The Number One Financial Mistake Renters Make, According to a Money Expert

Finally getting your hands on the keys to your new place after signing a lease can feel like a relief. It means you’ve jumped through all the appropriate hoops, like submitting an application, budgeting for associated fees, and perhaps getting a co-signer. That’s no small feat in this current economy, where rents are higher than ever and housing shortages make applications incredibly competitive in some areas. But if you think the logistics portion of moving into your new home ends with carrying boxes of your belongings across the threshold of the front door, think again. According to financial experts, a top renter mistake to avoid is not purchasing renters insurance.

“It’s a very common mistake to not get renters insurance, especially since it can be so inexpensive,” says Dennis Shirshikov, MS, professor of finance and economics at the City University of New York, tells Well+Good. Renters insurance is a policy that covers repairs to or the replacement of personal property in the event of an unforeseen circumstance, be it a fire, flood, or robbery. Those without it aren’t compensated for any damage to their personal belongings should events of the sort transpire.

While some landlords or property managers require tenants to have renters insurance to prevent potential legal disputes in the future, it’s not legally required, and many tenants don’t purchase it. “As per statistics provided by Simply Insurance, around 57 percent of American renting households have renters insurance, which accumulates to around 25 million households being covered,” says Johannes Larsson, a personal finance expert and CEO and founder of Financer.com, a website that helps people compare financial services like personal loans, car loans, mortgages, credit cards, and more.

According to Shirshikkov, lack of awareness is a main reason why people don’t get renters insurance. “It’s less expensive than Netflix per month and provides a lot of protection. Many people are also unaware that renters insurance is available,” he says.

“Renter’s insurance is simply important to ensure your safety and your belonging’s safety while staying on a rented property,” adds Larsson. “It actually helps people save money in the long run because damages to the property and your personal items may not be repaid by the landlord,” he says, especially in cases of fire, theft, natural disasters, and other accidents.

We tapped financial experts to give us all of the insider details about renters insurance. Here’s everything you need to know about it.

How does renters insurance work?

People typically get renters insurance before they move in, however, landlords may require it in the rental lease, according to Sean Burgess, chief claims office at Lemonade based in Scottsdale, Arizona. “Renters insurance policies cover a specific property at a specific address, so once you’ve moved out of your old place, don’t forget to cancel your old policy,” he says.

You can get covered for three main types of protection: personal property, liability protection, and additional living expenses (ALE). Personal property protects your belongings in your apartment whereas liability protects you against lawsuits for bodily harm or injury done by you and family (yes, pets count, too). On the other hand, if your home is destroyed due to a natural disaster and fire, ALE covers hotels, rentals, meals, and any other expenses incurred during the temporary displacement.

When shopping around for renters insurance, Burgess says to use Google and compare provider rates for different plans. Additionally, “consider taking a look at ratings and reviews from customers and industry experts,” he says.

The insurer provider you go with will also depend on the coverage limit. To determine how much you want covered, Burgess recommends estimating the value of all of your stuff (think: furniture, jewelry, an expensive road bike, and more). For big ticket items, it may be helpful to keep digital receipts of your electronics, expensive jewelry, artwork, and more.

“In exchange for the protection that renters insurance provides, you’ll make monthly or yearly payments—known as your ‘premium’)—to your insurance company,” says Burgess. He adds that the premium depends on a range of factors, including geographic location, the amount of coverage you want to purchase, your claims history, and more. “Should you file a claim, your renters insurance company may compensate you for any covered losses over your deductible, the amount that’s subtracted from any claims payout from your insurer.”

What does renters insurance cover?

In the event of a fire, theft, water damage, smoke, or a natural disaster, renters insurance will protect your belongings, according to William Bevins, CFP, CTFA, a certified financial planner based in Nashville, Tennessee. This means that furniture, clothing (yes, your luggage, handbags, and shoes count), electronics, and other personal items within the rented space will be covered and reimbursed by insurance. There are limits to how much you can claim, though, and the amount will depend on the insurance carrier. Personal property coverage ranges between $15,000 and $500,000, per Progressive. At Lemonade, basic policies of personal property coverage start with $10,000, says Burgess.

In addition to personal property, Burgess says that most policies include personal liability coverage, which can come in handy if something bad happens (ex: someone gets hurts on your property). At Lemonade, Burgess says personal liability coverage starts at $100,000. “This means your renters or homeowner insurance company will pay up to $100,000 in legal fees, medical expenses, or damages per liability claim,” explains Burgess. This policy’s coverage limit can be increased at any time and up to one million dollars. However, some states will set lower coverage limits—in California, Lemonade’s liability coverage is capped at $500,000, according to Burgess.

While most standard insurance policies include personal liability coverage, it’s important to check with your insurer to see if it’s included in your plan. “This [personal liability coverage] could come in handy in a number of situations, including if/when you need a lawyer to defend you, medical payments to others, property damage payments, damages caused to others by your pets, and damages caused to others by members of your household,” explains Burgess. He says personal liability insurance will only cover personal injury to others, not yourself or others covered under your policy.

When you move in, Bevins recommends building a visual inventory of your personal property prior to experiencing a loss through a combination of photos, videos, and receipts of big-ticket items or items of value. “This documentation would be beneficial in the case of theft or a complete fire loss,” and will be beneficial to have during the claims process, he adds.

How much does renters insurance cost?

The cost of renters insurance will vary by insurance providers, geographic location, and how much you want covered, says Burgess. Per NerdWallet, a personal finance company, renters insurance ranges between $8 and $22 per month. States like Michigan and Mississippi have higher rates ($22 per month) compared to Wisconsin ($9 per month) and Wyoming ($8 per month).

Once your claim is filed and processed, deductibles—your contribution or financial participation with a claim in the event something happens to your stuff—is deducted from the payout. For example, “a tenant chose a renters insurance policy with a $250 deductible. A few months later, they filed a claim for a stolen bike valued at $1,000—if the claim is approved, the insurer would pay them $750 ($1,000 minus the $250 deductible),” explains Burgess.

How to file a claim?

If you’ve come home to a damaged unit or find that items have been stolen from your home, Bevins recommends photographing and videotaping the damage. Afterwards, contact your insurance carrier right away, file a police report (if theft)—which can be attached as evidence in your claim—and start building an inventory of your home. Building this list can paint a better picture for the insurance adjuster, the company representative who will investigate your claim and determine how much money is owed.

Having your home broken into or finding personal belongings damaged is stressful enough. That’s why financial experts recommend purchasing renters insurance—it can give you peace of mind whenever you leave your house and help you better navigate through turbulent times.