Most renters insurance policies (like homeowners insurance policies) do not cover damages to personal property caused by a flood or an earthquake. That means the estimated 43 million tenant households that have renters insurance might find their personal belongings aren't covered in certain types of catastrophes.
Renters insurance pays for personal property, offers liability protection and will cover the cost of housing and meals in the event the rental unit becomes uninhabitable. It is essentially the same as homeowners insurance, except renters insurance does not cover the dwelling itself. That's why renters insurance is much cheaper. Even though only about 40% of renters have a renters insurance policy, every renter should consider purchasing one. People frequently underestimate the value of their personal belongings and the potential financial costs of a lawsuit. A renters insurance policy can mitigate the costs of those scenarios.
Still, depending on where a property is located, tenants should also consider bolstering their renters insurance coverage with endorsements and other insurance policies. They are important parts of shopping for the right coverage. We've broken down what three other policies cover and how they might pair with a renters insurance policy.
Flooding and Renters Insurance
Flooding doesn't just affect renters near riverbanks or ones that live on a coastline susceptible to tropical storms. Floods are the number one natural disaster in the U.S. Within the last five years, all 50 states have experienced flooding from a variety of causes including hurricanes, snow melts, heavy rains and altered geography that changed natural runoff paths. Flash floods with fast-moving water that can reach 15 feet or higher can be destructive and deadly, but a few inches of flooding can still result in thousands of dollars in damages to homes and personal property. For that reason, renters who have renters insurance should also consider purchasing a flood insurance policy.
Nearly everyone who has flood insurance purchases a policy through the National Flood Insurance Program (NFIP), a government program under FEMA created in 1968. The average flood insurance policy in the U.S. costs $700 per year, but renters who live in moderate and low-risk areas get a preferred rate. Renters who don't qualify for a Preferred Risk Policy can still purchase one through the program -- it will just cost more. Few companies sell independent flood insurance directly to consumers and they typically only offer the policies in specific, high-risk areas they have underwritten.
A detailed explanation to navigating FEMA's Flood Insurance Rate Maps, which are a factor in determinig the price of flood insurance, can be found here.
Earthquakes and Renters Insurance
There are roughly 200,000 earthquakes each year in the U.S. across the majority of the 50 states and, like floods, they are generally not covered by renters insurance policies. Many earthquakes that occur go by unnoticed but occasionally they can be violent, resulting in high property losses and casualties. An earthquake does not have to be violent to cause damage. A mild one can shake the ground enough to damage property inside a home, especially tall furniture and things on shelves.
To protect themselves from financial losses, renters should also consider purchasing earthquake insurance, especially depending on where they live. Some areas are much more prone than others, such as California.
Unlike flood insurance, renters usually have two options when it comes to earthquake insurance coverage: they can purchase an endorsement or an entirely separate policy. Renters insurance policies commonly have an optional earthquake endorsement, which extends the coverage of the policy to include damage caused by an earthquake. If a renters insurance policy does not offer an endorsement to cover earthquake damage, a number of insurance companies offer independent earthquake insurance policies.
Sinkholes and Renters Insurance
Both earthquakes and sinkholes can create fissures or distort the ground and damage property. However, they are not the same geographic event and are treated differently by insurance companies.
Sinkholes are most common in what is called “karst terrain,” where groundwater gradually dissolves soluble rocks such as salt, gypsum, limestone and other carbonates below the surface and creates a void. That void is what leads to instability and causes a slow or sudden collapse. An earthquake is a seismic event.
To mitigate potential financial losses from damage caused by sinkholes, insurance companies offer endorsements and separate policies to cover sinkholes. Most of the large home or renters insurance carriers offer a sinkhole endorsement and smaller, regional companies more frequently sell independent sinkhole loss coverage policies.
There are some caveats to sinkhole insurance that renters should think about if they are considering getting a policy. Unlike an earthquake's shaking, which can damage personal property inside a rented dwelling, sinkholes are most threatening to structures – which a landlord, not a tenant, is responsible for. Depending on where a rental property is, sinkhole insurance can be as or more expensive than a homeowners insurance policy, so it's probably not worth the cost for a renter to voluntarily incur. The likelihood of a sinkhole suddenly opening and destroying a rental property and all of a tenant's' personal property is small. Research says there is about a 1 in 100 chance of a sinkhole affecting a person each year, according to the Insurance Information Institute.