Like much of everything else in the last few years, the cost of purchasing your own home in the United States has increased exponentially. More people than ever before choose to rent a property instead of buying one. With that same increase in costs applying to things like property taxes, repairs, and maintenance, renting can actually ease the strain on your wallet in the long run.
The trade-off, however, is that in the event of a fire or other disaster, your landlord’s insurance will cover the costs of repairing the building, but they are not liable for any of your lost or damaged personal property.
While renters insurance isn’t legally required, it may be able to protect you and your property in ways that you may not foresee. When shopping around for coverage, here are a few things to keep in mind.
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Renters Insurance: Know What is Covered… and What Isn’t
Most policies cover a surprisingly wide range of circumstances, including explosions, fire, lightning, smoke, theft, vandalism, windstorm, and certain kinds of water damage (such as a burst pipe). The majority of these policies, however, don’t include the ability to file a claim against damages caused by earthquakes, floods, or infestations (such as by bedbugs or mice).
The company you are shopping with may provide separate policies that cover these events, so be sure to ask for a complete explanation of the extent of the coverage before you make your final call.
What Usually Is Covered
Generally speaking, a renters insurance policy covers four areas:
- Coverage for personal property – this can cover the costs for replacing or repairing physical items such as clothing, electronics, furniture, and other belongings. With a few caveats, off-premises coverage even protects these items even when not in the home.
- Loss of use or ALE (Additional Living Expenses) – this pays for expenses if you have to live elsewhere while your home undergoes repairs. This could include things like hotels, temporary rentals, and meals at restaurants. Most policies will reimburse you for the full difference between the additional expenses and your normal living expenses, but be aware that there are typically limits to both the amount and the time that most insurers will pay.
- Liability protection – this pays when you are found to be responsible for damage to other peoples’ property or injury to their person. This typically covers potential legal representation in a lawsuit and any money awarded to the other party.
- No-fault medical payments – this allows someone who is injured on your property to submit their medical bills directly to your insurer without resorting to a lawsuit.
What Usually Isn’t Covered
Perhaps even more important is to understand where renters insurance falls short. Here are some considerations regarding what most policies will not protect:
- Property of roommates – most coverage doesn’t apply to property belonging to any of your roommates unless you are on the same policy, which not all companies or even states allow. It is probably best for you each to get your own individual policy.
- Scheduled property floater – policies typically have a maximum amount that they will pay for certain valuable items – such as electronics, firearms, furs, items used for business, jewelry, money (rare coins and gold), silverware, trailers, and watercraft. You may want to have these items professionally appraised and add a separate policy to protect against their loss or theft.
Not All Coverages Are Created Equal
One of the biggest choices when purchasing coverage is whether to buy an Actual Cash Value policy or to opt for a Replacement Value policy instead. The premiums are usually lower when you choose an Actual Cash Value policy, however, the age, depreciation, and everyday usage of the item are used when determining its value. This usually results in a smaller payout when filing a claim.
On the other hand, a Replacement Value policy carries a higher price tag, but the actual condition of the item isn’t a factor in determining its worth. Instead, the insurer pays the price that it would cost for your to replace the item at the current market value.
How Much is “Just Right”?
The easiest way to decide the right amount of coverage is to create a home inventory of your belongings and their estimated values. There are even several home inventory apps available to help such a catalog. This inventory can also be incredibly useful if you do ever end up having to file a claim.
Some companies, such as car insurance providers, offer services for bundling your renters insurance with other policies Doing so can often save you anywhere from 10 to 20 percent with some companies.
Another consideration is to voluntarily pay a higher deductible. While paying a lower deductible seems like the smarter decision as it means that you would have to pay less cash when you file a claim. However, opting for a higher deductible will keep your monthly premium lower; and the money that you save on premiums could more than offset the expenses incurred when filing a claim.
Navigating the world of the financial obligations faced as a renter is often confusing, frustrating, and frightening. With any luck, you are now armed with a few pointers that can help you determine the best course of action for you and your property. For more advice on maneuvering through these waters, be sure to check out the tips and tricks presented within The Renter’s Best Friend.