February 8, 2008
If you're a renter and there's an accident or burglary, the landlord's insurance will pick up the tab, right? Not true. Landlords usually only insure the building structure itself, so you're responsible for any lost or damaged possessions. And, if someone falls in your apartment or gets bitten by your dog, guess who they might sue? You.
Given this level of risk exposure, it's surprising more tenants don't carry renter's insurance. Many people feel their belongings aren't valuable enough to insure, but suppose an electrical fire or burst pipe ruined everything: think how much it would cost to replace your possessions - not to mention pay for alternate housing during repairs.
Here are a few tips for finding the right coverage:
What it covers. Renter's insurance commonly covers property that's lost, damaged or stolen due to most occurrences including fire, lightning, windstorms, hail, explosions, smoke, vandalism, theft, plumbing leaks or falling objects. You're also usually covered away from home - for example, if your suitcase is stolen, someone breaks into your car or you get mugged. However, flood, hurricane and earthquake damage usually isn't covered, so you'll need a separate rider.
Inventory. Write down everything you own and how much it would cost to replace. Consider furniture, clothes, shoes, electronics (television, computer, DVD player, iPod, camera, etc.), watches and jewelry, art and other collectibles, kitchen appliances and dishes, books and CDs, sports equipment, etc. That's the minimum coverage you need.
Document everything. To help settle claims faster and verify losses for tax purposes, save receipts and photograph or videotape everything; store a copy of the file in a safe deposit box or other offsite location. Many personal finance software packages include an inventory program.
Payout options. Actual cash value (ACV) coverage pays the amount needed to repair or replace your belongings, minus depreciation and deductible. The alternative method, replacement cost coverage, pays the amount needed to replace the items in today's dollars (minus deductible).
Here's the difference: Say your TV cost $500 five years ago - it's worth a fraction of that today. ACV would pay that depreciated amount, while replacement cost coverage would pay enough to buy a comparable new television. Replacement cost coverage is slightly more expensive, but probably worth it.
Liability coverage. Most policies cover amounts you're liable for (including legal fees) if you're sued by someone harmed in your home. Given how expensive lawsuits are today, consider increasing this coverage well beyond the minimum amount.
Loss-of-use coverage. Many policies pay an allowance for housing and living expenses if you're forced to move out temporarily. Check if this is included or costs extra.
High-value items. Standard policies typically place limits on how much they'll pay to replace certain expensive items like jewelry, antiques, art and high-end electronics, so you may want to purchase additional riders to cover the difference.
Here are a few tips to lower your premium:
To learn more about renter's insurance and other issues renters face, like leases and security deposits, visit Visa's free personal financial management site, Practical Money Skills for Life (www.practicalmoneyskills.com/renters).
Nobody expects to be burgled or have a pipe burst, but you can lessen the pain by being properly insured.
Recent Practical Money Matters