What is Renter's Insurance and Do I Need It?
Contrary to popular belief, your landlord's insurance does not cover your personal belongings. It only covers the cost of the structure itself. Renters insurance is a smart and inexpensive way to ensure that, in case of fire, a broken pipe, robbery, infestation, or dozens of other nightmare scenarios, the loss of your most precious possessions--as well as all the other things, like frying pans and sweaters and wall clocks and sheets, that turn an empty space into a home--need only be temporary.
Most people underestimate just how much "stuff" they've accumulated, and how much it would cost to replace. You might be surprised to know that the average renter in a two bedroom unit has in excess of $30,000 worth of belongings, and that grows with the number of people in the household. Could you afford to replace all of that, all at once?
Renters insurance costs, on average, about $16 a month (which is price of ONE cocktail at some places in NYC, LA and San Fracnsico these days), and yet year after year, studies show a shockingly large percentage--less than half--of all residents in rental apartments neglect to sign on to any sort of policy.
It's not just your personal belongings that you can cover. Let's say your bathtub overflows, and damages the downstairs neighbor's furntiure. Or a fire started on your stove spreads to your neighbor's apartment. Your insurance can cover their losses if you are determined to be at fault. Typical policies also cover liability in the event of an accident in your home. Say a visitor trips and injures themselves while visiting. Could you afford to pay the medical expenses, or potential legal expenses if you were sued? Most renters insurance policies cover those situations as well.
Does rental insurance makes sense for you? Well, only you can answer that, but we at Urban Edge think that, really, given the low cost and high security most policies afford, renters insurance makes sense for pretty much everyone. Many companies will even let you pay the premium in installments, rather than a lump sum, making it budget friendly to everyone.
OK, OK... How Do I Choose the Right Policy?
First, a quick search online will find you a number of companies offering renters insurance. If you have other insurance (such as auto), you may be able to "bundle" your insurance and get a discount. If not, you can choose from well-known companies such as AllState, Geico, State Farm and others. Don't be afraid to shop around.
Renters Insurance Checklist:
You will need to make a number of decisions as to what type of policy you want to purchase:
1.) Actual Cash Value vs. Replacement Cost
Renters insurance usually falls into two categories: "actual cash value," which covers your property minus depreciation (so if you paid $300 for that coat four years ago, and it's destroyed in a fire, expect to get considerably less in your settlement); or "replacement cost", which gives you enough of a settlement to re-purchase everything lost at today's prices (so: $350 for the aforementioned coat, say).
Premiums for replacement cost rental insurance are typically about 10% more than actual cash value policies. And remember, if you have a roommate with renters insurance, that doesn't mean that your possessions are covered.
2.) How Much Do I Need: Doing a Home Inventory
The best way to figure out which type you want/need--either actual cash value or replacement cost--is for you to start taking a home inventory. If you have receipts for your big-ticket items--appliances, furniture, computers, jewelry, etc.--make copies, and it's a good idea to make a video of the entire contents of your rental apartment, including whatever's inside closets and drawers. Include your furniture, all clothing (yes, including socks and underwear), artwork, kitchenware, small appliances, books, holiday decorations, collectible items, electronics, jewelry... basically everything you would have to go out and buy if you lost all of your belongings.
Obviously, keep this information someplace other than your apartment--such as a relative's home, or even better, a safe deposit box. Digital videos from your smartphone or camera could be saved online in cloud storage.
There are also online tools, such as knowyourstuff.org, that can help you organize your lists and figure out which items are worth what. The minimum coverage of most renters insurance policies is usually around $25,000. If the price of re-buying all of your most essential items exceeds that figure--and it probably will--you might want to consider replacement cost renters insurance.
3.) Renters Insurance: "All Peril" or "Named Peril"
Another decision you'll have to make when purchasing rental insurance is whether you want your possessions covered from "all peril" or "named peril", which work pretty much exactly they sound. All peril renters insurance coverage entitles you to a settlement under all circumstances except those specifically named (usually earthquakes and floods). So, you get robbed, or there's a fire, you're covered. And if a party guest spills grape juice all over your yellow couch? You're covered.
Named peril renters insurance covers you only in events specifically listed in your policy. All peril coverage is, obviously, a bit more expensive, and it's really more of a lifestyle consideration, as to which one would best for you. Be sure you are clear under which circumstances you wouldn't be covered (for example, flood or earthquake insurance is something that always must be purchased separately).
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