Do You Need Renters Insurance?
Homeowners Insurance is designed to protect a person’s home. This is an obvious need for insurance since a home is often somebody’s most valuable asset backed by a large loan. This is why most people don’t even think about renter’s insurance. You don’t own the apartment, you didn’t have to borrow money to live there, so you’ve got nothing to lose. Wrong.
Renters face the same, if not more, potential hazards as homeowners. If the primary residence is an apartment or duplex, the renter is exposed to risks that result from the actions of their neighbors, like kitchen fires, water damage, vandalism, and theft. The landlord will have insurance coverage to protect their assets and investment but it won’t protect any of your belongings. Only renters insurance will protect the resident’s property inside the dwelling.
A Renters Insurance Policy, known as an HO-4 policy, will cover losses to personal property from some or all of the following events:
- Fire or Lightning
- Wind or Hail (unless the property is in a Coastal Area where Hurricanes are common)
- Electrical Surges
- Water Damage from malfunctioning appliances
- Falling Objects
- Damage Caused by Motor Vehicles or Aircraft
- Riot or Civil Unrest
- Damage Caused by Glass that is part of the building
- Damage Caused by the Weight of Ice, Snow, or Sleet
- Volcanic Eruption
As with homeowners insurance, flood and earthquake damage are not included. These events are covered by separate policies or additional riders to the policy. The primary function of renter’s insurance is to protect the property of the policy holder. The policy holder’s interest may not be covered if they are liable for damage to someone else or their property. For this reason, renters may want to include liability coverage in their policy in the event someone is injured while visiting them. Dog related injuries are also not covered by the typical HO-4 policy.
Buying Renters Insurance
When shopping for renters insurance, the first set of factors to keep in mind are cost, amount of deductible, and payment options. Renters insurance premiums are affordable, typically averaging $30-$50 per month. A higher deductible means a lowers premium but also means you will need to pay more out of pocket in the event of a claim. Payment options tend to vary by company. Some require monthly payments while others expect semi-annual or annual payments. If the premium is paid semi-annually or annually, the coverage may not transfer if the policy holder moves.
Discounts may be available in certain circumstances. Renters over the age of 55, those who purchase their policy from their auto insurance company, and those who have protective devices like burglar alarms, smoke detectors, and fire extinguishers may be eligible for discounts, so it is important to shop around.
Types of Renters Insurance Coverage
It is also important to research the coverage. Some policies are written to cover the actual cash value of items while others cover the replacement cost. If the policy holder would rely on the insurance to replace their furnishings or electronics, actual cash value policies will decrease the value of those items with age to account for depreciation. Replacement cost policies will pay out at the value of new items at the time of the loss, minus the deductible. Renters policies usually exclude coverage for high ticket items. Collectibles, antiques, and luxury items may require a supplemental policy.
Renters insurance policies will cover living expenses if the policy holder is forced to leave their apartment for an extended period due to damage to the structure. This coverage can be for the amount paid in excess of the standard rent or the full amount so this is important to find out before there’s an actual claim so you know what to expect. The insurance company will determine the length of time that this coverage is provided. People who believe their belongings are not worth enough to justify the cost of the policy should consider this additional benefit as it could at least keep them from being completely displaced if a disaster occurs.
Filing a claim on a renter’s insurance policy can be difficult if the policy holder does not prepare in advance. Keeping an up to date inventory of all personal property owned or purchased is essential. Photo inventories that include serial numbers or other identifying features are very helpful when filing a claim for losses incurred from theft. A written home inventory that includes dates and purchase prices is very effective for all loss types. Having receipts for purchases will also make filing a claim easier.
So, don’t stop at buying a policy. You’ll need the policy to cover any loss, but you’ll also need to know what you have in your apartment that needs to be replaced when disaster strikes. Trying to think of everything you lost and how much it’s worth in a time of crisis is very stressful, you’ll probably miss some important items, and if you don’t have sufficient proof you may be denied replacement.
Do You Need Renters Insurance?
Nobody likes to pay for insurance. Whether it’s a home, car, health or life, it’s one of those things where you usually just pay and pay while never realizing much of a benefit. This is the wrong way to look at it because while it may seem like you’ll never utilize the benefit, the time you do you’ll likely realize those premiums paid for themselves a thousand times over.
This is especially true with renters insurance because it’s so inexpensive. Think about it. What is 30 dollars a month really covering? Consider what you might have of value in your apartment:
- Cell phone
- Your entire wardrobe
- Video camera
Given the cost of electronics these days, just having your iPhone or TV damaged alone could mean hundreds of dollars lost. When you start to add up everything in your apartment you don’t realize just how much you’ve accumulated over the years and after all said and done you could be sitting on well over $10,000 worth of personal belongings even in a small apartment.
Obviously, if you live a minimalist lifestyle and don’t have much more than the clothes on your back it might not be a good use of money to buy insurance, but most people have a lot more in the way of personal belongings than they realize so it’s probably even more costly to not have coverage at all.
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About the Author: Jeremy Vohwinkle is a Chartered Retirement Planning Counselor® and spent a few years working as a financial planner. Today, he helps people make the most of their money by writing about personal finance here and elsewhere on the web. Jeremy is also Coach at Adaptu and a regular contributor for other publications such as Intuit, and American Express. Be sure to follow Jeremy on Twitter or Google+.