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The Benefits of Renters Insurance

Nearly two-thirds of individuals and families who rent the houses or apartments they are living in do not hold renters insurance policies.

Many renters who do purchase policies buy only the minimum amount of coverage required to meet the conditions of their leases. Few renters truly understand the risks associated with failing to hold renters insurance or appreciate the full benefits available to them through a well-chosen renters insurance policy.

Why do you need renters insurance?

Renters insurance protects individuals and families who are renting their homes from costs incurred as the result of the loss of personal property. It also insulates renters from legal liability expenses in the event that someone is injured in the house or apartment they are renting. Some renters insurance policies extend as far as covering alternative living expenses for a period of time if renters are displaced from their homes due to severe building or property damage.

Although many renters assume that their landlords’ insurance covers these types of costs, it does not. Landlords’ property insurance generally only covers the costs of repairing or replacing the house or apartment building itself in the event of damage or loss. Legal responsibility for medical costs related to injuries suffered on the property falls under landlords’ property insurance policies only if the injuries are directly related to a fault in the construction of the building or its grounds. Learn more about landlords’ responsibilities here.

Protection for Your Possessions

If the house or apartment you are renting experiences significant damage, then it is likely that a number of your personal possessions may be ruined or destroyed as well. This might include both smaller items, such as DVDs or articles of clothing, and larger, more expensive pieces like furniture or audio-visual entertainment equipment. While your landlord’s insurance will pay to have your home fixed, it will not compensate you for any of the personal or household items you lost.

Renters insurance is intended to bridge that gap. What renters insurance will cover will vary by policy but it generally compensates families for the possessions they lose and must replace. Without renters insurance to provide such support, families must pay replacement costs out-of-pocket. In the event of large-scale damage or loss, replacement expenses can pile up quickly. Renters with appropriate insurance are more likely to recover from such losses quickly, where those without renters insurance may struggle to regain their former standard of living.

Studies suggest that renters regularly underestimate the value of their belongs by a large margin. In fact, on average, renters own approximately $20,000 worth of possessions. Few renters are prepared or equipped to pay the whole of that cost out of their regular income or savings in the face of a disaster. Renters protected by renters insurance can escape the burden of those costs if the worst happens

Similarly, there is a common but flawed assumption among renters that they do not or will not ever need renters insurance because they are careful and responsible residents. Even the most conscientious renters remain subject to the same unpredictable weather events and other physical factors outside their control that compel homeowners to purchase homeowners’ insurance. Homeowners’ insurance covers both the physical structure of a property and the belongings it contains. Since landlords’ insurance covers only the property, it is only reasonable that all renters seek the same protections for their possessions via renters insurance that their homeowning neighbors have for their things.

As an added bonus, most renters insurance policies protect renters’ belongings while they are traveling as well. Renters who have their luggage lost or stolen while traveling may be able to recover the cost of the lost items by submitting a claim through their renters insurance policy.

Protection for Your Guests

Imagine that you have friends or relatives over to your home for a holiday party. While they are there, one of your guests suffers an injury. In most cases, liability law allows your injured guest to hold you responsible for their medical expenses associated with the incident. If the injury was the direct result of a structural failure or defect in the building itself, then it may be covered by your landlord’s insurance. In all other cases, legal responsibility for the costs will fall to you.

Without renter’s insurance, you must pay those expenses personally. If you have selected and purchased an appropriate renters insurance policy, then all of your guest’s medical expenses, as well as any related court or legal costs, will be covered by your insurance, sparing your household budget an enormous strain.

Protection for Your Family

If the house or apartment you are renting were to burn to the ground or become too damaged to live in due to a flood, then where would you and your family live for the weeks or months it took for your landlord to have the property repaired or rebuilt? How much do you think it would cost to find another, temporary apartment or other suitable living space? How would you pay for that space and all of the new or rented belongings you would need to fill it?

Some renter’s insurance policies prevent or resolve such potentially overwhelming scenarios by including Alternative (or Additional) Living Expenses (ALE) coverage. ALE renters insurance helps policyholders cover the costs of hotel stays, dining and other living expenses while their homes are being replaced or repaired. If the policyholder’s temporary living space results in significantly larger expenses in a certain category, then ALE insurance may cover the difference between the new cost and the policyholder’s standard costs. For example, an individual who must commute twice as far to and from work every day as a result of being dislocated can typically expect his or her ALE insurance to pay for the increase in transportation costs.

Selecting a Policy

Renters insurance policies have a lot of value to offer and, on the national average, they deliver those benefits at a cost of approximately $200 per year. To ensure that you are selecting the best coverage for your needs, be sure to consider the following factors when choosing your insurer and policy:

  • The type of policy. Renters insurance may be set up to reimburse policyholders for lost items at the renter’s choice of replacement cost or actual cash value. Replacement cost policies are typically more expensive but will pay out the full amount needed to replace a lost or damaged item in the event a claim is filed. Actual cash value policies are less expensive upfront but will only pay out the calculated value of the lost item at the time it was damaged or destroyed. For example, if a family whose six-year-old 50-inch television was stolen or lost in a fire had a replacement policy, then they would receive enough money to buy a brand new 50-inch television. If they had an actual cash value policy, then they would receive whatever their former television was considered worth at the time it was lost, which would not be enough to buy a brand new television the same size. Similarly, basic policies may not cover certain natural disasters like floods. It is important for policyholders to know what renters insurance does not cover in addition to what it does.
  • Deductibles. A deductible is an amount of money you, as the policyholder, must spend before insurance begins to pay for lost or damaged items, injured guests’ legal and medical bills and other covered items. The higher a deductible you select, the lower the cost of your overall policy is likely to be. However, larger deductibles will require you to pay more out-of-pocket at the time of a disaster or emergency before insurance kicks in to assist you.
  • Specialty riders. Depending on where you live and which insurance company you purchase a renters insurance policy through, you may need to arrange special insurance riders for certain types of high-end or high-cost items you possess. Common examples include jewelry, heirlooms, instruments and specialized hobby equipment. Be sure to inquire about these and other unusually expensive items when setting up your claim.

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