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Everybody knows that if you buy or lease a car, you will have to purchase auto insurance. If you purchase a home, that’s right – you will need homeowners insurance. But what happens when you rent? Do you still need a policy?
The answer is… unequivocally yes.
What happens if you have a party and one of your guests is severely injured (breaking a leg falling down a flight or two of stairs has been known to happen)? Or if a fire wipes out the entire apartment building that you are renting, including all your personal effects?
This is what renters insurance does
A renters insurance policy protects you from the financial fallout of situations such as this. In a case of an injury, for example, if the lawsuit is filed, you could be on the hook for thousands of dollars – medical bills, time missed from work, etc. And it’s not hard to imagine the financial aftermath of losing not only all your belongings in a fire but also your place to live.
In short, an ordinary day can turn out to be a trying time of loss and upheaval. Be prepared with a renters insurance policy!
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In 2018, a survey by Insurance Information Institute found that out of all homeowners, 91% had home insurance, while only 46% of all renters had the applicable renters’ insurance policy.
Why such a drastic difference?
The biggest impact comes from the popular (yet very misguided) belief that if you don’t own a home, then you have nothing to lose.
When purchasing homeowners insurance policy, the biggest asset that you stand to lose is the actual building. Since this is not the case when you rent, why should you even bother? Isn’t your money better spent elsewhere?
An example to the point
Let’s take a look at an example to illustrate how renters insurance works:
- Fire erupts, and the apartment you live in is burnt to the ground. With it go all your personal belongings – the new 65” inch TV, the expensive bike you use to get to work and stored on a balcony, clothes and so on.
Not only do you need to replace all the material things, but you also need to find a new place to live overnight! Until you find a new rental, you may need to stay at a hotel or an overpriced apartment that rents the place month-to-month.
To add insult to injury, if the investigation determines that the fire originated in your apartment, you might be liable for the damage to your landlord and other tenants. Now, other tenants and the building owner are suing you for their losses.
Loss of property
Renters Insurance will replace your belongings after you pay your agreed upon deductible up to the limit specified on your policy. So whether you had a collection of air jordans, family heirlooms, or an expensive TV – the policy has you covered. Many people think – we don’t have very much, or all of it is not expensive.
The next simple exercise helps visualize how much money you actually have invested in all your “stuff.” Often it’s much more than you might think. Go from room to room and roughly estimate how much it would cost to buy each item again. Don’t forget clothes, dishes…all the little things that add up. Will Renters Insurance make a difference if you lost a pair of shoes? No! But it certainly may help if your laptop, bike, and jewelry get stolen.
If any of your belongings are stolen from you anywhere in the world or from your car (as long as they are not part of your vehicle such as built-in radio), they will likely be covered under your renters policy~ Broker Tip!
Loss of use
This is insurance-speak for covering the extra living expenses that you are forced to take on if you have to find a new place to live overnight. The key point to remember is that the policy will pay for extra expenses. For example, if the rent that you were paying was $1,000 a month, but you had to check into extended stay hotel while you find another place at $1,500 a month – the policy will pay the $500 difference. It works the same way with eating out and grocery expenses. The policy will cover the extra money you spend (meals out are expensive!!) on food as opposed to your average grocery bill.
This is by far the least valued but the most important coverage of your policy. While the worse case situation described above happens fairly rarely, you are more likely to encounter a situation that will make use of this part of the policy. The liability portion of the policy protects you against third party lawsuits due to your negligence. Let’s look at a few examples:
- You host a party and one of your guests gets drunk, leaves, gets behind the wheel, and causes an accident. Just as you can sue a bartender for not cutting you off from alcohol, your friend can allege that you bear responsibility by letting them leave visibly drunk and in no condition to drive.
- A neighborhood kid decided to use your pool without your permission and was injured. Unfortunately, you can be sued for his injury since the injury happened on your property.
- If you are renting a single-family house, and a tree on your property fell down onto your neighbor’s car or house – you can be sued for the damages.
- Your dog bites a kid on the street that asked to pet it.
It is important to realize that whether or not the lawsuit is thrown out or you are found guilty, it is very expensive to defend your case. Attorney fees alone can range anywhere from $150-$400 an hour. Then you will have court fees, legal fees, and so on. When you have an insurance policy, it is in the insurer’s best interest to keep the case out of court. As soon as you notify your insurance agent of a possible claim, the wheels start turning to rectify your situation.
Wouldn’t this policy be expensive?
Do you have thousands of dollars to spend on a lawyer? Or enough money to replace everything you have all at the same time? Even if you do, we are sure you’ll find a better use for that money. But if you don’t, you can find yourself in a real pickle.
How about $20-$25 a month? If you can free up this relatively small amount each month, you can protect yourself from all the risks mentioned above. This is an average cost (final premium will depend on your chosen limits and deductibles) of a renters insurance policy. That’s it! Many spend more money a month on Starbucks (we are guilty of that too!).
Play around with your premium by adjusting your policy’s property limits and deductibles.~ Broker Tip!
No valuable property? Great! Reduce your coverage to a minimum and increase your property deductible (doesn’t apply to other coverages). You will get full benefits of all other coverages for a smaller premium.
Think about it
For the cost of 4 cups of Starbucks a month, you can save thousands down the road should anything happen. Wouldn’t you say it’s worth it?
Call your insurance agent
If you already have auto insurance in place, call your agent and ask about a renters policy. Getting multiple policies with the same insurance company will get you a discount reducing both your renters and auto policy premium.
No current insurance? No problem! Renters is a straightforward, inexpensive policy and any of the major insurance carriers would do a good job – Farmers, State Farm, or Allstate just to name a few.
Before discussing policy specifics with an agent, have an idea of how much coverage you need. To determine your worst-case scenario, assume you need to replace everything. Go room by room and roughly estimate the cost to replace your items.
California’s department of insurance issued a home inventory guide with very detailed checklist to aid you in this process. Many items might not apply to you so complete what you can – make sure to keep a copy and send one to your agent.
Discuss standout items with your agent
Special items will likely need to be specifically scheduled on your policy. When talking to your agent, mention any standout items to be scheduled separately on your policy so you receive the full compensation for them.
Items that should be scheduled: Jewelry and furs, art and antiques, stamp or coin collections, firearms, musical instruments, expensive cameras, expensive/custom laptops or electronics.
About the Author
As a former insurance broker for over 10 years, Olga has deep knowledge of insurance concepts and policies. She is passionate about helping others understand the insurance policies they are purchasing and find policies that suit their unique needs.
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