The basics of renters insurance

Renters face the same dangers as homeowners in the unfortunate event of a catastrophe. One day the skies are blue and the next: along comes Hurricane-strength winds to destroy everything you had worked for. And, no matter what part of the country you live in, chances are your area is susceptible to some form of natural disaster – be it flooding, tornados, Hurricanes, forest fires, earth quakes. Mother Nature can be a pretty rough sometimes. So in the event your apartment building or rental home is destroyed, how will you go about putting your life back together? How will you replace all the lost things you have spent years working hard for? Well, there is nothing pleasant about planning for disasters and how to recover from them but one way to do so is to consider renter’s insurance if you don’t have any.

Your landlord or condo association may have insurance, but this only protects the building, not your things in it. Renters insurance can protect your belongings in case of disaster and it is something you should give serious thought to purchasing. After all, in the event of a disaster, you may have far more serious things to consider than replacing your plasma TV. You might be wondering where in the heck you will live. How will you feed your family? Eventually, you will wonder how to replace all those material items. Your landlord will not.

So to help protect your material possessions you need to understand the basic of renter’s insurance.

Landlord is Responsible, right?

Many renters are under the impression that their landlord's policy covers their belongings as well and this is simply not the case. Unfortunately, renter’s often don't find that out until after a disaster or a robbery.

Your landlord's policy doesn't cover anything that's yours. The only exception to this would be if the loss was caused by negligence on the part of your landlord, and then you would still have to prove it in court. This is where Renters Insurance comes in. Now, you have to ask yourself – should you protect yourself against this fact? If you answer yes, then you need to know the basics.

Common misconceptions about renter’s insurance

The landlord's covered

If you think your landlord is covered to protect your stuff, think again. In most cases, a landlord's insurance covers only structural damage to the building itself—and many landlord policies don't even go that far if the damage is caused by a tenant. If you leave the tub running and it turns your floor into cardboard and dribbles downstairs, damaging your neighbor's couch, you may be liable for the whole drippy mess. If your building went up in flames, your landlord's coverage would include repairs, but only to the building, not to the possessions of tenants.

It's out of my price range

This is usually not the case at all. Think about how much you spend on cable television in one month or subscriptions to magazines. Do you realize how much that once soda a day from the vending machine at work costs? One soda a day at $1.25 a clip likely more than what you would pay to acquire standard renter’s insurance. So 10 to $20 per month too much to come up with? You probably got that in between the pillows on your sofa.

Consider this example we found on About.com concerning two standard renter’s insurance policies:

“In March of 2002, unofficial online quotes from two major carriers produced annual rates of $147 ($12.25 per month) and $203 (under $17 monthly) respectively. Both quotes were for a fictional five-room house in Boulder , Colorado , covering the basics for "standard" personal property valued at $35,700 (the automated figure produced by one company). Both quotes had a deductible of $500 per incident, and included medical coverage for others, on-premise or off-premise. Assumptions were that the house contained a smoke alarm and fire extinguishers. For lower rates, you can raise the deductible; for more protection, you can pay more for replacement cost coverage, in which reimbursement is based on today's replacement cost rather than original value.”

Now ask yourself if you can afford the coverage? You probably can’t afford not to have it.

My building is safe and secure

Is it really? Renter's insurance extends beyond “on-premise theft and hazards.” If your lap top is stolen while you're on a business trip, you'll likely be covered. The same goes with stuff jacked from your car. If you're prone to mixing it up in a bar, well, you might need more than renter's insurance – such as medical insurance - but you'll probably be covered if you hurt someone. We hope that would not be the case.

Regarding injuries, you'll also likely be protected if one of your beer buddies gets so angry he punches your wall and breaks his hand at your annual Super Bowl keg party. In fact, you may even receive compensation for your defense in the case of a lawsuit. But, here’s hoping your friends at the party don’t sue you – ah, hoping, being the operative word.

My “junk” isn't really worth much

So how much is all that stuff you collected over the years really worth? Probably, a lot more than you think. In fact, most people are surprised at how quickly all those books, CDs, collectibles, DVDs, furniture and kitchen appliances add up. According to StateFarm.com, most people own more than $20,000 worth of property. So say you own about the average – do you have $20,000 to come up with in the event of a disaster? If you are just like the average person, probably not even close.

