All About Renters Insurance
More than half of America’s renters don’t have any type of renters insurance, according to a 2006 Insurance Research Council poll. If you’re one of them, you’re taking a bit of a risk. If your apartment gets broken into and your computer is stolen, if you microwave a pop-tart and start a fire that leaves your kitchen looking like a war zone, or if a drunk friend falls down your staircase, breaks his tailbone and sues you, renters insurance (if you have it) could be your savior.
Like homeowners insurance, renters insurance protects your personal property if it gets destroyed or stolen and it protects you from liability if someone else is injured while on your property. You should consider buying renters insurance whether you’re renting an apartment, a condominium, or a house.
Types of Renters Insurance
There are two different types of renters insurance: actual cash value, and replacement cost.
* Actual Cash Value Insurance
* Reimburses you for lost/destroyed possessions at their depreciated value.
> Is usually less expensive that replacement cost insurance
> For Example: A plasma television that cost $2,499 two years ago is probably worth $1,000 today, since that’s what it might fetch if you tried to sell it. You’d collect this lesser depreciated cost if anything happened to it.
* Replacement cost insurance
* Takes into account the amount of money that it will take to replace the lost or destroyed items.
* Generally results in a larger check from the insurance company.
* Usually costs about 25 percent more than actual cash value insurance.
* If you can afford it—it’s usually worth it.
If you have a whole bunch of pricey jewelry, electronic equipment or some kind of expensive collection of stuff, the basic renters insurance plan may not provide sufficient coverage. Most policies will only cover $1,000-$2,000 worth of stolen jewelry. Other expensive items and equipment face similar limits. If you want to increase these limits, you’ll have to contend with a slightly higher premium or buy special supplementary coverage (sometimes called article coverage).
What Renters Insurance Costs
The premium—the amount that you’re required to dish out each year—depends on a bunch of factors: the amount of property that you’re covering, the insurance company, where you live, and whether or not your apartment has smoke alarms or security devices. If you live in a costal area prone to hurricanes, or if you live in a city with a high crime rate, your premium will be higher to account for the greater chance that your belongings will suffer damage or disappear.
The smallest, most inexpensive renters insurance plans will usually cover $10,000 worth of your possessions. Typically, $150-$300 per year ($12-$25 per month) will get you about $30,000 to $35,000 worth of coverage for your personal possessions and somewhere between $100,000 and $300,000 worth of liability protection (so you don’t have to pay the friend with the broken tailbone out of pocket).
Most insurance providers will let you opt for a lower premium if you accept a higher deductible. Your deductible is the amount you’ll be responsible for paying before the insurance kicks in. If you have a $500 deductible and you’re robbed, you’ll have to pay to replace everything up to $500 worth, after which the insurance company will pay. Opt for a higher deductible and your policy will cost less because you’re taking on more risk yourself.
Do You Really Need Renters Insurance?
Even after you’re armed with all of this information about how renters insurance works, the question remains: To buy, or not to buy? When you’re making this decision, consider the net value of your possessions and the likelihood that they’ll suffer damage. If your belongings are worth a lot and you live in a high-risk area, having renters insurance could end up saving you a huge slug of money. If, on the other hand, your most valuable possession is the couch that you bought off Craigslist for $30, renters insurance may seem like less of a necessity.
Before you agonize much over whether or not to buy renters insurance, take inventory of your belongings and figure out their net value. State Farm offers an incredibly useful spreadsheet that will help you to generate a list of all your stuff. Check it out: Home Inventory Checklist.
Keep a few other things in mind too. You insurer may put you up for a month in a hotel if a fire destroys your rental apartment. And that friend with the tailbone—are you going to be having a lot of parties? Is he a clumsy drunk? Will there be hundreds of other people showing up? Even if you don’t care if they destroy the $30 couch, if one of them falls down and sues, that $25 a month may seem like a bargain.
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