Renters Insurance: How it Works

Shopping for renters insurance, but unclear on how it works? We’ll take you step by step so you get the right coverage.

Renters insurance, also known as HO-4 insurance, covers personal property, liability and relocation costs while you're renting a living space. In the event of incidents such as theft, fire or water damage, it can repair or replace your belongings up to your policy limits. It can also help with court costs and hospital bills if you're responsible for someone getting hurt at your place. And if your apartment is damaged and you need to move out, renters insurance can help with the extra costs while you find a new place. This article will cover:

What does renters insurance do?

Renters insurance works by providing three major points of coverage: personal property, liability and additional living expenses. Keep reading to learn how each section of your renters insurance policy works.

Personal property

If belongings in your rental home are stolen, damaged or destroyed by accidental causes, your renters insurance can compensate you for their repair or replacement up to your policy limits. For example, if your TV is stolen, your renters insurance can help replace it. Renters insurance also covers water damage if a burst pipe damages your stuff.

Renters insurance also covers your belongings away from your rented home. If you're on vacation and your laptop is stolen, your policy can help replace it. Renters insurance can also cover things in a storage facility away from home. Keep in mind that renters insurance policies may have limits on items kept outside your rental home. This is usually 10% of your personal property coverage limit.

Certain categories of valuables, such as jewelry, may have coverage limits that are less than your personal property limit. This limit is usually somewhere around $1,500 per item. Most renters insurance companies sell add-on endorsements to bump up your coverage limits for expensive belongings.


If you're responsible for someone's injury or property damage, the liability portion of your renters insurance can help cover the medical bills and court costs that may arise. Keep in mind that renters insurance liability only covers the medical bills of others. If you get injured in your rental home, your health insurance should cover your medical expenses.

Additional living expenses (ALE)

In the event that your rental home is damaged to the point that you have to move out, ALE can help cover the extra costs that come with the relocation while you find a new place to live. ALE coverage usually includes the costs of:

  • Hotel rental.
  • Meals.
  • Laundry.
  • Storage.
  • Commuting costs.

ALE is meant to offset the additional costs of your relocation, not the complete cost. If the cost of your weekly commute goes from $20 to $35, ALE would compensate the extra $15 a week. Renters insurance policies usually limit ALE coverage to 40% of your personal property coverage limit.

What does renters insurance cover?

Renters insurance covers many sources of damage. These perils include:

  • Theft and vandalism.
  • Fire and smoke.
  • Frozen or burst pipes.
  • Snow, sleet, ice and hail.
  • Lightning.
  • Windstorms.
  • Vehicular damage.

Renters insurance policies usually provide "named-perils" coverage. That means your policy only covers perils that are explicitly noted. The perils listed above are pretty standard in renters insurance, but you'll still want to make sure that your core concerns are named.

Some renters insurance policies are open, or "all-risk", peril. These types of renters insurance policies cover everything except for perils excluded in your policy. Open-peril renters insurance covers many more perils than named-perils insurance, but it usually costs considerably more.

What doesn't renters insurance cover?

There are some perils that renters insurance usually doesn't cover. Common exclusions are:

Natural disasters

Renters insurance doesn't cover natural disasters such as flooding and earthquakes. However, renters insurance companies sometimes offer flood and earthquake insurance that you can purchase as an add-on.


Damage due to rats, termites, bed bugs and other bugs is not covered by renters insurance. Pest damage is considered preventable by routine maintenance and falls outside the "sudden and accidental" category of damage.

Roommates' stuff

Even though they may live in the same rental home for which you have renters insurance, your roommates' personal property, liability and ALE are excluded from your policy. They would need to have their own renters insurance policy for coverage. You can put your roommates on your policy, but it's better to just have your own renters insurance.

Car break-ins

Your renters insurance covers your personal property stolen out of your car up to your policy limits. It will not, however, cover your car if it's damaged or stolen. You would need comprehensive auto insurance in order to cover car theft.

Is renters insurance required?

Although renters insurance is not required by state law, many landlords require you to have it as part of your rental agreement. It provides you with insurance coverage that their landlord insurance doesn't cover, and prevents unnecessary lawsuits for all parties concerned.

How much does renters insurance cost?

Even if your landlord doesn't require it, renters insurance is an excellent value at a low cost. On average, renters insurance costs $180 a year. This breaks down to $15 a month. When you consider how much a complete replacement of your belongings after a fire would cost, or a long court case after a guest's injury, this is an excellent and affordable means of personal protection.

Even at its highest premiums, renters insurance is a highly affordable means of protecting yourself. For example, we found that Mississippi currently has the highest average renters insurance rate, at $258 a year. This breaks down to just about $22 a month.

Your renters insurance also includes a deductible. This is the agreed-upon amount that you pay before your renters insurance covers the remainder of a claim. The higher your deductible, the lower your yearly premium. Common renters insurance deductibles run from $500 to $1000, but higher and lower deductibles may be offered as well.

How much renters insurance do I need?

Make sure you buy enough renters insurance coverage to fit your needs and budget. Renters insurance usually offers $30,000 in personal property coverage.

To find out how much renters insurance you need, make a home inventory list that includes the make, model, serial number and value of each of your belongings. It may take a while, but once it's done, it can be updated easily. It may also considerably speed up filing a claim.

Standard renters insurance policies usually offer a minimum of $100,000 in liability. While this may seem like a lot of money, one long hospital stay or court case can eat through that quickly. We recommend getting at least $300,000 in liability coverage, and $500,000 if it fits your budget.

How does renters insurance pay out claims?

How renters insurance reimburses you depends on whether you have a replacement cost or actual cash value (ACV) policy. Replacement cost renters insurance pays out on your claim based on the price for an identical item up to your policy limits. ACV policies pay out the cost of a replacement item minus any depreciation due to age.

Replacement cost coverage is the better way to go based on value, but it usually costs more than an ACV renters insurance policy. Even so, it is encouraged to go for a replacement cost renters insurance policy unless all of your stuff is brand new.

How to buy renters insurance

You can go online to find the best renters insurance companies for you. If you already have an auto or life insurance policy with a provider, talk with them and see if you can bundle your renters insurance policy. That way, you may save on both yearly premiums.

Once you find a renters insurance company with the policy and price you want, the rest is fairly simple. You'll fill out some information and have a renters insurance policy in minutes. You can choose the effective start date to be anywhere between the day you sign up to a couple of months later. LLC has made every effort to ensure that the information on this site is correct, but we cannot guarantee that it is free of inaccuracies, errors, or omissions. All content and services provided on or through this site are provided "as is" and "as available" for use. LLC makes no representations or warranties of any kind, express or implied, as to the operation of this site or to the information, content, materials, or products included on this site. You expressly agree that your use of this site is at your sole risk.