Do You Need Renters Insurance?

A senior couple with rain gear standing in their flooded kitchen.

If your kids or grandkids are heading to college or you're looking into renting instead of buying a vacation home, you've probably heard about renters' insurance. While some landlords are starting to require it, if yours doesn't, you might be asking, "Do I really need renters insurance?" The answer is yes, and, to show why, here's how my policy helped me navigate an all-too-common problem renters face.

One fall, my worst fear as a renter became a reality: A pipe burst in the apartment directly above mine, flooding my apartment. What made the situation even worse was that I got the news when I was out of town visiting family.

I panicked, even though I was told the situation was being handled. There were three questions running through my head that weekend: How many of my belongings were destroyed? How long would the repairs take? And what would my renters' insurance cover everything?

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What does renters insurance cover?

Ever since I relocated to the Washington, D.C., area from Michigan, I’ve rented — and had renters insurance (some apartment complexes and landlords require tenants to have it).

In general, a renters insurance policy covers three basics: your liability, personal possessions and living expenses in the event your apartment becomes uninhabitable. The policies typically cover losses from a burglary, vandalism, windstorms and certain types of water damage — which is where things get confusing.

If my apartment had flooded because of a hurricane, I would have been out of luck, because most renters policies don't cover flooding that comes from outside your building. But a burst pipe falls into the accident category, which is usually covered. To file a claim, I logged on to my Liberty Mutual insurance account from my smartphone. I received text message updates throughout the process from the agent handling my claim.

How much does renters insurance cost?

As with any other coverage, a renters policy comes with insurance deductibles and coverage limits that all factor into the cost of the policy and the amount you'll be reimbursed. My policy, which costs $18.50 a month, covers $15,000 in personal property and provides liability coverage of $100,000 and guest medical coverage of $1,000. My deductible is $500.

According to Nerd Wallet, the average monthly premium for renters insurance is about $13 a month for $30,000 in personal property coverage, $100,000 in liability coverage and a $500 deductible.

If you have car insurance, you may be able to get a discount of about 5% by buying your renters insurance from the same company.

You may want more coverage, especially for personal property, if you have high-end furniture, designer clothes or a lot of tech in your apartment. Before you decide which policy is best for you, take an inventory of your belongings and how much they cost. You can either create a spreadsheet (which is something I should have done) or use an app such as Encircle to create your list.

Additional renters insurance coverage you might need

Like home insurance, renters insurance typically excludes flood damage. So, if you live in a flood-prone area, you may want to look into additional flood insurance to keep your belongings fully protected.

If you're worried about flooding, review your local flood maps to see if you're at risk. Go to the FEMA flood map and scroll down to the FEMA Flood Map Service center to find your community flood map.

If you live in a community that participates in the National Flood Insurance Program, you may be able to purchase a separate flood insurance policy from FEMA to protect your belongings. Flood insurance costs about $99 a year for $100,000 of contents-only coverage.

If you're concerned about other disasters destroying your belongings, you should consider buying a renters insurance policy with a high personal property limit. Coverage amounts start as low as $15,000 and can go up to $500,000.

If you have expensive electronics or jewelry, you may want to add an insurance rider (if one is available) because your standard personal property coverage may not be enough to replace them. Coverage with higher personal property limits is usually inexpensive.

Renters insurance replacement coverage vs. actual cash value coverage

Once you've accounted for all your items, you'll have to decide whether to get replacement coverage or actual cash value coverage. The former, which I have, replaces the items at full cost, and the latter factors in depreciation. Replacement coverage costs about 5% more, but it can be worth it when it comes time to file a claim.

To decide which one makes sense for you, estimate the cost today to buy a replacement for a few of your most expensive items, like your TV, computer and washing machine.

Then, estimate the actual cash value of those things. There are various ways to do this and the best option would be to find out what depreciation formula your insurance company uses to calculate it. But, to come up with a very rough estimate, you can divide the original purchase price by the number of years the item is expected to last. Then, subtract the amount of value for each year you've already owned.

Say you bought a TV for $1,000 in 2020 that you expect to use until at least 2030. That $1,000 purchase price works out to $100 per year in that time span. In 2026, that means it's already undergone six years (or $600) in depreciation. If it's damaged in a covered accident now, your renters insurance might only pay out $400 if you opt for actual cash value rather than the full $1,000 you'd need to buy a replacement TV of equivalent quality.

It’s also important to consider any insurance riders that could be available to you. For example, my policy offered additional home computer coverage of $5,000, which I added to protect my expensive MacBook.

In the end, I filed my claim only to discover that the amount of my losses was less than my deductible. I wasn’t surprised, but I was hoping to get something for my troubles. I’ll definitely start keeping an inventory of what I have and make sure it’s up to date.

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Do you need renters insurance?

You might not own your abode, but you own what's in it. If there was a fire, flood or if your home was burgled, you would benefit from having renters insurance to help cover the costs of replacing your clothes, computer and other valuables. The value of liability coverage can't be underestimated, either. If a visitor or repair person injured themselves, you could face a personal lawsuit.

If you work from home consider a stand-alone business insurance policy that can offer more robust coverage and with higher coverage limits. This type of policy can provide better coverage limits for business equipment and liability over a typical renter's policy. These policies are good for a business that has visitors coming and going.

Renters can also buy coverage from FEMA to cover damages caused by flooding that comes from the outside. This is wise to consider as regular policies don't cover this type of flood damage. In the case of a Presidentially declared disaster, renters are also eligible for temporary housing assistance and Critical Needs Assistance (CNA), a one-time payment that can help pay for life-saving and life-sustaining items such as prescriptions, food and diapers.

Rivan joined Kiplinger on Leap Day 2016 as a reporter for Kiplinger's Personal Finance magazine. A Michigan native, she graduated from the University of Michigan in 2014 and from there freelanced as a local copy editor and proofreader, and served as a research assistant to a local Detroit journalist. Her work has been featured in the Ann Arbor Observer and Sage Business Researcher. She is currently assistant editor, personal finance at The Washington Post.

With contributions from

Rachael GreenPersonal finance eCommerce writer