Renters Insurance
by Nick Gromicko, CMI®
Renters insurance affords tenants financial compensation for unforeseen misfortunes. Specifically, it provides three basic areas of coverage:
- personal property coverage. This pays to replace your possessions if they’re stolen or damaged by vandalism, storms or fire. If the pipes freeze and water drowns your new computer and iPod, renters insurance could potentially cover the cost to replace these items. Tenants should also listen to the inspector, during their landlord’s next scheduled InterNACHI inspection, concerning potential security breaches or lurking dangers that may cause damage to their possessions;
- personal liability coverage. This pays for another person’s medical bills and property repair bills if you (or your family or pet) are found responsible for injuring them or damaging their property. It also covers your legal fees if you’re sued. Suppose a friend trips over an extension cord, or your dog takes a bite out of her ankle. You are potentially liable for accidents that happen at your residence. Also, consider that if you live on an upper floor, you are at higher risk of being held liable for damages to your downstairs neighbors' property, just as the people living below you are potentially more liable for damage caused to your property. A torn water bed seal, or even a faucet that leaks while you’re on vacation, can unleash a torrent of water into the rooms below, causing damage for which you, not your landlord, are liable, depending on the source of the damage; and
- loss-of-use coverage. As an optional add-on, this coverage reimburses expenses such as hotel bills, restaurant charges, and other living expenses you may incur if you are forced to evacuate due to a covered peril.
Renters insurance premiums vary based on the following factors:
- the deductible chosen, typically $250, $500 or $1,000, meaning that the insured will have to pay this amount toward any claim before the insurance covers anything. As with other types of insurance, policy premiums are higher when the deductible is low;
- whether belongings are to be valued at replacement cost or at actual cash value, a distinction that becomes critical at a time of loss. If a three-year-old laptop is stolen from your apartment, a replacement-cost policy will pay an amount sufficient to replace the item with a comparable unit, while a cash-value policy will depreciate the item, sometimes considerably, by a designated percentage for every year since it was purchased;
- whether the policy covers exceedingly expensive items, such as certain antiques, art and jewelry. While basic coverage generally excludes such items, a policy rider may be purchased that specifically covers such items, although this option may be expensive; and
- whether the policy includes earthquake and flood damage. Very few basic policies cover such calamities, although they are available as an optional add-on.
Nearly two-thirds of the 81 million renters in the U.S. lack renters insurance, despite the fact that renters are 50% more likely to become the victim of theft than homeowners. Most renters insurance policies also cover theft of personal property from vehicles, a potential loss that many uninformed drivers assume is covered through their auto insurance policies.
Three other misconceptions on the part of tenants account for this low participation rate:
- the assumption that the landlord's homeowners policy will protect tenants’ belongings. Many of these renters don’t even know that renters insurance exists;
- the underestimation of the value of their property. While many renters might not own any singular item of significant value, it’s easy to overlook the enormous expense that would be required to replace a large number of lesser valuables, such as furniture, clothing, electronics and DVDs. Experts advise tenants to take inventory of their possessions by saving receipts, copying serial numbers, and photographing every room, with valuable items clearly visible; and
- the assumption that they can't afford renters insurance, despite the fact that the average policy, boasting $25,000 worth of property coverage and $100,000 worth of liability coverage, costs an average of $16.26 per month, according to the Insurance Information Institute. Additionally, many insurance companies offer lower rates for multiple coverage, such as auto and renters. And if you use special window locks, keep a fire extinguisher in or near your kitchen, and your apartment is updated with smoke alarms and other safety features, your monthly rates will likely be discounted even lower.
In summary, renters insurance offers tenants peace of mind by covering lost or stolen items, costs arising from personal injury and property damage liability, and more.
