How Does Renters Insurance Work

A place to call home

With the private dwelling construction part of our economy struggling to keep pace with the demand for single dwelling houses and the high price of purchasing a private dwelling, many consumers are finding themselves in a position where renting is their best option for having a place to call home. This places them in a position where they still have the same need for insurance coverage as a regular homeowner except for the structural insurance provisions. 

What’s the difference–rent or lease?

There are two types of individuals who qualify for renters insurance, namely renter or lessee. The renter has a monthly contract with the dwelling owner to pay a fee normally charged on a monthly basis called “rent.” The renter generally has no guarantee as to how long the rent will remain at its current level. They also have a contract which requires them to maintain the property in good condition, an agreement that the property will not be sublet to anyone else, an agreement that no illegal or illicit activities will be allowed on the premise, and along with other provisions, an agreement that they can be evicted if any provisions of the rental agreement are broached.

One upside to a rental agreement is the ability of the renter to move with no financial consequences if they so choose. 

A lessee has a lease agreement with the dwelling owner similar to the renter’s agreement in that all the provisions for renting are met, coupled with additional requirements of showing proof of personal liability insurance and an agreement that the lessee will remain in the residence for a specified period of time, with an agreement that the lease payment will remain the same for a specific time. Not a whole lot of difference between the two types, but the lessee does have the benefit of knowing how long the payment will remain the same.

Insurance Provisions

Since the insurance companies provide the same coverage for a renter or a lessee, the policy issued is referred to as a tenant homeowner policy. This policy has three major components: personal belongings, personal liability, and provision for specific coverages.

• Personal Belongings. Depending on the company issuing the policy, personal belongings generally refer to household items owned by the tenant, excluding any items which are permanently attached to any portion of the structure. This could include cooking utensils, stoves, refrigerators, A/C units, TVs, furniture, fish tanks, arboretums, floor coverings which are not permanently attached to the floor, etc.

Household items also refer to personal clothing; bathroom items; limited coverage for items used for business purposes; recreational equipment including small watercraft, kayaks, canoes, water skis, motors; jewelry; numismatic objects; hearing aids; wheelchairs; grave markers; guns, etc. Many of these items have specific limits spelled out in the language of the policy. Be sure to check the actual provisions of your particular policy because there can be a big difference in competing policies.

• Personal liability. Even though a tenant does not have any financial interest in the property being rented or leased, he/she still bears the burden of caring for the damage to property or injury to individuals that they may cause. The tenant policy will in its policy provisions describe what types of events would be covered, and the policy declaration pages will list monetary limits provided. Again, take the time to become familiar with this segment of your policy. Some policies provide under this segment even provisions to protect you in recreational activities like boating, skiing, golfing, rodeoing,volunteer work, i.e. school boards, 4-H, boy or girl scout involvement. This portion of the policy goes wherever you go but does not give any personal liability coverage while you are involved in business pursuits or operating a motor vehicle or an aircraft. Some policies do give you coverage while you operate a motor boat up to a certain size. Check your policy.
• Specific coverages. Because a tenant may have some unique coverage requirements, tenant homeowner policies have a segment which is generally referred to as inland marine coverage. This section can provide specified dollar amounts for items like jewelry, hearing aids, dirt bikes, computers, watercraft, musical instruments, coin or stamp collections, to name a few. The section also describes perils protected against. 

Insured Perils/Maintenance Perils

This provision of a tenant homeowner policy is particularly important to understand because contrary to popular belief insurance does not cover every possible loss. Some things which cause potential damage to a home or contents are referred to as maintenance perils which are the responsibility of the owner or tenant to correct. Things like excess snow or ice buildup on a roof, trees hanging over a structure, leaking water pipes or faulty wiring are just a few to consider. 

The insurance companies have identified certain perils ( events which could cause damage to property, items, or belongings) as insurable perils being covered. The language in the policy identifies each of these perils as a named peril. Things like fire, windstorm, theft, breakage of glass, weight of ice and snow gives you a flavor for these perils. Also, many of the policies have language which indicates all perils are covered except the ones specifically excluded, so again become familiar with the policy. A good motto is, it’s better to know what you are insured for at the outset than to be bitterly disappointed when what you thought you were insured for turns out to not be covered. 

Points of Interest

• Most tenant homeowner policies have a provision to protect your personal belongings on a worldwide basis subject to a percentage of the amount shown on your declaration page (page showing dollar limits for structures, household belongings, personal liability coverages, and deductibles. This is true subject to the provision in the policy of the coverage being on a temporary basis–while you are away on vacation or a business trip would be examples of the extended coverage.
• The policy gives full coverage subject to declaration page amounts at the address shown on your policy at your place of residence. Be sure if you move to notify your insurance company of your new address so you don’t have a limitation of coverage if you have a loss.
• Check with your insurance company to see what extension of coverage is given to your college-bound child. Some insurance companies still count that college student as an insured and will cover items he/she takes to college. It also may be worth your while to discuss how items like the expensive bike or computer should be listed. A regular coverage from the existing policy will not cover a computer just getting dropped or an expensive tuba getting damaged in a riot when the home team wins and the field gets stormed by the crowd wanting to tear the goal post down. The specific provision part of the policy could make a difference in this regard. 
• If you have a live-in partner who has personal belongings of his/her own, you can be sure they do not have a lack of coverage simply by adding their name to the declaration page of the policy. With the gray area of definition of marriage, this is just a simple way of making coverage available without having to itemize items per named insured if a loss occurs or having to have a separate policy issued.
• Condominium Owner. This is a hybrid in the sense the tenant owns a portion of the building but only needs to cover the physical structure from the interior walls in. The condominium association carries insurance on the structure and provides liability insurance for common areas of the risk. All the provisions of a tenant homeowner policy are applicable to the condominium owner and is expanded to cover the interior of the condo.
• Your rental may not be owned by you but it still gives you all the joy of ownership, so protecting what you do own and what you may be liable for still gives you peace of mind. 

Being a responsible tenant and showing pride in your occupancy will go a long way in a good relationship with the owner of the house. It is nice you have a house to put your home in.