Renters Insurance Guide

1. What is Renters Insurance?

Many renters are missing out on the roommate of their dreams - a roommate that you hardly ever notice except when you're in a jam. If your apartment gets broken into and your computer's stolen, if you microwave a pop-tart and start a fire, or if a pizza deliveryman falls down your staircase, breaks his tailbone and sues you, then this roommate's got your back.

We're talking about renters insurance.

Renter's 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. Best of all, it doesn't cost too much. You should consider buying renters insurance whether you're renting an apartment, a condominium, or a house.

There are two kinds of renters insurance policies:

  • Actual Cash Value Insurance - This policy reimburses you the depreciated value of your lost or destroyed possessions. This means that if a thief steals a TV you bought for $2,499 - and it's now worth $1,000 - the insurance company would only give you $1,000.
  • Replacement Cost Insurance - This policy pays you the amount of money you'd need to replace your lost or destroyed items. It generally results in a larger check from the insurance company. Replacement cost insurance usually costs about 25 percent more than actual cash value insurance, and - 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. You'll probably have to pay to increase these limits, or you can buy special supplementary coverage (sometimes called article coverage).

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 deliveryman with the broken tailbone out of pocket).

2. Do You Need Renters Insurance?

To buy, or not to buy? When 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. On the other hand, if your most valuable possession is the couch that you bought off Craigslist for $30, renters insurance may be less necessary.

State Farm offers a useful spreadsheet that will help you to generate a list of all your stuff. Check it out here: Home Inventory Checklist.

Keep a few other things in mind too. Your insurer may put you up for a month in a hotel if a fire destroys your rental apartment. And remember that deliveryman with the tailbone - are you going to be having a lot of pizza parties? That $25 a month may seem like a bargain if another deliveryman - or a rowdy guest - falls down and sues you.
If you're 25 or younger, chances are that you're still covered under your parents' homeowners insurance, whether you're living on or off campus. That said, be sure and get your parents to double check their insurance policy to make sure that your belongings are covered while you're at school.

3. Advice for Getting a Good Deal

When hunting for an insurance policy you need to consider:

  • The policy premium - the amount you're required to dish out to the insurance company each year.
  • The deductible - the amount you have to pay before your insurance kicks in when you make a claim.

The premium 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.

Most insurance providers will let you opt for a lower premium if you accept a higher deductible. Your policy will cost less because you're taking on more risk yourself.

Be sure to ask a potential insurer about all of their available discounts. Having security systems, fire extinguishers, smoke detectors, dead-bolt locks, sprinkler systems and other such safety devices might help knock the premium down a bit. If your rented space isn't fully equipped with these devices, apply a bit of friendly pressure on your landlord to add some of them.

Also, you may get a discount if you open a renters insurance policy with the same company that handles your auto insurance. Check in with your current insurance provider.

4. Grilling Guide: Questions to Ask Before Buying Renters Insurance
What is the difference in price and coverage between "replacement cost" insurance, and "cash value" insurance?
Keep shopping if replacement cost is more than one-third more than cash-value insurance.

What are the limits on coverage on specific personal possessions? Is there a cap on what I could claim for art? Jewelry? Computers? And what must I pay to get more coverage for any of these items?
Limits may vary. Keep in mind that some of this you may be willing to self-insure for. In other words, if computer coverage is capped at $1,000, and you have $4,000 in savings it may not be worth $12 a month to you go buy another $1,000 in computer coverage. If your Mac gets stolen, you could just use your savings to cover anything beyond the $1,000 of coverage.

What information with regards to my possessions will I need to provide to the insurance company when I make a claim?
Ask your insurance provider which, if any, of your belongings will require photo or video documentation. You should keep a comprehensive list of your belongings somewhere safe (not in the apartment that might burn down), including serial and model numbers and purchase prices.

If my apartment is destroyed, will this insurance cover temporary housing? For how long?
This may not matter to you if you have family nearby, but if you're new in town and have nowhere to crash, this is something you need to think about.

Are my belongings covered away from home?
Your property usually is covered when it's off the premises, but the extent of this coverage varies. Sometimes coverage is limited to 10 percent of the total policy coverage. If your property is stolen from a locked vehicle, it will still be covered.

Am I covered under my roommate's renters insurance policy?
Some companies will allow domestic partners to buy joint coverage.

What circumstances are covered under the liability portion of my coverage?
Be specific. If you engage in high risk activities, find out if you're covered.

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