If you rent your home, having Renters Insurance could be essential. While your landlord’s insurance policy covers the building itself in which you live, it doesn’t cover your belongings or liability. Having a renters insurance policy could help protect you from unexpected major expenses. 

And luckily, renters insurance is relatively affordable. Many renters can expect to spend less than $20 a month for coverage. 

If you’re looking for renters insurance coverage, CNBC Select has done some of the work for you and narrowed down several of the best. We picked Lemonade as a top choice for fast, easy coverage available online in minutes.

Here’s what you need to know about renters insurance before you buy a policy. 

Renters insurance policies are helpful in three ways: repairing or replacing your belongings if damaged, paying for living expenses if you’re displaced, and covering damages to others. 

The most well-known facet of renters insurance is its ability to help you repair or replace your belongings if they’re damaged due to a covered reason, like a fire or theft. This can include your furniture, clothing, electronics and more. These expenses add up quickly, and renters insurance can help you make sure you’ll be able to afford the replacements if something happens in your home. 

Renters insurance can also help cover your additional living expenses (ALE) if your rented home becomes uninhabitable due to a covered reason. Your renters insurance policy can cover things like hotel expenses, food costs, and even long-term rentals. 

Finally, renters insurance can also cover your liability, including bodily injury or property damage done to others. For example, if a friend comes over, hurts themselves accidentally in your apartment and sues you, your renters insurance policy could help cover your legal costs. 

What does (and doesn’t) renters insurance cover

Renter’s insurance can come in handy in a number of situations. Some common situations where it can come into play include: 

• Fire and smoke
• Theft
• Vandalism 
• Explosion
• Windstorm

There are some notable situations where renters insurance generally doesn’t apply, including: 

However, if these things are a concern for you, you can get coverage for these events separately — the National Flood Insurance Program offers flood insurance for renters, and some residential insurers offer earthquake insurance for renters. 

As with any insurance policy, the coverage included in a given policy can vary by insurer. Make sure to read your policy’s documents to get a better idea of what is and isn’t included in your policy. 

If you have a car, you almost certainly need car insurance. So, you might as well use it to your advantage — insurance companies often offer discounts for bundling the two policies together. 

Get quotes from several insurers for both your car insurance and renters insurance, making sure that the coverage limits and deductibles (or the amount you’ll be responsible for if you need to use your coverage) stay the same. Then, you can compare the premium, or the price for coverage, without sacrificing coverage and look for the best price. 

Some of our top picks for the best car insurance companies also have earned spots on our lists of the best renters insurance companies. One top pick for both includes Nationwide for its broad renters insurance policy coverages and wide car insurance coverage across 46 states. 

Progressive also offers car insurance in all 50 states and offers helpful features like online quotes and an accident forgiveness program, while its renters insurance was one of our top picks for its broad number of discounts, including those for bundling and getting a quote three days or more before your current policy expires. 

For those in the military or with a military affiliation, USAA offers strong coverage and a discount of up to 10% for bundling renters insurance and auto insurance. Unlike many other renters insurance companies which exclude flooding, USAA includes this coverage for its renters insurance policies. 

Before you shop for renters insurance, you’ll want to understand the two different ways that policies pay out for lost items. There are two different types of coverage to look for as you shop: actual cash value and replacement cost coverage. 

• Actual cash value coverage (ACV): Policies that use the ACV of your items include a deduction for depreciation or the value lost over time.
• Replacement cost coverage: Policies that use the replacement cost coverage of items pay the dollar amount needed to replace the item today, whether it’s more or less than it was when you bought it.

These two ways figure your compensation very differently. For example, a TV bought for $1,000 three years ago with a 10-year lifespan would be compensated in the following ways depending on which type of renters insurance policy you bought:

• Actual cash value: A television bought for $1,000 three years ago now costs $1,300 to replace. Assuming it still had 70% of its useful life left, the ACV would equate to the replacement cost ($1,300) multiplied by its remaining life (70%), totaling $910. 
• Replacement cost: Replacement cost would pay the $1,300 it costs to replace the old item with a similar one. 

While policies with replacement cost coverage cost more, they could provide a lot more coverage. 

Renters insurance can cover your belongings, liability and additional expenses if something unforeseen happens to your rented home. Before you buy a policy, consider shopping around and bundling your renters insurance policy with your car insurance, and understand how your policy will reimburse you. 

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