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For many of us, renter’s insurance might be the first insurance package we ever consider buying – I know it was for me.  And, many landlords now require that you have renter’s insurance – some will even force coverage on you if you don’t buy your own policy.

So, what is it?

The basic concept is that if something awful happens in your place, renter’s insurance covers the cost to get things back the way they were.  Sounds good, right? Yes…maybe. You probably guessed this, but it’s complicated.  

Yes, there are two primary types of renter’s insurance, and one of them should really be renamed landlord insurance.

That type – liability-only insurance – is really coverage for the landlord in case something happens to your apartment.  Let’s imagine your cat turns on the water in the tub and runs it all day while you’re out of the apartment and there’s a big flood (it could happen!).  In that case, your landlord can claim against the insurance, usually for the first $100,000 of damage. Let’s be clear – the landlord could also file a claim against you in this situation, so that $100K of insurance does provide you with some level of protection against a situation like this, since they’ll go after that first, and in most situations, that will be enough to cover them on the damage.  

However, this type of renter’s insurance doesn’t cover any of your stuff at all…If your laptop, your clothes and your fabulous vintage fashion magazine collection all get ruined in the flood, this type of insurance doesn’t cover you at all.

I want my stuff covered too!

The other type of renter’s insurance – often called “HO-4” insurance (that’s the fancy insurance industry technical term for this type of policy) – can be much more comprehensive.  

HO-4 usually (but not always) includes the same kind of liability policy mentioned above.  Usually $100K of liability again, but you can buy more protection from some insurers if you want.

What’s big about an HO-4 policy is that it also covers you and your stuff.  So, in that same cat-imposed flood, you would have some coverage for your computer, clothes and more. How much coverage depends on your renter’s insurance policy – it could be up to $20,000 or more.  And, it may even cover your stuff outside of your place. Bike gets stolen while it’s locked up by your favorite restaurant? Might be insured!

Here, it’s important to read the policy and understand what you’re buying.  Some policies cover you for cash value and others for replacement cost. If you have cash value coverage, your vintage magazine collection might just be covered for the price on the cover; with replacement cost, you would be able to claim what it would actually cost to replace them.

Is renter’s insurance right for me?

Only you can make that decision, but it sure can be nice to have some peace of mind that if something happens, you’ve got an insurance company that can help you make things right.  The cost can be different if you are renting a single-family home, condo, or apartment. You should also take into consideration what damage is covered due to natural disasters prevalent in your areas like floods or fires, as renters insurance can be an important part of your emergency preparedness plan.

That said, it comes at a cost, like all things and it is important to consider your total monthly budget as well as your ability to recover from a disaster without insurance coverage. If your budget’s tight, you can get renters insurance from companies like Lemonade starting as low as $5 per month, or $60 for the year.

Whatever you do, make sure to ask lots of questions and understand what’s covered and what’s not.