The Importance of Renters Insurance and Why You Need It

Right now, there are many of you out there that read my blog and you rent an apartment, house, or you live in a dorm. And I can bet that there are many of you renting an apartment or living in a dorm room without paying for renters insurance. There are many types of insurances out there that just aren’t necessary for what you get in coverage, but renters insurance is coverage that you must buy today. If you think you can’t afford it, you’re wrong. You might have to give up a couple of small luxuries per month to pay for it, but the peace of mind is worth it.

How much does it cost?

This depends on how much coverage you buy and where you buy it from. If you buy $25,000 to $40,000 in coverage from one of the national companies, it will range from $15 to $30 a month. The coverage is VERY cheap of what you get in return. The price also depends on what type deductible you choose which range from $100 to $1000. I suggest going with a $500 deductible on a renter’s policy. It keeps the price low, but it’s not too large of a deductible to make a huge hit in your financial situation.

What does it cover?

Generally, a renter’s policy is what the insurance world calls a, “Named Peril” policy. This means that your policy lists the perils that are covered under the policy such as theft, wind, water, lightning, fire, vandalism, and other less occurring incidences. If the cause of your loss isn’t listed, then it’s not covered. That’s how a “named peril” policy works. Generally, earthquake and flood are not covered, but you can usually add them on as coverages for an additional premium.

THE TWO COVERAGES IN A RENTER’S POLICY

• Personal Property Damage: When you buy a policy, the agent will ask you how much coverage you want to buy. Do a little research before you go to buy the coverage, because this is an important question. The agent is asking you to put a face value on all of your personal contents right on the spot. Be prepared to give an educated guess rather than just picking a random number. Do a general inventory of all of your most valuable items and ballpark your smaller stuff. Remember to include your clothing as part of your estimate!
• Liability Coverage: A renter’s policy also gives you protection against acts that occur in the rental unit that you may be responsible for. Let’s say that you are renting a house, and you left a big hole in the yard when trying to plant a tree. If you don’t put something out there to warn people of that hole and they fall and trip, you might be held liable for their injuries. Liability coverage will represent you if you are sued for any incidences that occur on the rental property. The landlord has a ton of liability insurance as well, but they’re insurance company will go after you to recover the money paid out if they feel that you were responsible for the incident. Generally, the coverage offered is $100,000 to $300,000. The policy also has a small medical payments coverage of $1,000 to $10,000 that comes packaged into the policy. This coverage will pay for any injuries caused to guests on the property regardless of liability on your part.

Difference between Actual Cash Value and Replacement Cost Value:

Here is the equation for Actual Cash Value: (replacement cost value – depreciation) = Actual Cost Value. So, when your policy is paid based on ACV, the insurance company will determine the current market replacement cost for the damaged item, then assign a depreciation usually based on a percentage, subtract it from the RCV, and give you the actual cash value of the damaged or stolen item.

Replacement Cost Value is determined by how much something is worth in today’s market. So, if you bought a computer in 2002, and it was stolen in 2008, the insurance company would not be able to give you something of like, kind & quality, because the technology has increased so much and the prices have gone down so much in that timeframe. What they should do is do research on that original model and determine if that was a low, medium, or high grade model, and then pay you based on what it would cost to buy you a low, medium, or high grade model of that particular brand in today’s market. Replacement cost coverage DOES NOT ALWAYS mean that if you bought something for $1,500, you will receive $1,500 from the insurance company. It’s true for items like furniture, but not for electronics.

Things to remember:

1. There are statistics to support that rental units are broken into more often than owned properties. You’re landlord’s policy won’t pay for your personal contents if they were stolen or water/fire damaged.
2. College students, if your parents carry a homeowner’s policy, there is sometimes coverage for dependents’ personal property that are away at college, but there are tons of conditions and exclusions that limit this coverage. The safest thing to do is buy your own policy. Your parents may even pay for it, because you sound like such a responsible young adult for thinking about it.
3. Remember not to undervalue your stuff. You don’t want to buy $20k in coverage, have a fire, and realize that you really had $40k in stuff.

If you have any questions, don’t hesitate to email me.

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