Standard Policies

There are several types of residential insurance policies and you should become familiar with them before deciding on exactly which type is right for you. An HO-4 policy is designed specifically for renters, while the HO-6 policy is for condo owners.

Both HO-4 and HO-6 cover losses to your personal property from 16 types of disasters.

1. Fire or lightning
2. Windstorm or hail
3. Explosion
4. Riot or civil commotion
5. Damage caused by aircraft
6. Damage caused by vehicles
7. Smoke
8. Vandalism or malicious mischief
9. Theft
10. Volcanic eruption
11. Falling objects
12. Weight of ice, snow, or sleet
13. Accidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning, or automatic fire-protective sprinkler system, or from a household appliance.
14. Sudden and accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system, an air conditioning or automatic fire-protective system.
15. Freezing of a plumbing, heating, air conditioning or automatic, fire-protective sprinkler system, or of a household appliance.
16. Sudden and accidental damage from artificially generated electrical current (does not include loss to a tube, transistor or similar electronic component)

Floods and Earthquakes

Floods and earthquakes aren't covered on standard renter’s insurance policies so you need to keep that in mind. If you live in an area prone to either, you'll need to buy a separate policy or a rider. A rider is sort of an addendum to your standard policy. In some coastal regions, where hurricanes might pose a threat, you might also need to buy a separate rider to cover wind damage.

Real cash value versus replacement cost

One thing to really pay attention to is whether the insurance company will offer "actual cash value" often called ACV or "replacement cost coverage" for your belongings in the event they are totally destroyed. This is a very important consideration.

ACV coverage will pay only for what your property was valued at the time it was damaged or stolen. For example, if you purchased a television 6 years ago for $500, it would be worth significantly less today. While you'd still need to spend about $500 for a new TV, your insurance company will pay only for what the old one was worth, minus your deductible. Ouch! This can really haunt you in the end. After all, most material items depreciate – cars, TVs, computers, appliances. Other than an actual house, there are not too many items that will rise in value once you bought them – other than that coin collection you acquired on E-bay of course!

Replacement cost coverage, on the other hand, will pay what it actually costs to replace the items you lost. Although, chances are you will have to reach a deductible before the coverage actually kicks in. A deductible is amount you agree to pay out of pocket in exchange for oftentimes cheaper rates on your policy.

In some regions, most insurers write ACV coverage. In others, they'll quote you replacement cost coverage by default. It is probably obvious that replacement cost coverage will cost you more in premiums, but it will also pay out more if you ever need to file a claim. So you have to weigh those considerations together when considering whether ACV or Replacement coverage is the best option for you.

What about your original copy of the Declaration of Independence ?

Let your agent know about any particularly valuable items you have. This might include rare Jewelry, antiques, and certain electronics might be covered up to a certain amount. If you have some items that are unusually expensive, such as your original copy of the Declaration of Independence, you'll probably want to purchase a separate rider – maybe even consider Lloyds of London.

If you don't talk to your agent about an expensive item when you buy the policy, you probably won't be able to recover the full loss.

Take inventory

To ensure you are compensated for any belongings you lose from a fire, storm or other catastrophe, you should inventory all of your personal belongings before you even decide on the appropriate level of coverage.

Your inventory should include each item, its value, and identifying serial number. It would even be prudent to photograph or videotape each room. When you do, don’t forget to include closets, open drawers, storage buildings, and your garage.

What follows are basic examples of personal property to include in your inventory. Items not listed here may still be covered; just ask your insurance agent about customizing your policy with more options:

• Stereo systems, VCRs, and television sets
• CDs, DVDs, videos, and tapes
• Cameras and other photography equipment
• Movable appliances, including microwave oven
• Furniture
• Sports equipment
• China and glassware
• Clothing
• Books
• Miscellaneous Property typically covered with limitations:
  • Home computers
  • Cash, including coin collections
  • Checks, traveler's checks, and securities
  • Jewelry and watches
  • Precious and semi-precious stones
  • Comic books, trading cards, and stamps, including collections
  • Antiques and fine art
  • Gold items and silverware (theft)
  • Rugs, wall hangings, and tapestries
  • Firearms (theft)
  • Furs or clothing trimmed in fur Boats or other watercraft, and related equipment

Another wise decision is to keep receipts for major items in a fireproof place – even off site, somewhere like at work or a trusted family member’s home.

