Imagine a fire in your building. Terrified, you run to safety, happy that you escaped uninjured.
You stand outside watching the building burn and count your blessings.
What you may not know at that moment is that, without rental insurance, you lose your possessions. Your Xbox is gone, all your clothes, the furniture you have bought over the years. Not many people can reach into their pocket and pull out $20,000 to replace everything.
Contrary to what many renters think, they aren’t covered under the property owner’s insurance. That only covers the structure, not the items inside it.
Only one kind of insurance protects your lifetime investment in your possessions: Renter’s insurance.
Unexpected perils abound: fire, wind, hail, or even a car crashing into your rented property. All of these can destroy or damage possessions accumulated over the years.
Renter’s insurance protects your personal property in an apartment, condo, or house from unexpected disasters. It will even cover the cost if, say, your sink overflows and soaks down through the floor into someone else’s apartment.
In addition, renter’s insurance can help protect you if someone is injured in the rental.
What to look for in renter’s insurance
Before you find yourself standing outside watching your belongings burn up with your apartment, consider buying renter’s insurance.
It doesn’t cost that much. For about $16 a month, you can be reimbursed if your possessions are destroyed by a disaster.
According to the Insurance Information Institute, renters are the majority in the U.S., but only a third of them carry renter’s insurance. Yet, while property owners ensure the structure, renters are on their own in cases of fire, theft, wind or hail damage, or even rioting.
You’ll have to make several decisions when you apply for renter’s insurance.
The first is on the deductible. If you make a claim on your policy, the insurer will subtract a deductible from what they pay. You can choose this amount when you buy your policy. If you have a high deductible (meaning in case of a claim the insurer will subtract more), then you will pay less for your policy. Deductibles typically run from $500 to $1,000.
Another decision you will have to make in buying renter’s insurance is how the insurer will pay you. You have two choices:
Replacement Cost Value – This is the cost to replace an item with a new one. There will be limits on items. A fancy music system might only be covered for $3,000. With your deductible of $500, you would be paid $2,500 to replace the item.
Actual Cash Value – If your policy pays ACV, then the policy pays based on what the item is worth today. If the music system was expected to last 10 years, and it is destroyed by fire in three years, it would be valued at 30 percent less than you paid for it. That is 10 percent per year. The $3,000 system would be valued at $2,100 and then the $500 deductible would be subtracted. That makes the payout $1,600. The ACV policy pays less but it also costs less.
What is not covered by renter’s insurance?
Generally, any damage from flood, underground water, earthquakes, mudslides, settling, sinkholes, deterioration, contamination, nuclear hazard, birds, rodents, insects or domestic animals is not covered.
If in areas prone to earthquakes or floods, homeowners and renters should take out special policies.
Work-related pursuits or professional services are usually covered only under business owner’s policies.
Motor vehicles such as ATVs and boats usually have to be covered under separate policies, but contents might be covered by renter’s insurance.
Document your possessions
When you take out renter’s insurance, you will be asked to list your possessions and maybe to photograph them.
It is easy to forget to do the same when you buy that new television, but it might be important in the case of disaster.
One idea is to closely video every room of your house, paying special attention to getting the brand names and even serial numbers.
For every major purchase, store receipts in a fire-proof safe or photograph them separately or as part of your video and save the pictures ‘in the cloud.’