After months of steeply increasing housing prices followed by a recent increase in mortgage interest rates, the dream of homeownership remains out of reach for millions of young Americans. At the same time, inflation and increased demand for housing in many U.S. cities drove rents through the roof in 2022.
These market conditions have been especially hard on renters’ pockets. As many slash spending and buckle down on their budgets, some renters are reducing their insurance coverage limits or canceling their policies altogether. But the vast majority of insured renters are choosing to maintain their current coverage. Similarly, most renters without coverage are planning to keep to the status quo.
In the midst of housing market volatility, our newest research shows that the renter’s insurance industry is projected to remain steady and even gain new customers over the next year.
55 percent of U.S. renters, or 61 million people, currently have renter’s insurance policies. This number could rise to more than 65 million within the next year.
75 percent of insured renters are required by their landlords to obtain renter’s coverage.
The average renter’s insurance premium was $211 per year, or about $18 a month. The most popular deductible was $500.
Only 18 percent of insured renters had noticed an increase in their premiums over the last year, compared to 43 percent of insured homeowners.
Most renters are sticking with their current coverage (or lack of coverage). Just 14 percent of insured renters plan to make changes to their current policies. Of those who don’t have renter’s insurance, 16 percent said they are likely to purchase a premium within the next 12 months.
Demographics of Insured Renters
Renter’s or tenant’s insurance protects renters who experience unexpected property damages. In our latest research, we found that 55 percent of renters had renter’s insurance policies. This is an estimated 61 million U.S. renters.
The vast majority of individuals with renters insurance were required by their landlords to have this type of coverage. Many landlords do this to prevent claims against their own landlord insurance policies.
Our data revealed that renters of all ages and genders were interested in protecting their property with renter’s insurance, though slightly more female renters than male renters had coverage. While more than half of all renters in each age group had insurance coverage, renters in their 20s were likelier than any others to have insurance.
The largest difference in terms of renter’s coverage was between people who lived in public versus private housing. About one in four people living in public housing had renter’s insurance coverage, compared to nearly 60 percent of people in privately owned housing.
Since public housing opportunities are restricted to people with low income, older ages, or disabilities, their budgets may not allow for the costs of renter’s insurance. Unfortunately, these individuals would benefit most from renter’s insurance, since the cost of replacing damaged belongings out of pocket would be more burdensome on limited incomes. This is a reason why destructive disasters like Hurricane Katrina often compound wealth inequality.
Renter’s Insurance Basics
The purpose of renter’s insurance is two-fold. First, it covers damage to a tenant’s personal property. Second, it protects them against acts they may be liable for. While those are both good reasons for purchasing a tenant insurance policy, many tenants might wonder, “The building is the landlord’s problem, and I don’t own many valuables, so why spend money on a renters’ insurance policy?”
However, imagine that a fire sweeps through your apartment. The costs to replace (all at one time) your furniture, dishes, pots and pans, clothing, jewelry, electronics, linens, and sporting equipment would be in the thousands.
Our study showed that 46 percent of tenants preferred replacement cost coverage while 32 percent were happy enough with actual cash value coverage. The difference in the cost between replacement cost coverage and actual cash value may not amount to very much. But, these few extra dollars per year can make the difference in being able to replace everything at current prices.
We were also interested to know which insurance companies tenants preferred when looking for tenant insurance. We found that State Farm and Geico were the most popular among tenants in our research, followed by Progressive and Lemonade.
2022 Renter’s Insurance Costs
Anyone concerned may about their budget occasionally looks for ways to reduce expenses. One expenditure they reconsider is their tenant insurance premiums. Nonetheless, there are two things renters may fail to think about – the amount of coverage they get compared to the premium, and how much the budget will increase if they have a loss.
Average Annual Premium by Deductible
Among those with no claims history
Average Annual Premium
Our study showed that the average premium for a tenant policy is just $211 per year! That amounts to less than a car wash or a cup of coffee every day. Considering a tenant policy typically covers tens of thousands of dollars in contents and hundreds of thousands in liability coverage, a tenant insurance policy provides astounding value. The value is particularly significant, especially considering the average home insurance policy is more than seven times higher at $1,584 a year.
We also found the most common deductible is $500, as 53 percent of renters chose this option. The deductible is the amount a tenant would have to pay before an insurance company would pay for a loss.
The $500 average deductible was a bit surprising, considering the premiums are only $5 to $6 per month more for a $0 or $250 deductible. However, this might be because tenants are often in a rush to purchase a policy and may not shop around for multiple quotes. They may also think they’re unlikely to need the coverage, and thus choose a high deductible.
