Don't Borrow Trouble—Buy Renter's Insurance

by Franny Van Nevel

When it comes to renters insurance, what you don't know can hurt you, and certainly can cost you. Think you don't need it? Take this short quiz and see how your insurance IQ stacks up.

True or False:

• If your apartment is damaged by fire or water from a burst pipe, your landlord's insurance will pay you for replacing your personal property.
• If a friend trips over your stereo cord and hurts herself, she can sue only the landlord for damages.
• If your CDs are stolen from your car, your auto insurance policy will cover the cost of replacing them.

If you answered "true" to any of these questions, you're wrong, but you're certainly not alone. Many renters don't understand the basics about renters insurance or where a landlord's liability stops and theirs begins. In fact, according to an industry expert, only about 25% of renters carry renters insurance, compared with about 98% of homeowners carrying homeowners insurance.

It's not the cost of renters insurance that keeps most people from buying it, according to Loretta Worters, communications vice president of the Insurance Information Institute, in New York. "It's the misconception that the landlord's insurance covers you, or the fact that people don't think their 'stuff' is worth a lot."

The basics
Renters insurance covers your possessions, and covers losses to your personal property from 17 types of peril:

• fire and lightning
• windstorm or hail, explosion
• riot or civil commotion
• aircraft
• vehicles
• smoke
• vandalism or malicious mischief
• theft
• damage by glass or safety-glazing material that is part of a building
• volcanic eruption
• falling objects
• weight of ice, snow, or sleet
• water-related damage from home utilities
• electrical surge damage

Damage from floods, earthquakes, and sometimes hurricanes aren't covered, so if you live in an area prone to those, talk to an insurance agent about purchasing specific policy coverage.

Liability coverage
One of the most important components of renters insurance is liability coverage. If you, a family member, or pet in your apartment unintentionally injures someone, your policy pays for medical costs and your legal defense, up to your policy's limit, says Worters. If your bathtub overflows and damages the possessions of the tenants below you, your policy will cover their damages. If someone is injured as a result of a loose banister in your apartment, the victim may end up suing both you and your landlord—your renters insurance policy kicks in to cover your expenses.

"Let's say your dog runs into your neighbors' house and chews up their Oriental rug—renters insurance would also pay for that damage," says Worters. Speaking of dogs, check with your agent to make sure your type or breed of pet is covered; some insurers may not cover pit bulls or rottweilers or other dogs, especially if they've bitten people in the past.

Cash value vs. replacement value
There are two basic types of renters insurance: Cash value coverage takes into account the age and condition of items at the time of damage or loss, reimbursing you for the value of each item, minus depreciation. Replacement value insurance pays today's cost for an item of similar kind and quality without any depreciation. "I don't quote anything but replacement cost policies," says David Montgomery, president of Independent Insurance Services, Madison, Wis. "If they want to buy an actual cash value policy, I tell them to go somewhere else, because if they have a claim they are going to be irritated that I didn't explain it to them more." Replacement value policies cost more, but pay more if you ever file a claim.

Exceptions may include jewelry and computers that often have a per-category limit. To get the necessary protection, you may have to purchase a rider to provide additional coverage. If you have fine art or antiques, submit written appraisals to your insurance agent for appropriate coverage, cautions Montgomery.

Coverage away from home

If your property or your child's property is stolen out of a car while on vacation or away from home, your policy may cover anywhere from 10% to full value of your possessions. Check with your agent about the specifics of your policy.

Renters insurance covers bikes, but you need a separate auto insurance policy for cars, vans, or motorcycles.

Additional living expenses
Renters insurance not only protects your belongings, it provides you with additional living expenses if your apartment is damaged by fire, water from a burst pipe, or for any other reason covered by your policy. If you have to relocate while repairs are made, policies generally pay 20% to 40% of the total value of the policy for relocation expenses while repairs are being made. So, for example, if your policy offers $50,000 coverage, with a 20% provision for additional living expenses, you'd get up to $10,000 if you have to eat out or live elsewhere while repairs are made, for a "reasonable length of time," says Montgomery.

Take stock

Making this inventory list may seem like a hassle, but it's nothing compared with the effort it will take to recreate the list if your belongings are in ashes after a fire, or scattered about after a tornado.

Keeping costs down
"The average cost of renters insurance is $100 to $400 a year, depending on where you live," says Worters. Insurance companies frequently offer discounts if your apartment or home has a security system, smoke detectors, or deadbolt locks. More discounts may be available depending on your age and whether you're a nonsmoker. If you have other policies with the company, such as auto insurance, you may qualify for a discounted renters policy.

Having a higher deductible (the money you'll have to pay out-of- pocket before your coverage kicks in) usually will reduce your premium.

Compare coverage and costs by contacting a variety of agents over the phone or the Internet. Keep your inventory list handy, so you can work with the agent to purchase a suitable amount of coverage.

Published August 20, 2001

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