Why You Need Renter’s Insurance

Posted in

January 8th, 2010

If you’re renting an apartment or house, it’s a good idea to acquire rental insurance to ensure that your property is protected in the event that you suffer a fire, theft or vandalism. However, because it is typically not a mandatory purchase for renters, some decide to forgo the insurance and instead take their chances in hopes that nothing will ever go wrong.

But suppose something does go wrong. What kinds of unexpected expenses could occur? To get an idea, we’ll explore the costs associated with losing your property with and without rental insurance.

Basics of Renter’s Insurance

Renter’s insurance is a policy to protect your personal property financially after a fire, theft or vandalism. While your property owner is supposed to have insurance to cover damages to the building you live in, their insurance won’t cover your belongings. This is where renter’s insurance comes into play.

Some insurance companies are different, but for the most part, you could expect your renter’s insurance policy to be covered in the event that the following occurs:

• Theft
• Windstorm or hail
• Fire or lightening
• Vandalism
• Explosion
• Volcanic eruption
• Riot
• Smoke
• Damage caused by a vehicle or aircraft
• Snow, ice or sleet
• Falling objects
• Electrical surge damage
• Unlivable quarters (covers you living somewhere else typically for 12 months if your dwelling becomes unlivable after one of the above occurs)

One thing you’ll notice is that floods and earthquakes are not covered. This is because these two natural disasters are generally a regional issue. If you live in a flood-prone area, you could purchase flood insurance through a private insurer that is backed by FEMA. Earthquake insurance is also purchased as a separate policy through a private insurer.

Does Renter’s Insurance Save Money You Money?

As you can see, there are many benefits associated with purchasing rental insurance. But since you know that it is not mandatory like home insurance for those with a mortgage, you may still be wondering whether it is worth the cost. To find out, let’s look at a practical example.

According to Relocation.com, the average cost of rental insurance is $12 per month for roughly $30,000 of property coverage and $100,000 of liability coverage.

Assuming that your policy offers “actual cash value” (ACV) for your belongings (meaning you will receive money for what your property was worth at the time it was damaged or stolen), and you’ve kept receipts to prove you own the items that are missing or have been damaged, you will receive some money back for your losses.

Let’s assume your home was burglarized in your 19th month of residence. So far, you’ve invested $228 into your renter’s policy. Now here’s a quick list of what you lost:

• Leather coach, $4,000 (when purchased), $2,500 (when stolen)
• Laptop, $950 (when purchased), $500 (when stolen)
• Digital camera, $150 (when purchased), $130 (when stolen)
• Clothing, $2,000 (when purchased), $1,100 (when stolen)
• TV, $2,500 (when purchased), $1,700 (when stolen)

In order to replace your items, you’ve decided that you will need to spend close to what you paid when you purchased them, which in this scenario totals $9,600. Their value when stolen was closer to $5,930.

Now, let’s assume you have a $500 deductible. After paying this, you will have made a $728 investment toward your insurance. Subtract this from what you will receive from the insurance company ($5,930) and you will still get $5,202 back for your loss. If you use this money to replace your items, you would have to come up with with $4,398 out of pocket to get everything back.

Without insurance, you will have saved $728 over 19 months. However, what was stolen will have to be completely replaced by you out of pocket. By subtracting your savings of $728 from your replacement value of $9,600, you would have to come up with $8,872 out of pocket to replace your valuables.

This means, the costs associated with paying renter’s insurance for 19 months sparred you from having to pay$4,474 out of pocket ($8,872minus $4,398) when it comes time to replace what was stolen.

Now let’s think about this. For $12 a month, plus your deductible, you have an opportunity torecover roughly half of what you spent years ago for your personal items. However, without the insurance, you have to come completely out of pocket to get your items back and only have $728 in savings to show for it. Which option seems like the most cost-effective in the long run?

Best Renter’s Insurance Discounts

If you’ve decided that rental insurance is a good option for you, here are a few ways to get the most bang for your buck:

• Keep your receipts: It’s a good idea to make sure you keep receipts of everything of value that you purchase.
• Take pictures: A good backup plan to keeping your receipts is taking pictures of the items in your apartment or house. This way, you have doubled the proof that the items exist.
• List your items: Third, it’s good to make a list of your valuable items as you purchase them.

By monitoring your valuables, you know that if something bad does happen, your items will be accounted for.

On the other hand, if you’re worried about the cost of your renter’s insurance, you could:

• Increase your deductible: Try increasing your deductible to lower your monthly premium – as long as you can afford the deductible you choose.
• Look for discounts: You may be able to receive discounts for a number of reasons, including insuring a car with the same company, having a burglar alarm in your apartment or even being a student.

You may feel that obtaining a rental insurance policy is an unnecessary purchase. But as you can see, if you have a real disaster, being able to recover some of the replacement costs makes it worth the low monthly premium.

Have you ever been in an experience where you wish you had renter’s insurance but didn’t?