An essential guide to renters insurance


Renting can sometimes be considered more of a young person's living strategy - those from early college age into their late 20s - but data from the Pew Research Center makes it clear that things aren't nearly so cut and dried. As of 2016, 43.3 million people referring to themselves as heads of household (which includes single individuals) for U.S. Census Bureau questionnaires said they rented their residences. Percentage-wise, that comes out to 36.6 percent (more than a third of U.S. households - close to the all-time-high 1967 figure of exactly 37 percent. Also, renting rates are up among demographic groups traditionally viewed as homeowners, such as middle-aged adults.

All told, renting in America is on a significant upward trajectory. This means there's no time like the present to get yourself fully informed on what measures you can take as a renter to protect your property. Renters insurance is the most traditional, and it's often perfectly effective. But there are a few things you need to know and consider when embarking on a search for this type of coverage.


Avoiding common coverage misconceptions

U.S. News & World Report pointed out a number of notable inaccuracies regarding what renters insurance does and doesn't do. The belief that landlords cover damage to renters' belongings is arguably the most detrimental of these falsehoods: Unless the owner partners with an insurance provider to offer policies to tenants, the only things the building policy covers are those literally owned by the landlord. If the oven somehow caught fire through no fault of your own, you wouldn't be liable for damage to the appliance or the countertops because that'd be on the owner. As for the ruined espresso machine you just bought? No dice, unless you had renters insurance.

Along similar lines, you might think renters coverage just applies to your personal belongings, which also isn't the case. If the aforementioned hypothetical fire spread and somehow damaged your neighbor's rooms, a renters policy would cover that up to its liability limit (more on that in a minute). Last but not least, anyone telling you renters insurance is expensive is likely misinformed. The average American renters plan costs about $188 per year and $15 per month (although paying per month may mean a greater overall expense).


Understanding what circumstances a policy applies to

The most common American renters insurance plan is called an HO-4, according to NerdWallet, and covers costs of most weather-related damages: hail, windstorms, fire, lightning, smoke, volcanic eruption or falling winter precipitation (ice, snow or sleet). The results of most mechanical failures - water or steam bursting from an appliance, hot-water heater damage, freezing and burst pipes or appliances, electrical shock, explosions of any such items, falling objects - are also covered.

Finally, there are protections for actions stemming from human error or malice: theft, vandalism, damage caused by aircraft and motor vehicles and lingering effects of a violent riot. Some of these are fairly unlikely in probability terms, but you'd rather need and not have than vice versa in this particular situation.


Knowing a policy's limits

According to SmartAsset, floods and earthquakes are some of the circumstances typically uncovered by renters insurance. Depending on the provider, you can add such coverages as riders. If living in an area prone to either of those natural disasters (like California, with its earthquake proclivities), such supplements might be wise investments. A flood caused by problematic plumbing, on the other hand, might be covered without a specific flood rider, but some insurance companies will request you add a water-damage provision.

You must also pay attention to policies' monetary limits. If you choose a more expensive plan, you could be covered for up to $500,000 in damages, including liability you'd incur if someone got hurt in your apartment or house. But even the more affordable policies often include more than $100,000 in coverage. Choose the amount you think is best for your living situation and the area in which you live, considering factors ranging from weather to local crime rate.


Choosing between cash-value and replacement-cost coverage

You'll likely have to choose between two major types of renters insurance: cash-value or replacement-cost coverage. The Insurance Information Instituted explained the former involves reimbursements adjusted for how much items' value has depreciated over time, while the latter covers you for the exact amount it would cost to replace the damaged item with a new unit of the same item or a comparable product.

As you might expect, replacement-cost coverage involves higher annual or monthly cost. But if you own expensive electronics or other highly valuable possessions, it may well be worth it to go for the extra payments now rather lack the necessary funds for new items later. Think carefully before making this specific decision.