How Renters Insurance Works for Tenants

What could be worse than coming home to your West Loop loft apartment to find that your beloved new bike, electric guitar, laptop, and television have been stolen? Here’s what’s worse: experiencing that terrible loss and realizing that you have to finance the replacement of those things because you don’t have renter’s insurance.  After a break-in, tenants often turn to the landlord to cover the loss. But the landlord is not responsible for damage or theft of the tenant’s property (excepting in cases of theft arising from the landlord’s negligence, like if the landlord refused to fix a broken lock or smashed first-floor window), and the landlord has no obligation to pay. 

For the annual cost of a few Cubs bleachers tickets, a Chicago renter can buy a policy of renter insurance that will cover the actual cost, or the replacement cost, of stolen items.  A replacement cost policy will pay what it would actually cost to replace the stolen items, minus the deductible, whereas an actual cost policy will pay what the property was actually worth when it was stolen, minus the deductible.  Consider your two-year old tablet. A replacement cost policy would pay out enough to buy a new tablet of similar quality, whereas the actual cost policy would pay out what the tablet was worth at the time of the theft – an amount significantly less than you paid a couple of years ago. Premiums for replacement cost policies are more expensive, but they pay out more. If you have a lot of electronics, which quickly depreciate in value, a replacement cost policy might be a better bet for you. 

Renter’s insurance also covers damages from accidents that could otherwise quickly drain a renter’s savings. Imagine leaving a faucet running in the bathroom, thereby causing a flood into the downstairs unit, or causing a small grease fire the kitchen – the renter’s insurance policy will cover the damage (up to a certain limit), protecting you from forfeiting the security deposit and paying out of pocket for the rest.  The policy will also respond if one of your visitors is injured in the apartment, perhaps by tripping over the Red Eye newspapers you’ve left piled by the door for recycling. 

Lastly, if your apartment becomes uninhabitable because of fire, flood, or because a huge pile of Lake Effect snow falls through your roof, renter’s insurance would cover the cost of a hotel for the time your apartment is unavailable to you. 
But beware: if you are operating an Airbnb out of your apartment – which would be illegal in Chicago, by the way, if you don’t have a Chicago vacation rental license and your landlord’s permission – the renter’s insurance policy won’t cover theft or damage done to your home by the Airbnb tenant. 

Why Should Landlords Insist that Tenants Buy Renters Insurance?

Landlords should encourage renters to buy a renter’s insurance policy to cover the value of the tenant’s personal property and to cover liability, too.  Even the most careful tenant might do accidental but massive damage to the apartment.  Particularly now that most Chicago landlords have moved away from collecting security deposits -- the onerous requirements of the Chicago Residential Landlord Tenant Ordinance are quite the deterrent --  the next line of defense against a tenant’s accidental damage is his or her own renter’s insurance policy.  Sure, the landlord can also make a claim on his or her own policy of general commercial liability on the property to finance repairs necessitated by a tenant’s damage – but the landlord will have to pay higher premiums down the line. 

Similarly, if the apartment becomes unavailable due to fire, flood, or some other catastrophe, the landlord will benefit if the tenant can cover his or her own hotel costs through the renter’s insurance policy. 

Just remember, landlords, that if it is your policy to require renter’s insurance, then you should require it of all tenants – don’t require it only of tenants of a certain sex, age, family status, or other protected category.