Congratulations on your new lease! Now it’s time to start planning your big move, and you probably think you have everything covered from movers to new furniture. And then someone says the words "rental insurance." Though more and more property managers and owners are coming to mandate this kind of insurance be obtained in order to rent, many are still unaware of what it is and why they might need it.
Savvy Investment or Scam?
In general, insurance can get a bad reputation. After all, you're paying monthly for something that shouldn't even happen. The trouble is, though, that some problems are too big for the average consumer to buy their way out of. For example, the apartment building you live in has an unknown gas leak and ends up in flames! Not only has the building gone up in flames, but so have all of your possessions from clothes and jewelry to your furniture and technical devices.
The issue is further complicated in terms of renters insurance because many believe that the owner's insurance would cover any serious problems they encounter. But in the example above, your possessions are simply gone, and in the majority of cases, neither the owner nor their insurance company is obligated to do anything at all about what you lost.
When you think about how much stuff one person can own, it adds up a lot quicker than you might have thought. In fact, as Keith Rutman, states, “a tenant in a two-bedroom apartment can own an average of $30,000 in possessions.” In comparison, a renters insurance policy might cost $180 for a year's coverage.
Policy Types and their Coverage
The first step to getting coverage is determining what amount you will need. This can be done by going through the amount of things you own and determining how much they are worth. It is worth noting that the $30,000 mark is something of a standard for the industry -- many companies will not issue renters insurance for more than $30,000 in damaged property.
When shopping around for such a policy, you need to familiarize yourself with some of the terminology you'll encounter:
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Actual Cash Value -- This will reimburse you to replace the possessions you had minus depreciation, a markdown of the wear and tear of an item over time. An easy way to understand this option is to think of how much someone would pay you for your belongings if they were sold at a garage sale.
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Replacement Cost Value -- This policy type will replace your property with similar items at their current value. Since it does not factor in depreciation of your items, this plan can have a more expensive premium, but you will almost certainly be covered to replace anything that needs to be replaced.
The policies themselves will cover liability, personal property, and may even cover temporary accommodations when needed.
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Liability -- This protects you against a lawsuit if someone incurs an injury or property damage that would put you at fault. It can also cover no-fault medical coverage if someone was to get hurt in your apartment.
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Personal Property -- This policy covers your personal possessions in the event there is a burglary, theft, fire, or natural disaster. However, most policies will not cover flood caused by rain or damage caused by an earthquake, so if you are in a flood or earthquake zone, you will need to purchase extra coverage.
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Additional Living Expenses -- Your policy will also pay for any costs accrued if you are displaced from your home due to any covered damage that would make your apartment uninhabitable. This will include costs for hotel stays and meals that would be over the amount you spend daily.
After going through your policy, you may want to consider getting a rider for any items that may not be covered fully. Such items like jewelry, expensive artwork, and collectible pieces are considered luxury and will require an additional, or perhaps individual, personal property endorsement.
Bundle Up and Save
Even though renters insurance is already inexpensive, there are ways for you to further reduce the cost. Depending on the insurance company you choose, you can bundle your renters insurance with other insurance policies you may have, such as car insurance, for a discounted price.
Many companies also offer discounts as well if you have an alarm system or smoke detectors. Prices may also be lower depending on your age, and whether you smoke or own a pet. Some companies may be able to offer coverage for just your personal possessions without liability coverage if such provisions are otherwise covered by another policy. Organizations like Insurance Land can even help you understand the types of coverage you need in your life, and work with you and their partners to find the best collection of services for your money and needs.
As with other forms of insurance, taking out a higher deductible may also give you a lower premium. However, if you take out a deductible of $2,000, know that you will be stuck with meeting it if something should happen that causes the policy to kick in.
Finally, another way you can keep some extra money in your pocket is to look for any discounts provided through your job or other educational or professional organization.
It’s Better to Be Safe Than Sorry
Although renters insurance may not be mandated by the state, there are some landlords that may require it. In a 2012 poll about insurance, a shocking 31% of renters had an insurance policy. Today, that percentage is closer to 40%, a reflection of tenants and landlords recognizing the importance of this protection.
Mother nature can strike unexpectedly, even if a neighbor doesn't leave the oven on and cause a fire. These events, themselves, may be outside of your control, but being prepared to respond to them is a relatively minor expense that absolutely is in your hands.