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If you're a renter, you may believe you don’t need any insurance because the property’s owner must be insured. Then one, bleak day you come home to find that your door is hanging ajar and you're no longer the proud owner of a big-screen HDTV, a microwave, a Blu-Ray player, a computer and an expensive stereo. You ask your landlord for the name of his insurance company so that you can file a claim and are absolutely knocked over when you learn his insurance doesn't cover your possessions. And he's not lying either. The only way you could get reimbursed for your losses is if you had renter’s insurance which you don't.
What is renter’s insurance?
The simplest explanation of renter's insurance is its insurance that covers your belongings in case of a loss due to theft, fire, water, vandalism and a host of other perils. In addition, it can provide coverage in the event you're held liable for injury to other people or damage to their property. For example, if a friend were to trip over a rug in your house and suffer a broken arm, this insurance would protect you from having to pay for her or his medical bills if you were found legally responsible for the accident.
How much coverage do you need?
Every room in your apartment or house has things of value. Sit down and make a list of them. Nothing is too inconsequential to be left off the list. Those little keepsake items, Blu-ray Discs, LPs, your computer mouse and your great-grandmother’s silverware are all worth something. If you're not sure what some things are worth, you'll need to go online – maybe to eBay – and do some research to determine their value. Next, cross off those things on your list you feel you could live without or replace on your own.
Now that you have a list of all the important things in your life and their values you will need to total up the numbers and odds are you'll be shocked at what your stuff is worth. And this is why you need renter’s insurance.
Actual Cash Value insurance
The two basic types of renter's insurance are Replacement Cost and Actual Cash Value. Both of these refer to the amount of money you will receive in the event of a loss. The less expensive of the two is Actual Cash Value as what it means is that how much you would be reimbursed for any lost or stolen items will depend on their current cash value at the time of the loss. As an example of this, if you bought a $500 stereo six years ago your insurance company would look at it not in terms of that $500 but how much you could sell it to someone today. If the insurance company feels you could only get $200 for it now, then that's probably what you will be reimbursed.
Replacement Cost insurance
This is the more expensive of the two types of renter's insurance because the insurance company would reimburse you for the full retail price of any items you lost. So with this insurance you'd be reimbursed based on what that $500 stereo would cost you to go out and buy a new one.
The type of renter's insurance that will be best for you will depend primarily on the stuff you own. For example, if you have a lot of new and costly stuff then you may want to choose a Replacement Cost policy so you would be reimbursed for their full retail value. On the other hand, if you're fresh out of school, a first-time renter and have a lot of older, secondhand items it might be better to save money by getting an Actual Cash Value policy.
If you'd like more information about the basics of renter's insurance and the differences between Replacement Cost and Actual Cash Value policies, here's a short video you should watch.
Just like every other type of insurance, renter's insurance has policy limits. You need to understand what they are before signing on the dotted line. Your limits will be determined by the amount of the coverage you're buying. Anything beyond standard items might require what are called additional riders or extended coverage. As an example of this, most insurance companies will cover the loss of items such as passports, jewelry, watches, securities, stamps and other collectibles only up to $1500. Firearms, flatware and silverware are generally capped at $2500. And if you keep cash at home be careful how much you have as most policies will reimburse you only up to $200. This means that if you do own expensive jewelry, silverware or collectibles you will need to buy additional riders to cover anything more than the amounts listed above.
How much will your policy cost?
Unfortunately, it's impossible to say as this will depend on a number of different factors. For example, the cost of renter's insurance can change dramatically depending on where you live. The lowest-cost rates for this insurance are North and South Dakota while Mississippi has some of the highest premiums in the US. Of course, your premium will also depend on the number of items you're insuring and their replacement costs. Beyond this there are other factors that will effect your premium such as whether you own a dog, the weather where you live and your neighborhood's crime rate. Finally, there is the matter of deductibles. This is how much you will pay out-of-pocket before your renter's insurance coverage kicks in. As you might guess, the higher the deductible the less expensive your premiums will be.
Reducing the cost of renter's insurance
In addition to having a relatively high deductible there are some other ways to save money on renter's insurance. Many insurance companies offer discounts if you have preventive safety measures such as fire, smoke and CO2 detectors. You may also earn a discount if you have a home security system or if you pay your premium in full each time the insurance renews instead of paying monthly. And if you have your renter's insurance with the same company as your auto insurance you should be offered a discount.
If your possessions consist of a futon, a third-hand chair, two rickety end tables and a 10-year old TV you probably don't need renter's insurance. However, if you own a big screen HDTV, a handful of electrical appliances, a stereo and some valuable collectibles then renter's insurance would be a good investment. And trust us to know. We were once broken into three times over a two-year period and since we had Replacement Cost insurance we ended up suffering practically no losses.