If you want to know how tenant insurance works, you’re in luck. Tenant insurance is not only one of the simplest types of insurance, it is also quite affordable. Renters insurance covers you in a wide variety of circumstances, from coverage if your laptop is stolen from your car, to medical payments for your friend who manages to fall and injure himself in your kitchen.

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While tenant insurance is generally straightforward, there are some basics that you should understand as you start shopping for premiums. And knowing what isn’t covered by tenant insurance is just as important as knowing what is.

Do I need tenant insurance?

It makes financial sense to take out tenant insurance. However, an alarming number of tenants are choosing not to get one. This could be because the need for politics is confused. Tenants usually assume that the landlord’s insurance covers property damage, but this is incorrect. Landlord insurance only covers the physical structure of the property, while tenant insurance covers all items inside and personal liability.

Many landlords require you to get tenant insurance, but even if they don’t need it, coverage isn’t very expensive. For an average price of $ 180 per year, your belongings are covered when damage occurs from a variety of events. Your belongings can be replaced and your property repaired with the help of a policy, not to mention the liability protection that a policy offers.

If you have items worth protecting, or pets and visitors, a tenant policy is well worth the investment for your financial protection.

What does tenant insurance cover?

Tenant insurance covers the cost of property damage as a result of natural disasters, theft, civil unrest and other specific events. This also includes coverage of your personal property. However, the policy goes further and also provides for personal liability and medical payments in the event that someone is injured in your rental or as a result of an accident you caused.

Another important category of coverage is the additional cost of living (ALE) or loss of use. This coverage comes in when you have to vacate your rental due to damage such as water or fire damage. It offers reimbursement if you need to reside elsewhere and incur hotel bills, temporary rentals, meals, and other living expenses.

Tenant insurance covers several main categories, but there are still some areas where a policy offers better protection.

  • Credit cards and counterfeits: Most policies include protection if your debit or credit card has been stolen, or if you are a victim of fraud (including identity theft).
  • Food spoilage: If your refrigerator fails, the power goes out, or you are forced out of your rental due to damage, your policy will reimburse you for the loss of groceries.
  • Replacement value: Another option with tenant insurance is the selection of the replacement value (RV) versus the actual cost value (ACV). If an item in your rental is damaged due to a covered event and needs to be replaced, the renter’s insurance claim payout is either RV or ACV. If you choose RV, you get a higher payout, but your premiums are more expensive.
  • Personal items elsewhere: If you have personal property off-site, it is still covered for property damage. For example, if your mountain bike is stored in a storage unit and is damaged, it will be covered.

[Read: Does Renters Insurance Cover Storage Units?]

What the tenant insurance does not cover

There are situations when tenant insurance doesn’t provide coverage – and you don’t want to get caught while you are insured. The good news is that even when something is excluded, there are usually policy add-ons available to make your policy more comprehensive.

  • Natural disasters such as floods and earthquakes: Although most guidelines cover a long list of natural disasters, floods, earthquakes, hurricanes, and sinkholes are excluded. If you live in an area where these excluded disasters occur, speak to your agent about adding coverage to your policy.
  • Pest damage: If your rental is damaged by bed bugs, termites, rodents, or other creepy crawling insects, it won’t count on your policy. However, many insurance carriers offer optional protection against bed bugs and other living things.
  • Your roommates: Rental insurance only covers the person whose name is on the policy. This often excludes roommates unless you sign tenant insurance together.
  • Your high quality items: Any item worth a certain amount, typically $ 1,500 or more, is considered high quality. You need to add additional coverage or the item will be excluded. This applies to items such as jewelry, antiques, equipment, and electronics.
  • Damage caused by pets: Damage caused by your cats and dogs in your rental property is not covered. For example, If your Furbaby chews through the walls of your rental property, you will be responsible for the damage. However, if the same furbaby bites your neighbor, any necessary medical treatment will be covered under your policy.

[Read: Defending Against Porch Pirates: What to Do about Package Thefts]

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What to look for when shopping for tenant insurance

As with other insurance products, there are certain points that you should look for to ensure you are getting the best policy for your financial situation. First, confirm the limits of tenant insurance payouts. Each category has different withdrawal limits. This is the maximum amount that will be paid for a claim. Make sure these limits are not too low or too high, and get proper coverage.

Liability insurance should provide sufficient coverage to match your net worth. Your net worth is the value of your assets – such as retirement accounts, savings, cars that you own for free and freely – minus your debts. So if your net worth is $ 300,000, your liability insurance should be at least that amount. The reason is to protect you from a culpable accident in the event of a lawsuit. If your net worth is greater than $ 300,000, the Insurance Information Institute recommends purchasing additional liability insurance.

Your property damage limit should be high enough to cover the replacement of your belongings.

Comparison shopping is a smart tactic to make sure you are getting the coverage you need. By comparing tenant insurances, not only will you get the most competitive cost for your policy, but your agent can also help you get the most comprehensive coverage.

[Read: 3 Reasons Why You Should Get Flood Insurance]

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