What if you need to live elsewhere temporarily

If your apartment or condominium becomes uninhabitable because of a fire, burst pipes, or any other reasons covered by your policy, a good insurance policy will likely cover your "additional living expenses." Generally, that means your policy will pay for you to live somewhere else.

As a general rule of thumb, this coverage has a limit of about 30 to 50-percent of the total value of the policy. Let us say, you're insured for $100,000. Your "additional living expenses" limit will be $30,000 to $50,000, depending.

Oftentimes, your insurance company will continue to pay while your home is being repaired or rebuilt, or until you permanently relocate. But beware, there is often a time limit associated with such coverage. Sometimes 12 months is the longest an insurance company will continue paying. With some policies, you're limited to what the insurance company considers a "reasonable length of time.” It is best to have a specific number associated with anything that is vague.

Additional benefits

You also need to be aware of what happens to people in your unit or home that might slip or fall and get injured accidentally. Liability protection is typically standard with most renters and condo policies. This means if someone in your unit gets injured, you're covered for costs up to the liability limit spelled out in your policy. Should a person who gets injured in your unit or home decide to take you to court and sue you, you're covered for what they win in a court judgment as well as your legal expenses. All of these should be spelled out somewhere in your policy's limit.

Controlling premium costs

Just like any other type of homeowners insurance policy, your premium depends on a number of factors: where you live, your deductible, your insurance company, and whether you need any additional coverage. The more needs you have, the more it will cost. The more protection you acquire, the more it will cost. Everything has a price tag and increased protection versus playing the odds that something will not happen to you is always a little gamble. You need to determine a comfortable risk level that you can live with and afford. Just be smart. For instance, if you live in the desert you don’t’ need a flood rider – got it?

There are other ways to reduce your renters or condo owner’s insurance bill too.

Increasing your deductible is one strategy. Make sure you can afford whatever deductible you choose however. After all that is the whole point of having insurance – is to be able to replace what is lost. So, don’t opt for a deductible that is so high you would sooner live without the items that were destroyed. Below are some other things to consider if the cost of your premium is a concern.

Pets

If you're thinking about getting a dog, you might want to think twice about letting Rover run roughshod over your rental. Some insurance companies are reluctant to write policies for owners of certain breeds, which are dangerous. Pit Bulls typically fall into this category.

Safety devices

Most insurers offer a discount for "protective devices," including smoke and fire detectors, burglar alarms, and fire extinguishers. So be sure to upgrade those components in your unit where possible. Put a fire extinguisher near the oven. Make sure you have adequate locks. If you have a security protection service, let your insurance company know about it.

Age discounts

Some insurers might offer discounts to policyholders who are over age 55 and retired. Others might offer a discount if you buy both an auto and renters policy from the same place. The idea is that if you package it all together, you get a discount. Makes sense doesn’t it? It might even save you cents – dollars at that.

The bottom line

Hopefully, by now, you have a clear understanding of the basics of what renter’s insurance can do for you and why it is so important to have. You should know that you need to make an inventory and decide on the appropriate levels of coverage you can feel both comfortable with in terms of protection and a policy you can afford.

So, take the time to think about how comfortable you need to be in knowing that you have protection in the event of a disaster. Nobody likes starting over and without adequate renter’s insurance that is just what you might be faced with in the event your possessions are lost.

Adequate coverage is something you really need to give serious thought to when you rent. After all, you landlord is not obligated to pay for any of your personal items should they be destroyed in a catastrophe beyond his or her control. And even if the building you live in burns down, you still need to prove to a court your landlord is negligent. Will you have the time to do that – when you are wondering where you are going to live and will you replace your possessions. Ultimately, renter’s insurance is about peace of mind. How much is that worth to you?

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