Renters insurance is cheap and can give you financial security in case of a disaster.

Renters insurance is for people who don’t own the home they live in. If your building catches on fire or your laptop is stolen, the payout from your renters policy can get you back up and running. Here’s how it works.

How does Renters Insurance work?

A standard renters policy has four types of coverage, each for different expenses. One would pay out if your stuff is destroyed in a fire, for example, another would pay for your legal fees if someone sued you.

Each section of your policy will only pay up to the limit of that coverage. The higher the limits you choose, the more expensive your policy will be. But a policy with higher limits will give you more financial protection.

Here are the four types of coverage you’ll find in most renters policies:

Type of coverage	What it does
Personal property	Covers your clothing, furniture, electronics and other belongings.
Loss of use	Pays for hotel stays, restaurant meals or other expenses if you have to live elsewhere while your home undergoes covered repairs.
Liability	Pays out if you’re responsible for injuries to other people or damage to their property.
Medical payments	Covers injuries to other people in your home, regardless of fault.

The type of coverage that it does personal property covers your clothes, furniture, electronics, and other stuff. Loss of use for hotel stays, restaurant meals, or other expenses if you have to live elsewhere while your home is being repaired. Liability pays out if you’re responsible for injuries to others or damage to their property. Medical payments cover injuries to others in your home, no matter who’s at fault.

You can also add other coverages to these basics. See our full guide to renters insurance coverage for more.

If something happens that you think is covered by your policy, you’ll need to file a claim with your insurance company. Depending on your carrier, you may be able to do this online, through an app or by phone.

Provide as much info as possible to support your claim, including photos or video of the damage, if applicable. A police report may be required for theft claims.

Your insurance company will review your claim. If approved, they’ll pay out for the damage minus your deductible. For example, if you have a $1,000 deductible and a $5,000 claim for property damage, your insurance company will pay $4,000.

Is renters insurance mandatory?

No, but some landlords require proof of renters insurance before you sign a lease or within a certain time frame. Usually, though, it’s up to you.

If you have a futon, a coffee maker and a toothbrush, you probably don’t need renters insurance.

But for most people, it’s a smart (and cheap) investment. Having renters insurance means you won’t have to pay out of pocket to replace everything that could be damaged or stolen: jewelry, TV, computer, furniture, clothes, and so on. A landlord’s insurance won’t

Do college students need renters insurance?

If you’re in college, you may not need your own renters insurance as long as your parent’s homeowners or renters policy covers your stuff and your liability. But check the details.

In some cases your parent’s policy will only apply if you’re living in campus housing, not if you have your own apartment off campus. Also ask your parent’s insurance agent if coverage is limited up to a certain amount. If you have expensive computer equipment or a pricey musical instrument, for example, the amount of coverage might not be sufficient.

How much does renters insurance cost?

Renters insurance costs $148 a year or $12 a month on average, according to NerdWallet’s rate analysis. Most insurance companies will give you a discount if you bundle your auto and renters insurance. They may also reduce your rate if your apartment has a security system, smoke detectors or deadbolt locks.

Want more ways to save? Try raising your deductible. The higher your deductible the cheaper your premium.

When choosing a deductible amount ask yourself: How much can you afford to pay out of pocket if something goes wrong? Note you’ll pay the deductible each time you file a claim for personal items. Your rate will go up after each claim so weigh whether to file one for an amount close to the deductible.

How to get renters insurance

Ready to buy a policy? Follow these steps.

1. Assess your needs

Before you can buy renters insurance you need to figure out how much coverage you need.

First take stock of your belongings. To get an accurate idea of what you have go through each room and take a quick home inventory. (Don’t forget to open your closets and drawers.) Consider taking video of each room — it could be helpful later if you need to file a claim.

The default limit for renters liability insurance is $100,000. This may be enough unless you have a higher net worth you want to protect.

Lastly, consider if you need extra coverage beyond standard renters insurance. For example, most renter’s policies don’t cover damage caused by floods or earthquakes.. If you live in an area prone to these disasters you may want to buy additional coverage.

2. Companies to research

Most major U.S. Insurers that sell renter’s policies include Allstate, Farmers, Geico, Progressive, and State Farm. You may also want to consider newer insurance startups like Lemonade and Toggle which offer quick coverage, cool apps, and cheap rates.

Start with your auto insurance company if you have one. In some cases, the discount you get for bundling your auto insurance will pay for most or all of your renter’s insurance.

3. Shop around

Get quotes from at least three companies. You can search online or call an agent to discuss your options. Ensure that all the policies you’re comparing have the same coverage limits and deductibles.

