What to know about renters insurance

Homeownership is a goal that many people aspire to achieve over the course of their early adult lives. In some larger U.S. cities, however, it takes at least a few years of renting before it's possible to save up enough. That fact is demonstrated by an interactive tool from The New York Times, which determines a person's hypothetical monthly housing costs for either a rental or a mortgage, including taxes, utilities, interest payments and much more. 

But there are other reasons to rent instead of buy that aren't as easily supported by numbers. Maybe you simply don't feel certain you'll be staying in a city for more than a few years, or don't feel comfortable with the upkeep and maintenance that homeownership requires. No matter your reasons for renting, though, you should still have an insurance policy in place to protect your belongings. That's where renters insurance comes in.

Policy basics

Renters insurance is not unlike homeowners insurance for apartment dwellers, except that it seems to be far less common. According to the Insurance Information Institute, only 41 percent of renters surveyed in 2016 said they had an active insurance policy on their apartment space. Meanwhile, 95 percent of homeowners said they had a residential insurance policy. Indeed, homeowners insurance is often required by most mortgage lenders.

Renters may be hesitant to purchase insurance out of cost concerns. In reality, renters insurance is often much cheaper than a homeowners policy - the III found that average annual premiums for renters policies were $190 in 2014. That same year, the average homeowners insurance premium was $1,132. Renters insurance premiums have remained roughly consistent since at least 2005.

What does a renters insurance policy get you? In most cases, coverage terms are similar to those for homeowners. Renters insurance policies come in three basic flavors:

  • Personal property coverage: This can cover the cost to repair or replace your belongings due to certain perils, which usually includes fire and theft.
  • Liability coverage: This may compensate some or all of your expenses if you are found legally responsible for accidental damage to someone else's property, or found at fault for someone else's injuries.
  • Living expenses: Extra coverage can be tacked onto a renters policy to cover some additional living expenses in the event that your apartment is rendered uninhabitable due to a fire or another event that isn't your fault.

If you rent out your home

Renters insurance covers the person who signs a lease to rent an apartment. However, certain insurance coverage might be required for homeowners who rent out some or all of their property to lessees. The exact type of policy needed generally depends on the length of time the home is being rented for.

RentIf you rent rather than own, you should look into a renters insurance plan.

If you plan to rent out all or part of your home for only a few weeks per year, two different insurance scenarios may apply. If the rentals are brief and infrequent, a homeowners policy may allow it with prior notice, or require the owner simply signs an additional rider to their policy.

When homeowners want to rent out their home for brief periods, but on a regular basis, most insurance policies would consider this a business. Without a business policy, any accidental damage or personal injury that occurs while renters are present may not be covered by the homeowners policy.

If you plan to rent out your property for long periods of time - at least six months - you will probably need to trade your homeowners insurance for a landlord policy. The III noted that these may cost around 25 percent more than standard homeowners policies, but provide coverage for additional perils, as well as liability coverage and loss of income coverage.

No matter your situation, insurance policies can vary widely from one another. Make sure to work with the agent or company to craft a policy that meets all of your financial needs, paying attention to exactly what perils are covered and up to what amount.

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