Renter's Insurance - A Small Investment for a Potentially Large Benefit

| October 23, 2018
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If you're currently renting a house or apartment, you should strongly consider an investment in renter's insurance. No one likes to think about the possibility of a fire or a burglary, but these are real possibilities.
Burglars can break in while you're away and steal your computer, entertainment system, jewelry, and other valuable items. Without renter's insurance, you will have thousands of dollars in out-of-pocket costs to replace the stolen items. By contrast, if you have renter's insurance, you will promptly receive a check that covers either the replacement costs for the stolen items or the current value of the items-depending upon which type of insurance policy you've purchased.

Maybe you believe there is little risk of a burglary in your geographic area, but what about the risk of fire? Fires strike randomly and can begin in electrical wiring over which you have no control. It's unpleasant to contemplate, but you could come home to find that everything you own has been destroyed. With renter's insurance, you would have a check in hand quite soon to begin refurnishing your life.

Yet another scenario for which renter's insurance can be of enormous benefit is personal liability. If a visitor is injured in your home, for example, by falling down the steps, you could be liable for her medical bills. Renter's insurance would cover this liability.

Some renters are under the impression that their possessions are covered by their landlord's insurance. This is rarely true. Typically, the landlord's insurance covers loss or damage to his property, not yours. Your landlord's insurance also covers his liability in case anyone is injured on the property, though not always injuries inside your apartment.

Most renters can get comprehensive coverage for a few hundred dollars per year, depending on where they live. Considering the risks covered by renter's policies, this is a low cost for the potential benefits. Before speaking with an agent about renter's insurance, look around your house or apartment and take an inventory of items you would need to replace in the event of a catastrophe. Take note of high value or difficult to replace items such as antiques, furs, jewelry, or expensive art. Before you get a policy or immediately thereafter, you should record information on all your high value items, including details about the make, model, serial number, age, and costs (both purchase and current replacement). It may also help to have photos of these items for identification purposes.

A basic policy usually pays only for the actual cash value of your items at the time they were lost. In other words, they would be valued not at what you paid for them originally or what it would cost to replace them, but at their actual value as used items. So a 3-year-old computer would be covered for its initial cost minus depreciation. Since computers depreciate quickly, yours may be worth little by the time it's 3-years-old, so your insurance proceeds will be limited.

If you have expensive items like electronics that are subject to depreciation, you should consider replacement cost coverage. With this type of policy, you would be reimbursed for the current cost of buying a new equivalent item. Thus, in our example of the $2,000 computer at 3-years-old, you would receive a check that would enable you to buy a new computer. Of course, replacement cost coverage is more expensive. It's up to you to decide which type of coverage-actual value or replacement cost-best fits your needs and budget.

Like most other insurance policies, your renter's policy will have deductibles. A deductible is an amount of loss you will have to absorb yourself before receiving any money from the insurance company. For example, let's say you have a policy with a $500 deductible. You have cameras you bought for $2,000 several years ago. If you have replacement cost coverage and the cameras are lost in a fire, you would receive a check for $1,500 from the insurance company. Of course, you can lower your insurance premium by accepting a higher deductible, but this means if there is a loss, you must absorb more of it from your own pocket.
Renter's insurance usually does not cover damage from floods or earthquakes, but you may be able to get endorsements for these and other "acts of God." An endorsement extends the perils covered by your policy. Obviously, you must pay an extra premium for the extra coverage. Be sure to discuss any special high value items, such as antiques, furs, and jewelry with your insurance agent, since you may need extra coverage for these.

As mentioned, a basic renter's policy includes liability coverage should someone be injured in your rented home or apartment. As with car insurance, there is a per-incident limit on this coverage, and you should make sure this is high enough to protect your assets.

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