Owning a home is nice, but many people can’t qualify for a mortgage or have insufficient means to purchase a house. For those who either are unable to purchase a home or simply choose not to, the alternative housing solution is to rent a house or apartment.
When you own a house and have a mortgage, you are required to purchase homeowners insurance that will protect you from damage to your home, liability and loss or damage to personal property. As a renter, you have no reason to buy an all encompassing insurance policy to protect the apartment from damage as the landlord absorbs those costs. However, your personal property and the contents of your house are your responsibility. So, the question arises, should you buy renters insurance?
Reasons to Buy Renters Insurance
* Protection in case your apartment building burns down.
* Protection in case someone breaks in and steals your stuff.
* Protection in case someone gets hurt and decides to sue you.
* Protection in case your apartment suffers a disaster and you need alternative housing.
* Very inexpensive for the amount of protection you can buy.
Many people say to themselves that their stuff is really not worth much, but when you think about how much it would cost to replace all your clothes, furniture, TV, computer and so forth, the amount can easily add up to tens of thousands of dollars. For a small fraction of your monthly rent, you can have the peace of mind that in the event of theft, damage or personal injury, you are protected.
What Does Renters Insurance Cover?
* Personal Property – You are protected against loss or damage of personal items like clothing, furniture, electronics and appliances. If someone breaks into your apartment and steals your new flatscreen TV, you are covered. If a fire burns down the building, your personal property will be replaced. Renters insurance does not cover damage from floods (you need a separate policy).
* Personal Liability – In the event that someone is injured while in your apartment and decides to sue you, you are covered. Generally, liability coverage of $100,000.00 is standard with most renters insurance policies.
* Medical Payments – If someone is injured in your home, this part of the coverage will pay medical expenses. A basic policy will usually provide about $1,000.00 of reimbursement for medical costs.
* Loss of Use – If a natural disaster such as an earthquake, fire or other major event should strike and your
apartment is uninhabitable for a period of time, you will be provided coverage so you can get alternative housing accomodations.
What Does an Average Renters Insurance Policy Cost?
According to the National Association of Insurance Commissioners, the average renters insurance policy costs between $15 and $30 per month. This figure can vary based upon the amount of coverage, the geographic location of the property and the deductible selected. As an example, in a typical 2 bedroom apartment in California, you can get $35,000 in property coverage, $100,000 in liability, $1,000 of medical coverage, all with a $500 deductible, for about $200per year (Esurance Inc.). That is less than $17 per month. One incident and you’ll be glad you have the coverage.
What Effect Does a Deductible Have on the Policy Cost?
Like with car insurance or pretty much any other type of insurance policy, the higher your deductible, the lower your premium. In most cases, you will only save a dollar or two per month by raising your policy’s deductible from $500 to $1,000. The recommendation here is to get the lowest deductible possible.
What About My Expensive Jewelry?
Standard policies do not cover certain highly valued items like fine jewelry, furs, valuable art and other similar possessions. You can purchase additional coverage for these types of items. Most rental coverage is not going to insure a million dollar Picasso, but, if you are fortunate enough to own one, you probably would not be hanging it in a rental apartment anyway.
Can I Guard Against Identity Theft?
To reflect the times we are living in, a relatively new type of coverage is being offered to renters. Identity theft coverage has become available through a number of insurance companies including State Farm and Nationwide. Depending upon the amount of coverage, the cost for this type of piece of mind can be anywhere from about $30 to $100 per year.
Replacement Cost Value (RCV) Versus Actual Cash Value (ACV)
If you make a claim for lost, stolen or damaged personal property, the insurance company will compensate you based on the type of coverage you have. If you have replacement cost value coverage, they will pay the amount for you to buy a similar product of the same specifications as the one that was lost. Even if you bought a $1,000 mattress 10 years ago, you will get a brand new mattress of similar quality, regardless of what it might cost today.
On the other hand, if you have chosen actual cash value coverage, you will only receive the depreciated value of the item or items for which you are making a claim. Certain items depreciate quickly, so, your $2,000 computer you bought 3 years ago may only bring you $500 dollars.
What are the Advantages of Replacement Cost Value Coverage?
* You get an equivalent replacement for your loss
* Don’t have to haggle over settlement
* Able to fully replace your items and not have to pay additional costs
What Are the Disadvantages of Replacement Cost Coverage?
* The only possible disadvantage of choosing replacement cost coverage over actual cash value coverage is in the monthly premiums. You will pay a slightly higher premium when you choose replacement cost coverage.
What are the Advantages of Actual Cash Value Coverage?
* The basic advantage of selecting actual cash value coverage is that you will pay lower premiums than if you selected replacement cost coverage. The amount actually amounts to a few dollars more per month.
What are the Disadvantages of Actual Cash Value Coverage?
* Only receive the depreciated value of the property you are claiming
* Disputes may arise over what you think an item was worth and what the insurer thinks it is worth.
* May not be able to replace with similar item based on lower compensation
* Not fully insured.
Finding the Best Renters Insurance
Buying renters insurance is a wise investment. For a relatively small amount of money you can get a great deal of protection. You can even receive discounts by holding other policies such as life or car insurance with the same company. Now that you know a little more about renters insurance, you should assess your property and do your homework to find the best renters insurance policy!