Renters insurance explained: a beginner's guide

The most common misunderstanding about renting is that the landlord's insurance has something to do with you. It does not. The landlord's policy insures the building and the landlord's liability. If a fire starts in the unit above yours and your furniture, clothes and laptop are ruined, the building will be rebuilt and your belongings will not be replaced by anyone but you, unless you have a renters policy.

A renters policy is a homeowner policy with the building removed. It has three working parts: personal property, liability, and loss of use. It is priced for what it is, which is one of the least expensive policies an agency writes, and the reason people skip it is usually that nobody explained what it does. This guide does that, then covers the choices that matter and the situations where a renter is caught out.

Personal property: everything you would carry out

Personal property coverage pays to repair or replace what you own after a covered peril: fire, smoke, theft, vandalism, a burst pipe, a windstorm through a broken window, a lightning strike that takes out the electronics. The limit is one you choose, and the useful way to choose it is to imagine turning the apartment upside down and pricing everything that falls out. Clothing alone surprises people.

Two settings decide how a claim pays. The first is valuation. At actual cash value the carrier pays the depreciated worth of a six-year-old television; at replacement cost it pays for a new one of like kind once you have bought it. Replacement cost costs a little more and is usually worth it. The second is the set of sublimits: jewellery, watches, firearms, cash, bicycles and business property are each capped at a modest figure regardless of the main limit. An engagement ring or a road bike worth more than the sublimit needs to be scheduled on the policy by description and value.

Suppose a burglary takes a laptop, a camera, a watch and a bicycle, and the receipts add up to $6,000. The policy has a $500 deductible and a $1,500 sublimit on jewellery and watches. If the watch was worth $2,500 the carrier pays $1,500 for it, the full amount for the rest, and subtracts the deductible once. Those are invented figures; the point is that sublimits bite exactly on the things thieves prefer.

Property away from the unit

Renters coverage follows your belongings off the premises, usually at a reduced share of the main limit. A bag stolen from a car in a Tempe parking garage, a phone taken at a trailhead near Boise, or skis lifted from a rack in a Park City lot are claims against the renters policy, not the auto policy, which does not cover personal items inside the vehicle. Students living in a dormitory are often covered under a parent's policy while enrolled; students in an off-campus apartment usually are not, and need their own.

Liability: the part that is not about your stuff

Personal liability pays what you owe when you injure someone or damage their property, and it pays for the defence. A guest who trips over a cord and breaks a wrist. A bathtub left running that floods the unit below. A dog that bites a neighbour in the hallway. A cooking fire that spreads to the adjoining apartment, where the landlord's carrier repairs the building and then pursues you for the cost. That last one is why many landlords in Phoenix, Las Vegas and Salt Lake City now write a renters policy into the lease as a condition of tenancy.

The limit is a choice, and raising it is usually inexpensive. Someone with savings, a car and a career ahead of them has more to lose in a lawsuit than they think, and a renters liability limit is also the underlying coverage an umbrella policy will sit on. Medical payments to others, a small companion coverage, pays a guest's minor medical bills without anyone having to prove fault.

Loss of use: somewhere to sleep

If a covered loss makes the unit unlivable, loss of use pays the additional cost of living elsewhere until it is repaired: a hotel, a short-term rental, the extra cost of eating out. It pays the difference between your normal costs and your temporary ones, not everything you spend. After an apartment fire this coverage is the one that matters most in the first week, and it is the one first-time buyers most often set too low or ignore.

What is not covered

The exclusions mirror a homeowner policy and a few are specific to renting.

• Flood and surface water. A ground-floor unit near a wash in Tucson or a flash-flood channel in Henderson needs a separate contents flood policy; the renters policy will not respond.
• Earthquake. Excluded on standard forms; an endorsement or separate policy is available and worth a look along the Wasatch Front.
• Bed bugs, pests and mould from long-standing moisture.
• A roommate's belongings. A policy covers the named insured and resident relatives; an unrelated roommate needs to be added by endorsement or carry their own policy.
• Business property beyond the sublimit, and business liability altogether. A home-based business run from the apartment needs its own coverage.
• Your car. Damage to the vehicle is an auto question; only the belongings inside it are a renters question.

Roommates, partners and the named insured

The policy covers the person named on it and relatives who live with them. Two friends sharing a lease are not relatives, so one policy in one name covers one person's belongings. Some carriers will add a roommate as a named insured; others will not, and each roommate then needs a policy. An unmarried couple is treated the same way. Check the declarations page for whose name is on it, because a claim by someone who is not named is denied on that basis alone.

What moves the premium

Renters premiums are small, and the levers are correspondingly simple.

• The contents limit, and whether it is at replacement cost.
• The liability limit.
• The deductible; a higher one lowers the premium, and should still be an amount you could pay this week.
• The address and building: a gated complex with sprinklers rates differently from a converted house.
• Claims history and, in most states, an insurance score.
• Bundling with an auto policy at the same carrier, which often discounts both.

How to use this

Walk through the apartment with a phone, film every room and every drawer, and store the video off site. Add up what it would cost to replace all of it new, and that is the contents limit. Pick a liability limit you would be comfortable defending a lawsuit with, schedule anything over a sublimit, and ask whether the lease requires the landlord to be listed as an additional interest. We quote renters policies across the carriers we represent in Arizona, Nevada, Utah and Idaho, often alongside the auto policy, and if what you already carry is right for the apartment we will say so.