If you rent your living space, you need insurance to protect your belongings. The landlord does not insure your personal property in case of loss or damage. This article will review what is covered under a renter’s insurance policy.
Renter’s Insurance Policy
Most insurance companies use a standard renter’s insurance policy which covers losses to your personal property such as:
Floods and earthquakes are excluded from most personal insurance policies; you will need to buy a separate policy or a rider for those natural disasters (for flood insurance, check with the National Flood Insurance Program at www.fema.gov/nfip). In some coastal regions where hurricanes pose a threat, you might also need to buy a separate rider to cover wind damage.
Actual Cash Value versus Replacement Cost
One thing to look at is whether the insurance company offers “actual cash value” (ACV) or “replacement cost coverage” for your belongings. As the name implies, ACV coverage will pay only what your property was actually worth at the time it was damaged or stolen. For example, if you bought a television five years ago for $300, it would be worth significantly less today. While you would still need to spend about $300 for a new TV, your insurance company will pay only the current depreciated value, minus your deductible.
Replacement cost coverage, on the other hand, will pay what it actually costs to replace the items you lost. An insurer will generally make an advance payment for the ‘used value’ of the property, less the deductible. Then if the property is replaced, you can receive reimbursement for the actual price paid. The claims representative will explain this part of the claim process in more detail.
Let your agent know about any particularly valuable items you have. Jewelry, antiques, musical instruments, and electronics might be covered up to a certain amount. If you have some items that are unusually expensive, such as a diamond ring, you'll probably want to purchase a separate rider/endorsement. If you don’t talk to your agent about an expensive item when you buy the policy, you probably won’t be able to recover a loss later.
To ensure you are compensated for any belongings you lose from a fire, storm or other catastrophe, you should take inventory all of your personal belongings. The easiest way to inventory your belongings is to videotape them. Keep the videotape, as well as receipts for major items, in a fireproof place (or safe deposit box).
Additional Living Expenses
If your apartment or condominium becomes uninhabitable due to a fire, burst pipes, or any other reason covered by your policy, your insurance will cover your “additional living expenses.” Generally, that means paying for you to live somewhere else.
This coverage has a limit of about 20 percent of the total value of the policy. So, if you’re insured for $40,000, your “additional living expenses” limit will be $8,000, depending on your policy terms. Your insurance company will continue to pay while your home is being repaired or rebuilt, or until you permanently relocate. Sometimes 12 months is the longest an insurance company will continue paying. With some policies, you’re limited to what the insurance company considers a “reasonable length of time.”
Your renter’s insurance policy will include liability coverage. This means if someone slips and falls in your residence, you’re covered for any costs, up to your liability limit. If the person sues you, you’re covered for what they win in a court judgment as well as your legal expenses, up to your policy’s limit.
Most policies will also include a Medical Payments to Others coverage amount that provides monetary benefits to an injured party. For example, if someone slips on your walkway, your insurance policy will help pay for any immediate medical costs (e.g., those incurred at an emergency room). This coverage is minimal (usually under $5,000), but may encourage the injured party not to sue you for additional medical costs.
Just like any other type of insurance policy, your premium depends on a number of factors: where you live, your deductible, your insurance company, and whether you need any additional coverage. There are ways to reduce your renter’s insurance bill: