Renters insurance, and why nobody buys it

A substantial share of renters carry no insurance, generally believing either that they own nothing worth insuring or that the landlord's policy covers them.

Both beliefs are wrong, and the second is the expensive one.

What the landlord's policy covers

The building. Their liability. Their loss of rental income.

It does not cover your possessions, your liability, or your cost of living elsewhere if the building becomes uninhabitable.

If a fire destroys the building, the landlord is compensated for the structure and you are compensated for nothing.

The three coverages

Personal property. Your possessions, against covered perils — fire, theft, vandalism, water damage from plumbing, and others listed in the policy.

People underestimate what they own. Add up furniture, electronics, kitchen equipment, clothing, bedding, books, sporting equipment, tools, bicycles and everything in the closets.

Most households reach a surprisingly large figure. Replacing all of it at once, at retail, is a substantial cost.

Liability. The coverage that matters most and gets the least attention.

If a guest is injured in your apartment, if your dog bites someone, if you cause water damage to units below, if you accidentally start a fire — you can be personally liable.

A fire starting in your unit that damages the building and other tenants' property can result in a claim against you for a very large amount, and the landlord's insurer may subrogate against you.

Renters policies typically include liability coverage in the range of $100,000 to $500,000, and higher limits cost little.

Additional living expenses. If the unit becomes uninhabitable due to a covered loss, this pays the additional cost of living elsewhere — hotel, temporary rental, and increased meal costs.

Given how long repairs take, this can be a substantial benefit.

The cost

Renters insurance is inexpensive, typically a modest monthly amount varying with location, coverage limits and deductible.

Bundling with auto insurance frequently produces a discount on the auto policy that offsets much of the renters premium.

The cost-to-benefit ratio is among the best in personal insurance, which is what makes the low uptake notable.

Replacement cost versus actual cash value

The same distinction as in homeowners policies, and it matters more for contents because household goods depreciate quickly.

Actual cash value on a five-year-old sofa, television and wardrobe of clothing produces a settlement far below what replacement costs.

Replacement cost coverage on contents costs slightly more and is worth having.

The sublimits

Policies cap certain categories regardless of the overall limit.

Commonly limited: jewelry, watches and furs, particularly for theft; firearms; silverware; cash, which is capped very low; business property; and electronics in some policies.

Bicycles are frequently subject to limits and theft away from the residence may be treated differently.

Valuable items exceeding the sublimits require scheduling — listing them individually, usually with an appraisal — which provides full coverage and frequently broader perils.

What is not covered

Flood, as with homeowners policies. Renters flood coverage for contents is available through the federal program and private insurers.

Earthquake, without an endorsement.

Damage from pests, wear and deterioration.

Your roommate's belongings, unless they are named on the policy. Roommates generally each need their own coverage.

Intentional acts and business activity in most cases.

The inventory

The most useful thing you can do before a loss.

Walk through the apartment with a phone, video everything, open every drawer and closet, narrate what things are.

Photograph serial numbers on electronics and appliances.

Keep receipts for significant purchases.

Store all of it in cloud storage, not on a device in the apartment.

At claim time you will be asked to prove what you owned. Without evidence, the settlement reflects what you can substantiate rather than what you lost.

Coverage away from home

A feature many renters do not know about.

Personal property coverage generally extends to your belongings anywhere in the world, subject to limits — a laptop stolen from a car, luggage lost while travelling, belongings in a storage unit.

Liability coverage also generally follows you, covering incidents away from the residence.

For students, parents' homeowners policies frequently extend limited coverage to a dependent student living in university accommodation. Check the terms rather than assuming, since limits are often reduced and off-campus housing may be treated differently.

Lease requirements

An increasing number of landlords require renters insurance as a lease condition, frequently with minimum liability limits and sometimes naming the landlord as an interested party.

Where required, buy your own rather than accepting a landlord-arranged product, which may be a limited liability-only policy protecting the landlord rather than you.

General information about insurance concepts, not insurance advice. Policy terms, sublimits and available coverages vary by insurer and state. Read your own policy and consult a licensed agent.