Renters Insurance: Who Should Purchase?
Since many people have had to sell their homes in recent years after being unable to continue paying their mortgages, an increasing number of them are moving into rental properties. These former homeowners are used to having homeowners insurance to protect their physical homes and personal belongings; however, many assume that their new landlords will be responsible for such insurance. This is not the case — while landlords have insurance to cover the physical building, it is the renters’ responsibility to get renters insurance to protect their personal belongings.
Legally, you have to get insurance for your car — generally speaking, renters insurance is not mandatory, although your landlord can require you to obtain such coverage. However, in any event, it would be a sensible course of action to do so.
Who should get renters insurance?
If you are renting a duplex, a studio, a townhome, a loft, a condo, an apartment, a family home, or any property for that matter, you should insure your belongings.
What is renters insurance?
Renters insurance, also termed an HO4 policy, provides coverage in the event that your personal belongings are damaged due to things like a fire, explosion, theft, frozen or damaged plumbing, and a number of other disasters.
Can you imagine returning to your apartment one evening to find that a fire in the downstairs apartment earlier that day had spread to your property, damaging not only the structure of your apartment but also some of your most precious belongings? While your landlord’s insurance would cover the structural damage, your renter’s insurance policy would cover any damage to your personal belongings. If you were unable to stay in the property temporarily, your renters insurance policy would also cover the additional costs such as increased rent or hotel accommodations.
Renters insurance also provides personal liability coverage. For instance, in the unlikely (and unfortunate) event that a visitor tripped inside your apartment, hit her head on your coffee table, ended up with brain damage, and sued you, your renters insurance would protect you. It would pay for things like medical care, legal bills, and settling a claim for damages. Your renters insurance would also provide coverage for more minor situations, such as if a friend’s belongings were damaged while in your apartment.
In addition, if your computer caught on fire and the flames damaged the carpet and walls in the apartment you are renting, your renters insurance would also cover the damage to the landlord’s property.
What sorts of personal property are covered?
The simplest way to explain this is for you to imagine turning your rental property upside down and shaking it — anything that fell out would be covered by your renters insurance, including your furniture, clothes, computer equipment (as described in the example above), dishes, mirrors, CDs, DVDs, books, and TV.
How much coverage should you get?
When deciding on the amount of coverage required, you should really make a detailed inventory of all of your belongings and then calculate the total value of replacing them. Keep in mind that the higher the value of the belongings you want covered by your renters insurance, the higher the insurance premium will be.
Having established how much coverage you want, you then need to decide whether you prefer to be covered for the actual cash value or the replacement cost. The actual cash value is usually provided with a basic renters insurance policy and will only pay out the value of the damaged items at the time of the claim. For example, if you bought a TV five years ago for $500 and it is now only estimated to be worth $100, the insurance company would only pay you $100. However, if you had paid extra for replacement cost coverage, the insurance company would pay you enough to enable you to buy a brand new TV of comparable value. In other words, if the above TV now costs $600 to replace, you would be paid the full $600.
Since the deductible is the amount you (the policyholder) will pay out of pocket when a claim is filed, you will also need to decide how much of an insurance claim you are prepared to pay for. This affects your insurance premium as well — the higher the deductible, the lower your insurance premium.
There is no question that you should always obtain renters insurance if you are renting a property. Even if you think your belongings are not really worth insuring (maybe you do not own a Rolex or a rare piece of art — at least not yet), it would be worth getting a policy just for the liability coverage it provides. More importantly, renters insurance is usually quite affordable in light of the excellent coverage it provides.