While most people know how important it is to have homeowner’s insurance, many never stop to consider whether renters also need to protect themselves. (Quick hint: They do!)
Many tenants assume that they don’t need renter’s insurance because any hazards will be covered by their landlord’s insurance—after all, they’re the ones who own the property, right?
The landlord’s insurance will cover only what the landlord owns, and that will be limited to the land and the physical structures on it. Anything inside the building that you own will be excluded by the landlord’s insurance company.
Somewhere in the stack of papers that you signed along with your lease, you would probably find something that says that it’s your responsibility to insure your property, but you either didn’t know or didn’t want to spend the money.
But guess what, you need to have renter’s insurance.
What is Renter’s Insurance?
Renter’s insurance is a type of insurance that protects the renter, as well as their property.
Just like other forms of insurance, customers will choose their amount of coverage and deductible, and be then required to pay a monthly premium based on these, as well as a few other, factors.
The amount of coverage that a renter chooses should account for the value of their belongings and offer enough coverage that they are adequately protected in case of an emergency.
What do renter’s insurance plans usually cover?
Much like a homeowner’s insurance policy, renter’s insurance policies typically cover fire, theft, vandalism, utility malfunctions (plumbing and electricity), weather related damage and a host of other hazards.
Two things you should be aware of in regard to what renter’s insurance policies will and won’t cover:
- Flooding and earthquakes are not included. If you live in an area prone to either you may need to get specific policies to cover those hazards. For flood insurance look at the National Flood Insurance Program.
- Any hazard that isn’t specifically listed isn’t covered! If your renter’s policy doesn’t list water damage from faulty plumbing, then you aren’t covered for it.
Renter’s insurance policies, like homeowner’s policies, are characterized by a lot of assuming as to what’s covered.
Never assume something’s covered when it comes to renter’s insurance!
How much coverage should you buy?
The answer to this question will depend on how much money you have tied up in personal possessions.
For some people, a few thousand will be enough, while for others $100,000 won’t be sufficient. You should have at least a rough idea as to how much your possessions are worth and be guided by that estimate.
For most people, coverage equal to at least $25,000 to $50,000 will be enough. But if you have certain items that are worth a substantial amount of money, such as jewelry or antiques, you should consider getting additional coverage for those items (this would likely be a rider or a floater which will most likely require an appraisal). Make sure you discuss any special valuables you own when pricing out policies.
For example, after I proposed to my soon-to-be wife we made sure her ring was covered in our rental insurance. We had to go get her ring appraised and then we sent the appraisal to our insurer as proof of its value.
If you work at home make sure your equipment, like your computer, is covered. There could be a cap on their payout and if you have specialty equipment you might not get the full value back.
Personal liability coverage
Most renter’s insurance policies will also offer some liability coverage.
Customers may also choose how much liability coverage they need, depending on their budget and the amount of protection they feel most comfortable with. Liability coverage will help protect a renter if they are sued due to an accident that happened in or on the property they rent. (Imagine you host a party and a friend’s friend comes and trips on your carpet and breaks their wrist — You are at risk of being sued for liability.)
Replacement Cost or Actual Cash Value (ACV)?
Renters can choose from policies that will pay the replacement cost or Actual Cash Value (ACV) of their belongings.
Actual Cash Value
An actual cash value (ACV) policy will reimburse you only for the current value of the item lost.
This is what cash value is like — you’ll get what the insurance company thinks your stuff is worth today, after you’ve worm it out for a bit.
There’s nothing wrong with kind of policy, you just need to understand what it is.
Why would you even take such a policy? Cost is one factor; since ACV policies pay out less in benefits, they’re also generally less expensive to buy. If the choice is between an ACV policy and no renters coverage at all, you’d be better to take the ACV than to be uninsured.
Another reason might be if you’re a very frugal type who avoids buying new and prefers second hand merchandise. Since what ever you buy will be closer to actual market value, the ACV policy may suit your needs perfectly. A cash value plan is good if you don’t have a lot of stuff to replace and/or your cash-strapped as it will cost you less.
Under a replacement cost policy the insurance company will reimburse you for the retail value of the items that you’ve lost. In other words, with a replacement cost plan you’ll get full replacement value, not the depreciated value.
If for example you lost, among other things, a living room set that you paid $2,000 for, and the set is five years old, the insurance company will reimburse you for the full $2,000. The fact that the set is five years old and worth far less on resale isn’t an issue. You will be in a position replace your set with a comparable, brand new one.