Top discounts on renter’s insurance
Tenants can offset a higher premium generated by a lower deductible by taking advantage of as many discounts as possible.
Our study showed that 85 percent received at least one discount and 60 percent of renters received two or more discounts on their tenant insurance policies. About 43 percent of renters chose to bundle their tenant insurance policies with auto or other insurance policies. With the popularity of online bill-pay plans, about 35 percent of tenants can get an additional discount for going paperless.
Fifteen percent of tenants were not getting any discounts, which may be because they were unaware of the possibility or failed to ask for them. The best way to find all available discounts is to ask an insurance agent for a policy review.
What about roommates?
As rents soar and inflation increases, more and more people will be looking to split the rent with roommates. Those looking to save even more might wonder if they can share a renter’s insurance policy with their roommate. In a situation where a roommate has a tenant policy and the other does not, the tenant insurance does not extend to other roommates as they are not related to each other.
However, one renter’s insurance policy would cover related people in a household such as the spouses, children, and parents of a policyholder. The caveat is the coverage limits may not be enough to protect everyone’s personal property.
Either way, it is best for both family members living together and unrelated roommates to have their own tenant insurance policies for maximum coverage.
Renter’s Insurance Market Forecast
The good news about renter’s insurance is that tenants can count on their tenant insurance premiums to be relatively stable. While 43 percent of homeowners indicated their home insurance premiums went up over the previous year, only 18 percent of tenant insurance premiums increased.
While history shows that tenant insurance premiums tend to be fairly steady, certain conditions could cause them to trend upward. A tenant who files a claim on their tenant insurance policy will likely see an increase in their premium, although only three percent of tenants in our study had ever filed one.
Increases in tenant insurance can happen for other reasons besides claims. For example, suppose insurance companies pay out claims in the hundreds of thousands of dollars after major catastrophes like Hurricane Ian. In that case, insurance companies will have no choice but to increase premiums.
Inflation may also impact increased tenant insurance premiums as it will cost more to replace damaged or stolen property. Lastly, excessive lawsuits could negatively impact insurance companies’ profitability, which could also have a bearing on increasing tenant insurance premiums.
Most renters have no plans to change their coverage
In light of the economy, housing market, and other societal factors, what plans do tenants have regarding their tenant insurance policies? Our study showed that most renters would not be making any changes to their tenant insurance policies. It stands to reason if something is not broken, why fix it?
About one in 20 insured renters plan to change their coverage or change their insurer altogether. Another six percent of insured tenants plan to cancel their policies without switching to a new insurer. They may be doing so for reasons such as moving in with a family member, purchasing a home, or moving out of the country.
Tenants who are unhappy with their current tenant insurance company may be canceling their coverage at the renewal date or sooner. Budget-savvy tenants commonly leave their present insurance carriers to save money. There is not really a downside to switching insurance companies as long as tenants switch to an insurance company that is financially strong and has a good reputation among its policyholders. The main risk is canceling the old policy before the new one officially goes into effect, which would create a coverage gap.
Top reasons for changing insurers
Top reasons for changing coverage
Moving to a new home
Increasing coverage amount
No longer need renter’s insurance
Adding optional coverages
Removing some optional coverages
Changing to a company that offers better bundling options
Changing to a company that has optional coverage not available on current plan
Reducing coverage amount
Reducing coverage is one way to get a lower premium, yet too low of a limit for contents or liability could defeat the purpose of having tenant insurance. In this case, tenants would run the risk of being able to get their contents replaced or not having enough liability to cover a lawsuit in the event of a claim.
According to our research, 16 percent of renters without insurance are likely to purchase a policy within the next year. This could be nearly 8 million new customers. However, most renters who do not have tenant insurance aren’t likely to purchase a policy anytime soon. These individuals may not be required to have insurance coverage or simply not feel their possessions are at risk of loss.
With increases in the number and severity of natural disasters and the rising cost of replacing personal items, a tenant insurance policy is a wise investment.
All tenants benefit by purchasing a tenant insurance policy, and they far outweigh the cost of purchasing tenant insurance. Therefore, the premiums for tenant insurance are quite affordable for any budget. In addition, discounts for tenant insurance policies are plentiful, making them even more lucrative.
As we move into 2023, tenant insurance will continue to be a wise choice for renters, and the market will remain steady despite housing market volatility.
In October 2022, we conducted an online poll of 1,504 renters. Those with renters’ insurance were invited to participate in a more detailed questionnaire about their specific policies. 55 percent were women, 36 percent were men, and about 9 percent did not provide their gender. Participants ranged in age from 18 to 84 with a mean of 35.