By Mark Vallet Posted : May 15, 2017
Renters insurance is widely considered a best buy for the money.
Many tenants assume a landlord's insurance will cover their belongings after a catastrophe, but that's incorrect. Renters insurance typically covers not only your belongings but your liability in many cases, plus things like living expenses if you're homeless after a fire.
Here are some common questions:
What renters insurance covers
The technical name for renters insurance is an HO-4 policy and it's specifically designed to protect people living in apartments, but does cover house rentals as well. These policies protect your belongings from loss or destruction, but coverage is limited to 16 specific perils.
While specifics can vary from policy to policy, almost all HO-4 policies cover the following events:
Fire or lightning
Windstorm or hail
Explosion
Riot or civil commotion
Damage caused by aircraft
Damage caused by vehicles
Smoke
Vandalism or malicious mischief
Theft
Volcanic eruption
A falling object
The weight of ice, snow or sleet
Accidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning, or automatic fire-protective sprinkler system, or from a household appliance
Sudden and accidental tearing apart, cracking, burning or bulging of a steam or hot water heating system, an air conditioning system or an automatic fire-protective system
Freezing of a plumbing, heating, air conditioning or automatic fire-protective system, or of a household appliance
Sudden and accidental damage from artificially generated electric current (does not include loss to a tube, transistor or similar electronic component)
Many HO-4 policies will also cover additional living expenses, which means that if your apartment is destroyed your policy will cover your living expenses.
"Additional living expense on an HO-4 would cover costs associated with hotels, meals, laundry, and other expenses that the tenant incurred while their apartment was being repaired. It could also cover costs associated with moving should the apartment not be inhabitable for an extended period of time," says Travis Biggert, chief sales officer with Hub International.
It's important to remember that renters insurance never covers flooding or earthquake damage, so you will be on the hook for the cost to replace all of your possessions if they are destroyed by a flood or earthquake.
If you live in an area that is prone to flooding or earthquakes you will need a separate policy. Flood insurance is available from the National Flood Insurance Program and earthquake coverage can usually be added as a rider to your renters insurance policy.
How renters insurance liability works
A renters insurance policy not only covers your possessions, it has a liability component that will protect you in the event someone is injured in your apartment due to your negligence.
The financial ramifications of a lawsuit by an injured party can be devastating. Luckily, the liability portion of your policy will protect you (and your assets) from bodily injury and property damage claims as well as damages you or your family members accidentally do to others.
As an example, if you have a party at your apartment and serve alcohol, you can be held liable for any damage or harm your intoxicated guests do to other people or their property. The liability portion of your renters insurance policy will cover the cost of any bodily injury or property damage claims.
Dog bites are another liability issue that an HO-4 policy will cover. If your dog bites a visitor or neighbor you can be on the hook for hospital bills or find yourself on the wrong end of a lawsuit.
Some insurance companies exclude dog bites from coverage and other insurers may exclude certain breeds of dogs so be sure to check with your insurance agent if you own a dog.
In most cases renters insurance will cover costs related to legal representation due to a lawsuit as well as any damages that are awarded, up to your policy limits.
It's up to you to choose your liability limit on a HO-4 policy. Liability limits for renters insurance usually start at about $100,000 and can go up to $500,000. "We recommend $300K in liability coverage minimum. If the person is more financially established, we recommend an umbrella policy of at least $1million," advises Tom Austin with Bungalow Insurance.
Finally, most HO-4 policies also include no-fault medical payment coverage. Angi Orbann, second vice president of personal insurance at Travelers explains this coverage. "If someone gets hurt in your home, he or she can submit medical bills directly to your insurance company. This way, expenses can be paid without a liability claim being filed against the renter. It should be noted that this coverage does not pay the medical bills for the renter's own family." Guest medical coverage of $5,000 is what is recommended.
Replacement vs. Actual Cash Value
When it comes to renters insurance, you will have to choose between "replacement cost" and "actual cash value" policies. This refers to how the insurance company values your property and the difference between these two policy types can be important.
Replacement cost: These policies will cover the actual cost of replacing your possessions. As an example, if your TV is destroyed, your insurer would replace it with a brand new TV of a similar size and quality, regardless of how old it was when it was destroyed. These policies ensure that you will receive the full cost to actually replace your possessions.
Replacement cost polices tend to be more expensive than actual cash value but offer the peace of mind that your possessions will be replaced.
Actual cash value: Insurers take depreciation into account when calculating the value of your possessions so your insurer will only pay out the value of the belongings at the time of the loss. This means that if you have a 10-year old TV, the payout amount will be for the value of a TV that is 10 years old. In most cases, it will not be enough to cover the cost of a new TV.
These policies are less expensive but remember that you will have to cover the difference between the amount your policy pays and the cost to replace your possessions with new ones.
It's important to note that some item values are capped. High-value items such as jewelry, artwork, furs, firearms and other collectibles can be subject to a value cap. The cap amount can vary, but in general, most policies put it at around $1,500. If you have items that fall into these categories and the value is more than $1,500 you can purchase a policy rider that will increase coverage levels.
Do I need renters insurance?
Yes. Because bad days happen. Sometimes they're your fault. Sometimes they just come at you.
Renters insurance is much like homeowner's insurance. It pays for your personal property that's damaged or stolen. And it provides liability protection for any damage or injuries caused by you, your household family members or your pets, either in or outside the apartment..
Sometimes called apartment insurance, it will also help pay hotel expenses if your unit is temporarily unlivable, say due to fire or water damage.
It differs from homeowners insurance in that it does not cover structural damage. This is also why it's much cheaper.
"Everything that you brought on to the structure is your responsibility," says Mike Barry of the Insurance Information Institute (III). "The landlord's responsibility, when it comes to insurance, is limited primarily to the structure."
How much does renters insurance cost?
Not much. Basic policies can cost the equivalent of one or two six-packs a month. Surveys show that most renters think it costs more than it does.
"I think a lot of people, they look at how cheap it is and they think I'm going to add $15 a month to the bill, like it's not important," says Ryan Scruggs, a Farmers Insurance agent in the Phoenix area.
Scruggs sells basic apartment policies for $12 to $20 a month, and home rental policies for $20 to $30 a month. That covers $25,000 in personal property, $5,000 for loss of use, $100,000 of liability, and $1,000 for guest medical.
Rates vary based on coverage amounts, the renter’s credit history, and where he or she lives. Based on an Insurance.com rate analysis, the national average yearly cost for a renters policy with coverage levels of $40,000 for personal property, a $1,000 deductible and $100,000 of liability protection is $197, or about $17 a month. Prices in South Carolina, Pennsylvania and Hawaii are about average. Louisiana's are the highest, at $719 a year. Colorado's are the lowest, at $103.
You may need to pay extra to add flood or earthquake coverage, or to add expensive items that exceed individual limits, such as for jewelry or antiques. These endorsements typically add a few dollars per month.
Source: http://www.insurance.com/home-and-renters-insurance/home-insurance-basics/renters-insurance.html