How Does Renters Insurance Work?

If you’re leasing a home or apartment, renters insurance is key to protecting your finances. Your landlord’s insurance may cover the building, but it does not extend to your personal belongings or liability. Renters insurance may fill this gap by providing financial assistance in case of accidents, damage or other mishaps.

How Does Renters Insurance Work?

When you purchase a renters insurance policy, you pay an insurance provider a monthly or annual premium to maintain coverage. If a covered loss or damage occurs, you file a claim with your insurance provider, who will review the claim. An approved claim means the insurer may compensate you based on the terms of your policy. The payout typically follows one of the following methods:

• Actual cash value (ACV)—The insurer reimburses you for the current market value of your damaged or stolen items, factoring in depreciation. This means you receive less than what you originally paid for the item due to wear and tear over time.
• Replacement cost value (RCV)—The insurer pays the full cost to replace the item with a new one that is of comparable kind and quality without factoring in depreciation. Initially, you may receive an ACV payout, but once you submit proof of replacement, the insurer may reimburse the remaining cost.

For liability claims, the insurer may pay the injured party directly or cover legal expenses up to your policy’s limit. If your policy includes additional living expenses coverage, the insurer may reimburse you for hotel stays, food and other costs incurred while your rental is being repaired.

Your insurance provider will typically issue payment via direct deposit or check. The claims process and payout timeline depend on the complexity of the claim and your insurer’s procedures.

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This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.