What Insurance Do I Need for My Rental Property?

When you rent a property, you will want to protect your contents with rental insurance. Quite simply, rental (renters, or HO-4) insurance is an insurance policy designed to provide coverage for renters. What and how much is covered can vary depending on the policy and/or the insurance company that issues it. Still, typically a renter’s policy includes protections for your personal property and some liability coverage.

We’ll discuss the specifics of rental insurance, outlining what a typical policy covers and what is generally not covered. Depending on your insurance needs, there are several things to be aware of when you are considering purchasing this type of policy, and you may need to augment it.

Rental Insurance

Three types of coverage fall under a typical renters insurance policy.

Liability Coverage

Liability coverage provides protections for the policyholder in the event that they are deemed responsible for the injury of another person or for damaging someone else’s property. This coverage means that a renters policy will pay for your court defense costs and any court awards if you lose (up to the policy’s limit. the maximum amount that the policy pays out.)

Liability coverage limits are generally specified as a dollar amount per incident. For example, a policy can be written that says you have liability coverage of up to $100,000 per incident. When someone gets injured on your property, the insurance company will pay the first $100,000 in defense costs and judgments. If you owe $250,000, the insurance company pays the first $100,000, and you will have to come up with the other $150,000. Some policies will provide additional coverage for medical expenses incurred by someone injured on your property (such as a fall from ice on your sidewalk).

Personal Property Coverage

Personal Property Coverage is intended to protect your personal belongings from damage or loss due to specific events, which the insurance business calls “perils” such as theft, fire, or natural disasters. The policy’s coverage of personal property is in effect whether you are at home, in your car, or while traveling (your items are stolen or damaged by others.)

The limit of personal property coverage is usually specified as a defined dollar amount per item, or it can be defined as a percentage of the policyholder’s total liability coverage amount. Take, for example, an insurance policy that defines the amount of renters coverage as “10% of the policy’s personal liability coverage.” If this policy has $100,000 in liability coverage, then it would have $10,000 in personal property coverage per claim.

Loss of Use Coverage

Loss of Use insurance will compensate you if you cannot use your rental property due to a covered event. 

The coverage amount for loss of use is usually specified in the policy as a daily or weekly rate. This amount can be used to cover the cost of temporary housing or other expenses that result from the loss of use of the property. Suppose you have a policy with $500 per week loss of use coverage, and your rental property has a fire. In that case, this coverage will pay for your alternative accommodations and hardships while the primary property is uninhabitable. Here are some things that are generally covered by Loss of Use:

• Temporary housing (hotel or rental home)
• Added fuel costs
• Added utilities
• Added food expenses (groceries, restaurants, cooking supplies)
• Storage unit costs
• Pet boarding
• Moving costs
• Public transportation costs
• Parking fees
• Added laundry costs

What’s Not Covered By a Renter’s Insurance?

While having a rental insurance policy will provide you with a broad range of coverage, some things are not typically included in a standard policy. Some of the exclusions that you will generally find in most basic rental insurance policies include:

• Flood and Earthquake Damage

While nearly all rental insurance policies provide coverage for damage that is caused by several natural disasters, such as fires and storms, they will typically exclude any damage caused by floods and earthquakes. Renters who live in areas that are particularly prone to these types of events should consider purchasing separate coverage for these perils. Flood insurance can be obtained through the National Flood Insurance Program (NFIP) or from one of several private insurance companies that offer it, with offerings and prices standardized. Earthquake insurance is available from many private insurers.

• Personal liability

While your rental insurance policy will typically provide coverage for most personal liability issues, it may include some exclusions for certain types of liabilities, such as intentional acts or illegal activities. As a renter, you should always review your policy’s terms and conditions carefully to determine the extent of its personal liability coverage. You may also want to purchase additional coverage if you have significant assets and wish to protect them.

• Business Property

If any of your personal property is being used for business purposes, be aware that it is often not covered under your standard renter’s insurance policy. Say you are using a personal computer for business while working from home. A snagged cord causes the laptop to fall off the desk damaging it; your renter’s insurance will likely not cover it, but your employer’s insurance might. If you are using your rental property for business purposes and an employee or client causes damage, this will not be covered by your personal renter’s insurance; you may wish to consider purchasing a separate business insurance policy.

• Items of High Value

While your rental insurance policy will typically provide coverage for much of your personal property, it may have limits on the amount of coverage provided for specific high-value items like electronics, antiques, art, jewelry, and furs. If you have any high-value items, you should consider purchasing additional coverage or you can “schedule” these particular items under a separate policy.

How Much Rental Insurance Coverage Do I Need?

One method to determine adequate personal property coverage is to create a home inventory. Make a list of all the items you own and assign each a value. You can also walk around your home taking a video to record the contents while discussing important items, including their age and value. Making a home inventory will also help when you have a claim, so the insurance company will know the type and value of your items, and a dispute will be less likely. According to the National Association of Insurance Commissioners (NAIC), the average renter’s insurance premiums range from $15-30 per month.

Summary And Purchase Advice

It is important to carefully review any rental insurance policy’s terms and conditions before purchasing. Coverage can vary significantly from one insurance company to another and even between policies. 76% of buyers who shop around for insurance, comparing at least three companies, will generally save. You should consider your individual needs and the value of your personal belongings when determining the amount of coverage you’ll require. Additionally, carefully consider the amount of liability coverage needed, taking into account the potential risks associated with your rental property.