# Renters Insurance: What It Is and How It Works

> **Definition**
>
> Renters insurance protects tenants' personal belongings against loss due to theft, fire, or other covered events, and provides coverage for liability claims and additional living expenses.

## What Is Renters Insurance?

Renters insurance refers to [property insurance](https://www.investopedia.com/terms/p/property-insurance.asp) that protects tenants who live in a rented dwelling. Coverage is provided by insurance companies in exchange for premiums paid by people living in apartments, single-family homes, and [condominiums](https://www.investopedia.com/terms/c/condominium.asp). Policies provide coverage for an insured party's personal property as well as liability claims that are not due to a structural problem with the property. These kinds of policies also cover living [expenses](https://www.investopedia.com/terms/e/expense.asp) that need to be paid out when someone makes an [insurance claim](https://www.investopedia.com/terms/i/insurance_claim.asp) after their unit is damaged. Although renters insurance isn't a legal requirement, some landlords prefer their tenants to have some type of coverage.

### Key Takeaways

*   Renters insurance is a form of property insurance that protects tenants who live in a rented dwelling.
*   Policies cover personal property, liability claims, and additional living expenses when a unit is damaged.
*   Although it isn't a legal requirement, some landlords require proof of renters insurance before they hand over the keys.
*   Renters insurance doesn't cover [floods or earthquakes](https://www.investopedia.com/renter-insurance-natural-disasters-5221104).
*   Landlord's insurance does not cover the personal property of any tenant living on site.

## How Renters Insurance Works

Insurance policies cover different types of losses. Life insurance provides a [death benefit](https://www.investopedia.com/terms/d/deathbenefit.asp) for a certain amount to an insured party's [beneficiaries](https://www.investopedia.com/terms/b/beneficiary.asp). Health insurance mitigates the costs associated with routine and unexpected medical expenses. There are also insurance policies that cover properties. For instance, [homeowners insurance](https://www.investopedia.com/terms/h/homeowners-insurance.asp) protects policyholders against damage to their homes and belongings, as well as any claims filed against them by others for injuries sustained while on the premises.

Renters insurance is a common form of property insurance that tenants take out when they rent a home, townhouse, apartment, condo, room, or another type of dwelling. It's also available to anyone who [sublets](https://www.investopedia.com/terms/s/sublease.asp) a [property](https://www.investopedia.com/terms/p/property.asp) from another tenant. Policies vary based on the type of coverage a renter chooses—the higher the coverage, the higher the premium.

These kinds of policies protect the insured party against losses to their [personal property](https://www.investopedia.com/terms/p/personalproperty.asp) within the dwelling as a result of loss from theft, fire, and other types of disastrous loss events. The amount of coverage depends on premiums paid and other factors. You should buy enough renters insurance to replace all of your possessions in the event of a loss event. The easiest way to determine this amount is to create a detailed list of all of your belongings with estimated values.  

## Additional Living Expenses

Policies also provide financial protection against liability claims and [additional living expenses](https://www.investopedia.com/terms/a/add_living_expense_insurance.asp) (ALEs). Policyholders are covered against lawsuits for bodily injury or property damage done by the renter, their family members, and pets. It also covers legal defense costs up to the limit of a policy. Additional living expenses coverage provides financial protection against an insured disaster that makes it necessary to temporarily live somewhere else. 

The coverage pays for hotel bills, temporary rentals, meals, and other costs while a rental home is being repaired or rebuilt. Most policies [reimburse](https://www.investopedia.com/terms/r/reimbursement.asp) the insured for the full difference between the additional expenses and their normal living expenses. There is, however, either a dollar limit on the total amount an insurer will pay or a time limit on the ALE payments.

## Renters Insurance and Valuation

Renters can choose between [replacement cost value](https://www.investopedia.com/terms/r/replacementcost.asp) (RCV) or [actual cash value](https://www.investopedia.com/terms/a/actual-cash-value.asp) (ACV) coverage. The type of coverage for each policy may be substantially different based on how the policy calculates the value of what was lost.

