home. This can set you back financially and cause a lot of unnecessary fear and uncertainty.

Should I get renters insurance?

Most people should consider purchasing renters insurance. You can find a fairly affordable policy, and it’s the best way to protect yourself financially.

Why do I need renters insurance?

Renters insurance will pay to help replace your belongings, provide liability coverage and will pay for additional housing costs if your current home becomes uninhabitable. It’s the easiest and most affordable way to protect yourself from the unknown.

The Bottom Line

Renters insurance protects you from property damage and provides loss of use coverage. Renting may be the best solution for you at the moment, but eventually, you may become interested in homeownership. If that happens, a renting versus buying calculator can help you figure out the type of home you can afford.