Understanding Renters Insurance

Jul 14, 2014

Disasters like tornadoes and fires don't differentiate between rented buildings and owned homes—everyone faces the same risks and displacement. And while your landlord or condo association may have insurance protecting the building structure, that insurance does not cover your loss. That's where renters insurance comes in. Renters insurance protects renters, as well as their property.

Much like a homeowners insurance policy, renters insurance policies typically cover fire, theft, vandalism, weather related damage, and a host of other hazards.

"Even if you don't think your personal belongings are worth enough money to warrant the purchase of renters insurance, it's something to seriously consider. If some unforeseen disaster befalls you, like an apartment fire or roof collapse, you'll be glad you have it," advises Niccole Schreck, the associate marketing manager at Rent.com.

The Fine Print

Be sure to understand what your policy will and will not cover. Basically, any hazard that is not listed isn't covered. For example, if the policy doesn't list water damage from faulty plumbing, then you aren't covered for it.

Also, losses due to flooding and earthquakes are not generally covered, although you may be able to get specific policies to cover those hazards if you live in an area prone to either type of disaster. For flood insurance look at the National Flood Insurance Program.

However, liability protection is standard with most renters and condo policies. This covers someone slipping and being injured, for example, up to your policy's limit.

What's the Cost?

That depends on how much coverage you'll need. Just like other forms of insurance, you'll choose an amount of coverage and a deductible, and then pay a monthly premium based on these, as well as a few other factors. For example, "replacement cost coverage" costs a little more since it pays you what it actually costs to replace the items you lose (minus the deductible) versus "actual cash value" coverage which pays you only for what your property was worth at the time it is damaged or stolen. So, if the flat screen television you bought three years ago for $3,500 is damaged or stolen, your insurance company will pay only for what it was worth today, minus your deductible.

It's also important to tell your insurance company about your valuable items, such as jewelry, because you may need a "rider," usually requiring an appraisal, added to your policy.

Take Stock

If you're interested in renters insurance, you should talk to several reputable insurance companies about the type of coverage they offer and what it will cost for your particular situation. Even with a policy in hand, it's up to you to make sure the insurance will pay off for you in the long run. Be sure to inventory your personal belongings, photograph, or videotape each room and especially your valuables.

Need help? The Insurance Information Institute has free inventory software to help you create a room-by-room inventory of your personal possessions.

Just make sure you don't over-insure! "Estimate the cost of replacing your personal property if it were damaged or stolen, and think about what you could financially withstand if something unexpected happened," Schreck adds.

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