An overwhelming majority of homeowners purchase homeowners insurance, but according to the Insurance Information Institute (I.I.I.), 65% of renters don’t bother to benefit from the relatively cheap coverage provided by renters insurance.

According to the National Association of Insurance Commissioners, the average renter’s insurance policy costs less than $200 per year or about $16 per month. Renter’s insurance is cheap because, unlike homeowner’s insurance, it doesn’t cover the cost of the structure.

What rental insurance covers

According to the I.I.I., renter’s insurance covers belongings against losses from theft, fire, smoke, vandalism, lightning, windstorm, explosion and water damage – including water from the upstairs neighbor’s clogged, overflowing tub.

Renters insurance can also include coverage for additional living expenses incurred if the renter is displaced from their home due to disasters such as a hurricane or fire. This coverage pays for lodging, meals and additional expenses incurred while waiting for the rental home to be repaired or rebuilt. Renters insurance also includes liability protection which covers against injuries to people, including a family member or pet, while in the rental home.  It also pays legal defense if you are taken to court over an injury.

Types of coverage

Actual cash value coverage pays to replace possessions, up to the limit of the policy, minus a deduction for depreciation. Replacement cost coverage pays the real cost of replacing belongings regardless of depreciation. Replacement coverage costs about 10% more than actual cash coverage but is usually  better value.

Special floaters are necessary to cover higher cost items such as expensive jewelry, furs, musical equipment and collectibles. Also, be aware that a home-based business may require special coverage.

Determine the coverage you need by creating a detailed home inventory. Photos and videos can be a huge help if you ever need to file a claim. There are numerous software programs and online resources available to help streamline the inventory process. Click here for a free home inventory worksheet offered by houselogic.com.