Renters insurance protects your property

Renters tend to be younger and make less money than homeowners, and they don't always think about the need for renters insurance.

"Many people focus on their contents," says Stafford Jacobs III, a San Francisco-based account executive with Hub International. "They say, 'I don't have that much stuff. If all this stuff disappeared tomorrow, I could buy more.'"

But there's more to renters insurance than protecting your belongings. Here's what you should think about when you consider a renters policy.

Who should have renters insurance?

Jacobs says anyone who rents an apartment or house should have a renters policy, and not just to cover what they own.

Renters insurance often comes with liability coverage. This covers you if somebody slips and falls in your apartment or if your landlord accuses you of causing damage to the building.

"You have more to lose in liability than in stuff," says Jacobs.

What else is covered?

In addition to liability, Jacobs says, standard renters insurance covers:
  • Your personal property, even when your belongings are not in your home.
  • "Loss of Use," which covers the cost of temporary living expenses if your rented home is damaged.
  • Medical payments for someone who gets injured in your home or, in some cases, off the premises if you or your pet is the cause of the injury.

How much should you buy?

Ask yourself: If everything was gone tomorrow, how much would I need to start over?

Renters insurance often has a $10,000 minimum for property, and there's no point in covering more than the total value of your things.

You should make an estimate on your property value. If you don't know the value, Michael Hubbel, a professor of insurance and risk management at Olivet College in Olivet, Mich., suggests that you ask your agent if he or she has any rules of thumb for making quick estimates.

How can you get the best price?

The key is to protect yourself from serious losses and not the ones you can afford to cover. "Go for high deductibles and low premiums," Jacobs says.

"Do your homework and shop around," says Hubbel. "Insurance companies are regulated by states, and the website for your state may publish sample quotes that can give you an idea of the going rates."

Rich Arzaga, CEO of Cornerstone Wealth Management in San Ramon, Calif., estimates renters insurance can be "as low as $240 per year and can get to $300 or $400." He usually assumes $20 to $30 per month, or about $1 per day.

Should you wait for an inventory of your belongings?

It's great to have a complete list of your valuables, including purchase dates and prices, but it's not necessary to have it before you buy renters insurance, says Hubbel.

"Do a physical inventory even if it's after you buy the insurance," he says. "Take a video camera and scan around or take still photographs. This can help you establish a loss."

What else should you look for in a renters policy?

Check whether your renters insurance is for replacement cost or for actual cash value. If your furniture is destroyed in a fire, you'll need enough money to buy new furniture, and not just what you would have gotten if you had sold it.

It doesn't cost much more for replacement-cost insurance, and it could be a lot more useful. "The percentage could vary greatly, but from an out-of-pocket perspective, it is not much more money," Arzaga says.

For example, one State Farm estimate to cover $25,000 worth of property was 24 percent more for replacement value coverage, but it cost only $31 more annually. "Replacement value is better coverage than actual cash value, and it's worth paying the extra premium," says Arzaga.

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