For most people, this will be the better policy to have, though it will be more expensive (you get what you pay for, right?).
Here’s another example to help understand Replacement Cost vs. Actual Cash Value — If you paid $500 for a computer you would think that’s what you would get if something should happen to it, right? Not necessarily. With Actual Cash Value (ACV) the insurance company takes into account how long you have owned the computer to figure out it’s value. It’s like if you were selling it on Craigslist. You wouldn’t get the new value of the computer. You might only get $100 of that $500 you paid. And if you need a computer you would have to shell out the difference to buy a new one. This is a bit of information many people don’t know about or understand until they need to make a claim.
Five Reasons Why You Need to Protect Yourself with Renter’s Insurance:
1. Renter’s insurance will cover the cost of belongings lost in a fire, due to lightning, a windstorm, or hailstorm.
Losing your belongings in a fire or storm can be devastating. Luckily, those with renter’s insurance are covered in these situations and can be compensated for their loss. Don’t assume the landlord’s insurance on the residence will cover your stuff. It won’t.
2. Renter’s insurance can protect you from theft.
While these policies cannot actually stop a theft from happening, they will cover the cost of lost items. Depending on whether a person chose ACV or replacement cost personal property coverage, the insurance company will cover the depreciated value of the stolen items or the cost to replace them.
Oh, and did you know that some renters insurance also covers identity theft?
3. If your home is damaged and uninhabitable, renter’s insurance can cover the cost of other living arrangements.
Most people don’t have the money to pay for a hotel while their home is being repaired. Luckily, renter’s insurance will cover the cost of a customer’s living arrangements until their home is again inhabitable.
4. Renter’s insurance covers the costs of accidents that occur on a renter’s property.
If a person is hurt while on your property, you may be held liable, even if you aren’t necessarily to blame. The liability coverage in a customer’s policy will protect them from being sued for medical bills or other costs.
5. If a person loses important items while traveling, renter’s insurance can cover that too.
Losing a suitcase while traveling is extremely frustrating. Most airlines will only reimburse customers up to a certain amount, which may be less than the lost items were worth. Fortunately, renter’s insurance may cover the remaining cost of the lost items, which makes these policies all the more valuable to renters who frequently travel.
Things to Consider and Do When You Get Your Renters Insurance Coverage
Be aware of any deductibles your insurance may have. You don’t want to be surprised in the event you need the coverage and find out you’re on the hook for an amount you weren’t prepared to pay. Really you should know this information before you sign on the dotted line.
Also know what the policy is on natural disasters such as hurricanes are. Some policies may not cover them while others may have a significant deductible you’ll have to pay before coverage kicks in.
Inventory your belongings
This step is recommended for any insurance policy. You don’t need to do a detailed inventory of every item you own, but some sort of general baseline should be established, especially for those items of value.
Start by inventorying your most valuable possessions—furniture, entertainment equipment, jewelry, artwork—anything worth at least a few hundred dollars. Take photos and keep purchase receipts.
As to general possessions, take photos of each room in your home, including the cupboards, closets, storage areas and garages so that there’s a general idea as to what you had.
VERY IMPORTANT! Your inventory records should be stored outside your home so that they aren’t destroyed by what ever consumed the rest of your possessions. A safe deposit box, your folks, or online are all places to consider. A service like Evernote or Dropbox is an easy option to store your insurance pictures in the “cloud.” Also make sure you have a copy of your policy handy outside of you home as well. Some insurers even have apps to help you inventory your home.
Your inventory will enable you to be prepared to get the full value of your possessions in the event of a claim.
Final Word On Renters Insurance
Don’t make the mistake that many people do and think the one that owns your apartment will have insurance and you are taken care of.
Fact is, their insurance will cover the physical home but not your belongings or liability.
Also don’t make the mistake of thinking you don’t need renter’s insurance because your stuff isn’t that valuable. Unless you have enough put away to cover theft costs or liability costs, you need to make sure you are covered.
Truth is, renter’s insurance is a fraction of the cost of homeowner’s insurance and depending on the coverage you need, you may find the cost is pretty low (could be from about $100 and up a year, depending on your needs).
And with many insurance companies, if you bundle your renter’s insurance with something like automobile insurance you will probably get a discount. Also check with your employer and see if there are any company discounts on insurance plans.