Renters Risks: Coverages, Exclusions, and Misconceptions

• Does the personal property coverage on a renters policy only cover belongings within my home? 

• Does the personal liability coverage on a renters policy only cover incidents that happen inside my rental? 

• What does additional living expenses coverage cover? 

True story: I rented for years and never had insurance until a landlord required it. When I finally did secure a renters insurance policy, it was vastly less expensive than I'd expected. The cost was well worth the protection and the peace of mind. 

Today, I stand by this conclusion: Renters insurance is a smart investment. But many renters don't agree. The Rental Housing Journal reported in 2018 that only 41% of renters carry renters insurance. 

Perhaps the 59% of uninsured renters think the coverage is not affordable. Or, they're too busy with work and life to deal with it. 

Whatever the reason, not carrying insurance as a renter leaves you exposed to serious financial harm. Read on to learn why. You'll find out what renters insurance covers, what it doesn't cover, and common misconceptions that may be keeping you from purchasing this protection.

Typical renters insurance coverages

Renters insurance has three standard areas of coverage: personal property, personal liability, and additional living expenses. Let's look at each one. 

Personal property

The personal property coverage on a renters insurance policy protects against damage, theft, or destruction of the things you own. This includes your clothes, furniture, appliances, kitchen equipment, and electronics.¹ 

You may also get protection on higher-priced items like jewelry and specialized sporting equipment, but only up to a specific dollar limit. For example, your policy might cap your jewelry coverage at $1,500 or $2,000. 

An interesting aspect of this coverage is that it protects those items even when they're not in your rented home. Say your car gets broken into while you're on a road trip. The thieves walk off with your camera and $500 worth of clothes. On most renters policies, this should be a covered loss. 

If you can prove your ownership and the value of those items, you can file a claim and expect reimbursement.² 

Personal liability 

Personal liability insurance shows its worth when someone sues you for property damage or bodily injury. The lawsuit can involve injuries or damage occurring inside your rented property or elsewhere. Perhaps an acquaintance falls down your stairs, your dog bites a neighbor in the yard, or a stranger accuses you of pushing him and breaking his ankle. 

Here's generally how your liability coverage works in these scenarios. You find out someone has a complaint against you and you turn the matter over to your insurer. The insurance company will investigate the issue and pay for resulting costs. Those costs can include legal fees, court costs, settlement payments, and damages.³ 

Note that your liability insurance covers you against accidental acts. Your insurer will deny your claim if investigation indicates you intentionally harmed someone else or their property. 

A standard renters policy includes personal liability coverage up to $100,000.⁴ 

Additional living expenses

Additional living expenses (ALE) coverage reimburses you for extra costs you incur if you must relocate temporarily due to damage at your rental. 

Say a pipe bursts and causes major damage. Your landlord asks you to move out for two months so a contractor can repair the unit. If the rent at your new place is higher than what you were paying previously, your renters insurance may fund the difference. 

ALE coverage can also pay for: 

• Increased fuel expenses if your new commute is longer than the old one. 

• Pet boarding if your new place doesn't accept pets.

• Added food costs -- say, for dining out if you don't have a kitchen in the new place. 

• Storage rental costs if you must store some of your things.

ALE coverage doesn't last indefinitely. Your policy will outline a dollar limit on this coverage and a timeline. For example, the policy may cap the total ALE payout at $10,000 or limit the reimbursements to 12 months per incident.⁵

Unfortunately, there are situations when your ALE coverage doesn't help you at all. Renters policies usually exclude floods and earthquakes, for example. If the cause of the damage is an excluded event, your extra expenses are not reimbursable. 

What renters insurance does not cover

Renters insurance provides a lot of protection for the price, but the coverage does have some holes. Four of those holes you should know about are: commonly excluded perils, expensive or undocumented belongings, your roommate's stuff, and structural damage. 

1. Commonly excluded perils

A "peril" is an incident that causes damage or bodily injury, such as a fire. Covered perils on most renters policies are tornadoes, fires, hailstorms, falling trees, explosions, and volcanoes. That's the good news. 

The bad news is that most renters policies exclude floods, earthquakes, and bug infestations. If your policy excludes it, then you are financially responsible for any losses that arise from that peril.⁶ 

2. Expensive or undocumented belongings 

As noted above, your personal belongings coverage will have payout limits on certain categories of items, like fine jewelry. If you own anything expensive or collectable, your policy limits won't fully protect these items. 

As well, when you file a personal belongings claim, the insurance company will ask you to prove you owned the lost or damaged items. If you don't have receipts or another form of documentation, your carrier may deny the claim.⁷ 

3. Your roommate and your roommate's stuff 

Your renters insurance covers you and your belongings. The liability coverage does not extend to your roommate, and the personal property coverage does not extend to your roommate's stuff.⁸ 

4. Structural damage 

Renters insurance does not include coverage against structural damage of your rental. Your landlord owns that structure, so it's his or her responsibility to insure it. 

There may be scenarios, though, when your renters policy would pay for rental damage anyway. If you accidentally break a window or start a fire in the home, your landlord may be able to file a claim against your personal liability coverage to pay for the repairs.⁹ 

Read your policy carefully, though. Some will exclude all damages to the landlord's property, despite the cause.¹⁰ 

Common misconceptions about renters insurance 

Even when you know what renters insurance does and does not cover, it's still easy to misunderstand certain aspects of this coverage. Here's a closer look at four common misconceptions about renters insurance. 

1. You don't need it. 

You can justify not having renters insurance in various ways. You might say that you don't own enough stuff to warrant the cost. Or, that your place isn't prone to tornado damage or theft. These things may be true, and that's great. Insurers will see you as low risk and quote you lower premiums as a result. 

The thing is, you can't predict when you might need the liability or ALE on a renters insurance policy. Without insurance, a lawsuit or temporary relocation could wipe you out financially. That's not a risk you should take if you can avoid it. 

2. Your landlord's insurance covers you.

To be clear, your landlord's insurance does not provide you with any personal property or liability coverage. If you don't have renters insurance or a personal liability policy, you have no coverage in these areas.

3. Renters insurance covers everything in your place.

As noted, the personal property coverage on a renters policy is not comprehensive. You may have only partial coverage on high-priced items and you'll have no coverage on anything your policy specifically excludes. Also not covered are any belongings in your rental that someone else owns. 

4. Renters insurance is expensive.

Insurance.com reports that the average cost of a renters policy is $29 a month. That's less than a dinner out or a trip to the movies for two. 

For the cost, renters insurance delivers a big set of financial protections. You'll be ready for lawsuits, catastrophic damage to your rental, and even thievery. Of course, you hope not to experience any of these -- but it's nice to know you're protected just in case.