Insurance 101 For Renters
Even if you don't think you've got anything of great value, you probably do - more than you could comfortably afford to replace in the event of a bad burglary or a fire. No matter how careful you may be with your own apartment, you can't control your neighbors. They can leave your security gates open, buzz ill-intentioned strangers into your building, or fall asleep with a cigarette in hand and start a serious fire. While your landlord's insurance may cover the building itself, the insurance will not cover the contents of your apartment. Additionally, if a visitor to your apartment were to have an accident, they may be able to sue you for damages.
Fortunately, you can protect yourself against all of these potential problems with renter's insurance. Renter's insurance costs around $20 a month, which is affordable for most people and is a small price to pay for peace of mind and full protection of your belongings. (Undecided if you want to rent? Check out To Rent or Buy? The Financial Issues - Part 1, Part 2 and Are You Ready to Rent?)
Understand What You're Applying For
As you get older, you'll find yourself needing to purchase more and more insurance. You may have already gone through the process of applying for car insurance, perhaps with significant help from your parents. However, applying for and purchasing renter's insurance is a good opportunity to start learning about insurance policies on your own. (To learn more about insurance policies, see Understand Your Insurance Contract, Shopping For Car Insurance and Exploring Advanced Insurance Contract Fundamentals.)
At its most basic, renter's insurance covers the contents of your rented dwelling. It may also cover the contents of your car and your luggage while traveling. Another common policy component will cover loss of use, meaning that if your apartment burns down, you'll be provided with some money to pay for temporary housing.
You should be aware that there are many things that most policies do not automatically cover. Examples include: bursting pipes, backup of sewage into your residence, earthquakes, floods, and other "acts of God". These things can be covered for an additional premium if you feel you are at significant risk. Also, if you have any unusually expensive or valuable items like high-end electronic equipment, pricey jewelry, or an important collection, you may need to purchase additional insurance to cover these items. Most rental insurance policies have some liability coverage, so you will be protected up to a certain amount in the event that you get sued for an injury or other damages incurred at your home. (To learn more about which policies are necessary, read Fifteen Insurance Policies You Don't Need and Five Insurance Policies Everyone Should Have.)
Assess Your Insurance Needs
When you apply for renter's insurance, it's a good idea to photograph or videotape everything you own. For expensive items, or if you have a collection, make sure to write down any serial numbers that could help verify your claim. You can even take it a step further and enter the items into a spreadsheet along with an estimate of each item's value. Although these steps take some extra effort, you should do them for two strong reasons.
- You probably think that the total value of the items you own is less than it actually is, which puts you at risk of under-insuring yourself. When you make yourself sit down and assess the true value of each item you own individually, you will get a more accurate picture of what your belongings are worth. Perhaps you have around 50 DVDs, which may not seem like much to you, but at $20 apiece, you have a DVD collection worth $1,000 that you won't want to have to pay to replace in case of fire.
- While your insurance company probably won't want the inventory or the photographs when you take out the policy, your documentation will be indispensable if you ever need to file a claim because you will be better able to prove the value of your possessions. Make sure to keep copies of your inventory outside of your apartment, such as in a safe deposit box, with a trusted friend or relative, or emailed to yourself as an attachment, so that all your supporting documents won't get destroyed along with your belongings. (To learn more about insurance and disasters, see Preparing For Nature's Worst.)
Once you've figured out how much insurance you need, you'll be ready to locate insurance companies that offer renter's policies in your area. To find a company, you can simply do an internet search for renter's insurance and your state. Another approach would be to check with family and friends for recommendations and rates, then visit the websites of the different insurance companies recommended. Make sure to tell your insurance rep how you found them and if you have any other existing policies with them because you can often get family rates or package deals (for example, if you purchased both home and car insurance together). Once you've located potential insurers, research the companies' insurance ratings through a company like A.M. Best, which rates insurance companies' ability to pay you when you make a claim.
Starting the Application
After investigating your options, it's time to start the application process. If several companies checked out financially, there's no reason not to apply to all of them to see which one can offer the best combination of low rates and solid coverage. Some companies may allow you to complete the entire application process online. Others may want to speak to you on the phone or send you some paperwork to fill out. In most situations, it shouldn't be necessary to meet with a representative in person. If a company wants you to meet with a rep in order to get renter's insurance, it could be because they want to hook you into other insurance products as well, so be wary.
Fine Tuning Your Policy
The application will be relatively simple to complete. The only questions that might trip you up are in regard to the type of construction of your dwelling, year built, and type of roof material used. For some properties, you can actually find this information on Zillow.com; if not, you can get it from your landlord.
Also, it may be wise to opt for replacement cost coverage for your belongings rather than cash value coverage. Choosing the former option ensures that if your couch is destroyed in a fire, you'll receive the full $1,000 you'd need to buy another couch from the store instead of the couple hundred dollars that your old couch was worth at the time of the loss due to depreciation. While replacement cost coverage tends to be slightly more expensive, the difference in premium tends to be negligible when weighed against the huge increase in coverage you get.
This is also when you'll want to decide which deductible best fits your financial situation - there are positives and negatives for each price. As with all types of insurance, the lower your deductible, the higher the premiums, because with a low deductible, the insurance company will need to cough up more money in the event of a claim. Consider how much you can afford to spend replacing your belongings in the event of a major loss, and then insure yourself for the difference. Your deductible can be as low as $250 or $500 to start, and you can always increase it later as needed.
Pay for and Review Your Policy
Insurance tends to be cheaper when you pay an entire year's premium at once instead of paying in installments, so if you can afford to pay annually, you should do so (insurance companies love to tack on administrative fees when you pay in installments). For the cash-strapped, keep in mind that the extra dollar or two you'll pay for the dubious privilege of paying your premiums over the course of the year is better than having no insurance at all. If you decide to pay monthly, be aware that some companies will require you to pay by an automatic monthly withdrawal from your checking account. If your balance frequently hovers near zero, automatic withdrawals can put you at risk for incurring hefty insufficient funds charges, so you might be better off scraping together enough cash to pay the premium by check. Another way to save money on your insurance premium is to increase your deductible.
Once you get your new policy in the mail, you'll want to read it to make sure that you understand exactly what is and isn't covered and that your policy states any non-standard additional coverage that you may have purchased. Also, make sure that your deductible and premium amounts are correct.
When you're first starting out, the total value of what you own may not be high enough to be worth insuring, but as you start bringing home paychecks, the value of your possessions can quickly grow to a surprising amount that you could not afford to replace. Renter's insurance is probably the least expensive and easiest to obtain insurance you'll ever own, so if you don't already have it, get started on the process today.