Episode 294: December 4, 2012
by Laura Adams
Since the housing crisis, many Americans have decided that it makes more financial sense to rent a home than to buy one. However, being a tenant doesn’t mean that you’re off the hook for insurance.
In today’s episode we’ll cover what you should know about renters insurance and how to shop for the best policy to keep you and your belongings safe.
Why You Need Renters Insurance
Renting can be the right financial decision for many people, depending on where you live, your work situation, and the lifestyle you want. However, less than one-third of renters have renters insurance, according to the Insurance Information Institute.
Many renters mistakenly believe that their possessions are automatically covered by their landlord’s insurance. This is dead wrong! Your landlord’s insurance generally covers the building and grounds only—not your personal belongings or liability.
What Does Renters Insurance Cover?
Renters insurance gives you 3 main types of financial protection:
Coverage for your personal belongings
Liability protection against a lawsuit
Reimbursement for additional living expenses
It’s terrible to think about, but what would happen if the apartment or home you rent was completely destroyed (as was the case for a lot of people in the northeast who were devastated by Hurricane Sandy)?
Renters insurance protects you if your possessions are lost or destroyed in a natural disaster, such as a fire, lightning strike, windstorm, certain kinds of water damage, or in the event of theft or vandalism.
However, most policies don’t automatically include insurance for earth movement such as an earthquake or landslide. Nor do they cover damage from floods or underground water. Flood insurance is available from the federal government and a few private insurers only. You can learn more about the National Flood Insurance Program at floodsmart.gov.
To make sure you have enough renters coverage for all your belongings, create a detailed inventory of what’s in your home that includes the estimated value for each item or category. Check out free software that makes creating and updating your home inventory easy at knowyourstuff.org. Also, my colleague the Domestic CEO has some great tips on how to document your belongings.
There are two types of coverage to choose from: actual cash value or replacement cost.
Actual cash value: means the policy pays to replace your belongings up to a limit, less a deduction for depreciation.
Replacement cost: means the policy pays the real cost of replacing your belongings, up to a limit (regardless of depreciation). A replacement policy costs about 10% more than a cash value policy, but may be worth it if your most valuable possessions have depreciated significantly.
And speaking of valuables, many policies limit the amount of coverage for certain expensive items. That means you may need a separate policy, known as a floater or rider, for additional coverage on items like jewelry, collectibles, antiques, and computers.
Some renters insurance may offer inflation coverage which automatically increases the amount of your coverage according to a financial index as the cost of living goes up.
Most renters policies include off-premise coverage that protects your belongings when you’re outside of your home. For instance, if you’re on vacation and your laptop is stolen from your car or hotel room, it would be covered. However, most policies have low caps on off-premises theft, so shop for additional off-premises coverage if you travel a lot.
What Liability Does Renters Insurance Cover?
Renters insurance protects you if your possessions are lost or destroyed in a natural disaster, such as a fire, lightning strike, windstorm, or certain kinds of water damage.
In addition to covering your possessions, renters insurance protects you from the cost of a lawsuit. If you, a family member, or a pet hurt someone or damaged their property, you’re covered for both the cost of your defense in court and an award given to the other party, up to the limit of your policy.
Standard renters insurance provides $100,000 of liability coverage, but you can purchase additional amounts if you have a higher net worth that could be at risk. Liability also includes several thousand dollars of no-fault medical coverage if someone injures him or herself while they’re in your home.
What Additional Living Expenses Does Renters Insurance Cover?
The final type of financial protection that renters insurance gives you is called additional living expenses (ALE). This saves you if your home is uninhabitable due to an insured loss and you have to move out until repairs are completed or must relocate to a new home.
Additional living expenses may include the actual costs of a temporary rental, hotel, restaurant meals, and related items that you incur during the time you can’t live in your home. Some policies reimburse you for a set period of time, while others may impose a financial cap. So be sure you understand how much coverage you really have.
How Much Does Renters Insurance Cost?
The cost of renters insurances varies by company, the deductible you choose, and how much coverage you purchase. However, the average annual premium is only $184, or about $15 a month, according to the Insurance Information Institute. That’s incredibly cheap insurance for the coverage you receive!
Shop for renters insurance by getting free quotes at sites like:
So, if you’re a renter, don’t miss out on the affordable protection and peace of mind that renters insurance gives you in the event of a disaster or lawsuit. And if you already have a renters policy, review it periodically to make sure that you have enough coverage to protect your finances.
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Now renting image courtesy of Shutterstock