You may also want to check if each company will cover your belongings on an “actual cash value” or “replacement cost” basis. This determines how a claim would be paid out. Here’s the difference:

• Actual cash value. With ACV coverage, you’ll be paid what your items were worth at the time they were stolen or destroyed. For instance, the suit you purchased a few years ago for $300 has likely depreciated in value significantly, and an Actual Cash Value (ACV) payout wouldn’t suffice to purchase a new one.
• Replacement cost. Choosing replacement cost coverage ensures that you receive adequate compensation to purchase brand-new replacements for any items that are stolen or damaged.

Replacement cost coverage may be a bit more expensive but could be a big help if you ever need to make a claim.

4. Buy your policy

Once you’ve decided on a policy, you may be able to buy it online, through an app or over the phone. Renters policies are 12-month terms but you can cancel at any time.

If your landlord requires proof of renters insurance, they might insist on being named as an “interested party” on your policy. Any change in your coverage or problem you will be notified.

Or you can just share your deal page. (That’s the page with all your coverage limits.)

Do college students need renters insurance?

If you’re in college, you may not need your own renters insurance as long as your parent’s homeowners or renters policy covers your stuff and your liability. But check the details.

In some cases your parent’s policy will only apply if you’re living in campus housing, not if you have your own apartment off campus. Also ask your parent’s insurance agent if coverage is limited up to a certain amount. If you have expensive computer equipment or a pricey musical instrument, for example, the amount of coverage might not be sufficient.

How much does renters insurance cost?

Renters insurance costs $148 a year or $12 a month on average, according to NerdWallet’s rate analysis. Most insurance companies will give you a discount if you bundle your auto and renters insurance. They may also reduce your rate if your apartment has a security system, smoke detectors or deadbolt locks.

Want more ways to save? Try raising your deductible. The higher your deductible the cheaper your premium.

When choosing a deductible amount ask yourself: How much can you afford to pay out of pocket if something goes wrong? Note you’ll pay the deductible each time you file a claim for personal items. Your rate will go up after each claim so weigh whether to file one for an amount close to the deductible.

How to get renters insurance

Ready to buy a policy? Follow these steps.

1. Assess your needs

Before you can buy renters insurance you need to figure out how much coverage you need.

First take stock of your belongings. To get an accurate idea of what you have go through each room and take a quick home inventory. (Don’t forget to open your closets and drawers.) Consider taking video of each room — it could be helpful later if you need to file a claim. Determine the estimated cost to replace all your belongings, and then round up to the nearest $10,000 to determine the amount of coverage needed for your personal property.

The default limit for renters liability insurance is $100,000. This may be enough unless you have a higher net worth you want to protect.

Lastly, consider if you need extra coverage beyond standard renters insurance. For example, most renter’s policies don’t cover damage caused by floods or earthquakes.. If you live in an area prone to these disasters you may want to buy additional coverage.

2. Companies to research

Most major U.S. Insurers that sell renter’s policies include Allstate, Farmers, Geico, Progressive, and State Farm. You may also want to consider newer insurance startups like Lemonade and Toggle which offer quick coverage, cool apps, and cheap rates.

Start with your auto insurance company if you have one. In some cases, the discount you get for bundling your auto insurance will pay for most or all of your renter’s insurance.

3. Shop around

Get quotes from at least three companies. You can search online or call an agent to discuss your options. Ensure that all the policies you’re comparing have the same coverage limits and deductibles.

You may also want to check if each company will cover your belongings on an “actual cash value” or “replacement cost” basis. This determines how a claim would be paid out. Here’s the difference:

• Actual cash value. With ACV coverage, you’ll be paid what your items were worth at the time they were stolen or destroyed. For instance, the suit you purchased a few years ago for $300 has likely depreciated in value significantly, and an Actual Cash Value (ACV) payout wouldn’t suffice to purchase a new one.
• Replacement cost. Choosing replacement cost coverage ensures that you receive adequate compensation to purchase brand-new replacements for any items that are stolen or damaged.

Replacement cost coverage may be a bit more expensive but could be a big help if you ever need to make a claim.

4. Buy your policy

Once you’ve decided on a policy, you may be able to buy it online, through an app or over the phone. Renters policies are 12-month terms but you can cancel at any time.

If your landlord requires proof of renters insurance, they might insist on being named as an “interested party” on your policy. Any change in your coverage or problem you will be notified.

Or you can just share your deal page. (That’s the page with all your coverage limits.)