Renters insurance is very much like Homeowner insurance and is, obviously, for people who rent. It provides coverage for personal property (furniture, computers, tvs, jewelry, etc.) and liability coverage in the event you cause loss to another by injury or through property damage. One who rents may not care about the sofa or dining table but what about computers and stereos and the like? Just like a home you own, you have personal property in your rented house or apartment that should be protected against loss just the same. Rentals have break-ins and fires, too! The landlord’s fire policy will cover the structure but not the contents.
Further, if your car is broken into and your laptop is stolen, the computer is not covered under your auto policy as it is not part of the vehicle. However, it is covered under Homeowner’s and Renter’s insurance.
If you rent, buy homeowner’s Form 4 and add a special perils contents endorsement.
Buying Renter’s Insurance
People who buy renter’s insurance (technically homeowner’s Form 4) do so when they don’t own the structure they occupy, but they do own the personal property in the structure and they’re concerned about that property being stolen. Specifically, they’re concerned about their most prized possessions — their 52-inch high-definition flat-screen TV, top-of-the-line stereo system, or $3,000 customized bicycle. That fear of being ripped off is what draws many people to look into buying renter’s insurance.
And yes, if they are burglarized and have these valuables stolen, there will be coverage.
But renter’s insurance is much more than just theft coverage. The policy has all the coverages of a full-fledged homeowner’s policy, except for structural coverage. If you have a kitchen fire, and while your place is being restored, you have to live elsewhere, you’ll have coverage for additional living expenses.
If you cause that fire and damage the structure that you’re renting, you’re liable for that damage and your liability coverage under the renter’s insurance will pay for repairing that damage. The liability coverage also will defend you and pay any judgments against you for injuries to guests who fall on your newly waxed floor. And often overlooked is that that same renter’s liability coverage applies anywhere else, too. For example, it will defend and pay any judgment against you caused by injuries you cause in sporting activities (racquetball, touch football, baseball, tennis, skiing, and so on).
Valuing your belongings
One of the mistakes most people make when they insure their belongings in a renter’s policy is to totally under-insure them. They buy $10,000 or $15,000 of coverage but can never replace everything they own for close to that amount.
I recommend that you use the 200 percent method for valuing personal property. Total up the replacement value of all your major items — furniture, appliances, television, stereo, and so on — and then double that number. You’ll end up with an amount high enough to replace all your major possessions and still have an equal amount of money available to replace all your other possessions, such as clothing, dishes, silverware, towels, and other miscellaneous household items — items that are easy to overlook, but that you’ll still need to replace if something happens to them. That amount will also be high enough to replace bicycles, ski equipment, and other sporting gear, as well as tools.
Always buy the optional replacement cost coverage so that, in the event of a major loss, the insurance company will pay you enough to replace everything brand-new. Otherwise, you’ll be paid the depreciated value for all your possessions — typically 40 percent less.
Evaluating your causes-of-loss options
Homeowner’s Form 4, for renters automatically includes a broad form causes of loss coverage (refer to Table 9-1), but, for a reasonable additional fee (typically less than $100 per year), you can change that form to a special form so that all losses are covered other than the exclusions. You should definitely consider this option if you have a lot of high-end furnishings or property you use away from home, such as customized bicycles.
Choosing a liability limit
The standard renter’s policy comes with $100,000 of personal liability coverage — not nearly enough to cover someone’s serious injuries or loss of life that you cause.