By Richard A. McGrath, CIC, LIA
Just because you don’t own a home, it doesn’t mean you don’t need insurance.
Renters insurance can provide much-needed protection and it is relatively inexpensive, yet most renters do not have it. In fact, only 31% of renters – less than one in three – have renter’s insurance, according to a recent survey by the Insurance Information Institute.
Many uninsured renters assume that their landlord’s insurance policy will protect them and their property. It does not. The landlord’s insurance will only cover damage to the apartment building.
Fortunately, the average cost for renters insurance was only $184 a year in 2009, the latest year for which data is available, according to the National Association of Insurance Commissioners. That’s less than $16 a month.
How Much Coverage Do You Need?
As with any insurance product, some renter’s insurance is better than others. It’s best to work with your insurance agent to make certain that you have coverage that fits your needs. Keep the following in mind:
Property theft or damage. Renter’s insurance can protect your property in case of losses caused by fire or smoke, lightning, vandalism, theft, explosion, wind or water, except for damage caused by flooding. It also does not cover earthquake damage.
If flood or earthquake coverage is desired, talk to your insurance agent. Flood coverage is available from the National Flood Insurance Program, which is funded by the federal government. Earthquake coverage may be added to your renter’s insurance as an endorsement or you may purchase separate coverage.
You can purchase renter’s insurance based on replacement cost, which pays to replace your property with today’s brand-new equivalent. However, keep in mind that you will have to pay a deductible if you file a claim and the amount paid will not exceed the limit of your policy. Deductibles may be set at $500, $1000 or $2000, but the higher the deductible, the lower the cost for coverage.
If you own valuable property, such as jewelry, furs, collectibles, musical instruments or athletic equipment, consider adding a floater to your policy. The floater will pay beyond the limited dollar amount that standard renter’s insurance would reimburse you for such items. The floater will also provide coverage in case such items are accidentally lost. If you add a floater, you will need to present receipts, appraisals or both for the items covered.
To determine the amount of coverage you need, make a detailed list of all of your personal possessions, along with an estimated value. This inventory, which should include electronic devices, appliances, furniture, clothing and anything else of value, will also be helpful if you need to file a claim. Taking photos of your property will also be helpful.
Renter’s insurance usually includes “off-premises” coverage, which covers your property when it is outside your home. For example, if your computer or musical instrument is stolen from your car, it would be covered as if it were stolen from your home. Coverage for off-premises theft is sometimes limited to 10% of the coverage limit.
Liability coverage. Renters insurance also covers liability for injuries to other people that you or another family member may have caused or had some responsibility for causing, and legal fees if you need to defend yourself.
Renter’s insurance typically provides liability coverage of at least $100,000. Court awards and the cost of defending your case can easily exceed that amount, but additional coverage can be purchased if extra protection is desired. Be sure you have enough coverage to protect your assets.
If your needs are significantly higher than $100,000, consider purchasing a separate umbrella liability policy, which will provide coverage when you reach the limit on either your renter’s policy or your auto insurance policy.
Umbrella coverage typically costs about $150 to $300 a year for $1 million in coverage and about the same for an additional $1 million in coverage. Umbrella coverage is also broader than the coverage provided through renter’s insurance, as it will cover liability for libel, slander and other things.
Most renter’s policies also include no-fault medical coverage of $1,000 to $5,000 for medical payments, in case someone is injured on your property. The coverage can help prevent a lawsuit, but is not a substitute for the renter’s medical insurance.
Additional living expenses. Renters insurance also covers additional living expenses (ALE) if you are unable to live in your home for an extended period because of a fire or other damages. ALE pays for hotel bills, temporary rentals, restaurant meals and other expenses you incur while your home is being repaired or rebuilt.
It is important to know how much coverage you have. Some insurance carriers provide coverage only for a set amount of time and others have a financial cap.
Ask About Discounts
Be certain to ask your insurance agent about any discounts that may be available when you purchase renters insurance.
A discount may be available if you own another policy, such as an auto policy, with the same company. You may qualify for a discount if your apartment has a security system, smoke detectors or deadbolt locks. If you have good credit or are over 55 years old, you may also qualify for a discount.
Many renters either don’t realize that they need renter’s insurance or they consider it to be an unnecessary expense. Like other insurance policies, it is an unnecessary expense only until you need to file a claim for damages.
Richard A. McGrath, CIC, LIA is President and CEO of McGrath Insurance Group, Inc. of Sturbridge, Mass. He can be reached at firstname.lastname@example.org.
This article is written for informational purposes only and should not be construed as providing legal advice.