If you have an ACV policy, the insurance company will reimburse you for the value of your belongings at the time of the loss, taking into account depreciation and wear and tear. For example, if your five-year-old laptop gets stolen, the insurance company will consider its current market value, which will probably be significantly lower than the original purchase price. As a result, the payout under an ACV policy might not be enough to replace your belongings with new items.

If you have an RCV policy, the insurance company will reimburse you for the cost of replacing your belongings with new items of similar kind and quality, without considering depreciation. In the same example of the stolen laptop, an RCV policy would provide the funds needed to purchase a new laptop with similar specifications to the one that was stolen, even if the cost exceeds the value of the depreciated laptop.  

> **Tip**
>
> Proof of renters insurance is required by many landlords. Without this coverage, the tenant is responsible for the loss out of pocket.

## Renters Insurance vs. Landlord's Insurance

Renters insurance is designed to protect tenants or renters. It covers the personal belongings and liability of the tenant. If a covered event such as theft, fire, or water damage damages or destroys the tenant's personal property, renters insurance can provide compensation for the loss.

[Landlord's insurance](https://www.investopedia.com/the-best-landlord-insurance-11705333), also known as landlord insurance or dwelling insurance, is designed to protect the property owner or landlord. This insurance policy covers the physical structure of the rental property, such as the building, roof, walls, and fixtures. It also provides liability coverage for the landlord if a tenant or visitor is injured on the property and holds the landlord responsible.

The important takeaway here is that landlord's insurance does not cover the personal belongings of the tenants. Personal belongings of the tenant are the responsibility of the individual tenants through their own renters insurance.

> **Important**
>
> Make sure your renters insurance policy includes no-fault medical coverage as part of the liability protection, which allows individuals who are injured on your property to submit their medical bills directly to the insurance company in lieu of a lawsuit.

## Renters Insurance vs. Other Policies

Although most renters insurance policies cover losses from fire or smoke, lightning, vandalism, theft, explosion, windstorms, and certain types of water damage, the majority don't cover floods or earthquakes.

Flood insurance is available from the [National Flood Insurance Program](https://www.floodsmart.gov/) and a few private insurers. Earthquake insurance may be purchased separately or added as an endorsement to an existing renters policy. For example, in California—obviously a high-risk state for earthquakes—the legislature created the nonprofit [California Earthquake Authority](https://www.earthquakeauthority.com) to help people get affordable coverage.

## Can I Get Renters Insurance If I Live With Roommates?

Yes, you can get renters insurance when living with roommates. However, it's essential to discuss the coverage with your insurance provider, as individual policies might be needed to ensure each person's belongings are adequately protected.

## Is Renters Insurance Mandatory by Law?

Renters insurance is not usually mandatory by law, but some landlords may require it as a condition of the lease agreement. Even if it's not required, having renters insurance is highly recommended to protect your belongings and liability.

## Can I Transfer My Renters Insurance to a New Apartment?

Yes, most renters insurance policies can be transferred to a new apartment or rental property. Inform your insurance provider about the move and update the address on your policy to ensure continuous coverage. Should you end up buying a property, be mindful that you'll have to cancel your renters insurance in favor of homeowners insurance.

## Can I Cancel My Renters Insurance at Any Time?

Yes, you can cancel your renters insurance at any time by notifying your insurance provider. Keep in mind that you may lose coverage for any future incidents if you cancel before the policy term expires. In addition, you can enter into coverage during any time of the month.

## The Bottom Line

Renters insurance is a policy that protects tenants' personal belongings and provides liability coverage. It safeguards against financial loss due to theft, fire, or other covered events and offers liability protection if someone is injured in the rental unit. Though not always required, it is coverage that is needed by renters as landlord policies do not cover tenants' personal belongings.