One common misconception among many people who rent their homes is that they are covered under their landlord's insurance in case of an accident, burglary, or other disaster.
Let me dispel that myth and a few others as well. The truth is:
- Landlords typically only insure the building and any fixtures they own within it, so renters are responsible for any lost or damaged possessions.
- If someone has an accident in your apartment -- or even gets bitten by your dog -- you're the potentially liable party.
- Your roommates must have their own policies or be named on yours; otherwise their possessions and liability are not covered.
Given this level of risk exposure, it's surprising more tenants aren't insured; by some estimates, up to two-thirds go without coverage. That tide is beginning to change, however, as more and more landlords now require rental insurance.
For the peace of mind it brings, renters insurance is surprisingly inexpensive. It typically costs about $150 to $300 a year for basic coverage -- like ordering a pizza once a month. You may feel your belongings aren't valuable enough to insure, but suppose an electrical fire or burst pipe ruined your possessions: Think how much it would cost to replace everything -- not to mention pay for alternate housing during repairs.
Here are a few tips for finding the right coverage:
Ask what's covered. Renter's insurance commonly covers property that's lost, damaged or stolen due to most occurrences including fire, lightning, windstorms, hail, explosions, smoke, vandalism, theft, plumbing leaks, electrical surges or falling objects.
You're also usually covered away from home -- for example, if something is stolen from your car or hotel room, or if you get mugged. However, flood, hurricane and earthquake damage usually isn't covered, so you'll need a separate rider (or "floater"). Also, if you have kids away at college, ask whether their dorm room is covered under your policy; off-campus housing generally isn't.
Catalog your possessions. Write down everything you own and how much it would cost to replace. Consider furniture, clothing, home electronics, cameras, watches and jewelry, art and other collectibles, appliances, books and CDs, sports equipment, etc. That's the minimum coverage you need. Many insurance companies and personal financial software packages provide free inventory forms; or try this free, online home inventory software from the Insurance Information Institute.
Document everything. To help settle claims faster and verify losses for tax purposes, save sales receipts and photograph or videotape everything; then store a copy of the file in a safe deposit box or other offsite location.
Compare payout options. "Actual cash value" (ACV) coverage pays the amount needed to repair or replace your belongings, minus depreciation and your deductible. The alternative method, "replacement cost" coverage, pays the amount needed to replace the items in today's dollars, minus deductible.
Here's the difference: Say your TV cost $500 five years ago; it's worth a fraction of that today. ACV would pay that depreciated amount, while replacement coverage would pay enough to buy a comparable new television. Replacement cost coverage is slightly more expensive, but often worth it.
Personal liability coverage. This coverage protects you if someone files a claim alleging you caused them bodily injury or property damage, provided it's not vehicle-related or tied to business activities. This includes legal fees if you are sued. Given how expensive lawsuits can be, consider increasing this coverage well beyond the minimum amount, especially if you own significant assets.
Loss-of-use coverage. Many policies pay an allowance for housing and living expenses if you're forced to move out temporarily. Check whether this coverage is included or costs extra and what the limits are.
High-value items. Standard policies typically place limits on how much they'll pay to replace certain expensive items like jewelry, antiques, art, electronics and computer equipment -- often well below replacement value. You'll probably want to purchase additional riders to fully cover these items.
Here are a few tips to lower your premium:
- Raise your deductible.
- Ask about discounts for non-smokers or for added security devices like deadbolt locks, alarm systems and smoke detectors.
- Many carriers offer multi-line discounts if you also purchase car insurance through them.
- Ask about rate decreases after age 55.
- Avoid finance charges by paying your premium all at once; or ask whether there's a discount for automatic payments from your bank account.
- Some carriers base premiums and coverage options on credit scores, so keep your credit rating sound.
- Insurance is a competitive business, so shop around. If you already have coverage, ask your carrier to match better rates you uncover.
One last tip: If your elderly parents live in an apartment or assisted-living facility, make sure they're covered as well.
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.
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