Understanding Renter's Insurance
Like most homeowner's insurance, typical renter's insurance includes three main types of financial protection:
- Coverage for personal possessions
- Liability protection
- Additional living expenses (ALE)
The big difference is that renter's insurance doesn't cover the building or structure of the apartment - that's usually the landlord's responsibility. However, you should check your lease agreement to see what responsibility you, as the renter, may have in the event of damage.
Coverage for personal possessions:
Coverage for your personal property is a crucial component of renter's insurance. Make sure you have enough insurance to replace all your personal possessions in case of a burglary, fire, or other covered disasters. Your insurance agent can help explain what disasters your policy covers. The easiest way to determine the value of all your personal possessions is to create a home inventory - a detailed list of all of your belongings along with their estimated value.
Typical renter's insurance covers you against losses from fire or smoke, lightning, vandalism, theft, explosion, windstorm, and certain types of water damage (such as from a burst pipe). But every policy can be different, so make sure you have your insurance agent detail what's covered, so there are no surprises for you if damage occurs. Like standard homeowner's policies, most renter's insurance policies do not cover floods or earthquakes. Flood coverage is available from the National Flood Insurance Program and a few private insurers. You can get earthquake insurance as a separate policy or have it added as an endorsement to your renters' policy. If you need additional coverage for your possessions, consider adding a floater to your renter's insurance. A floater policy is a separate policy that provides additional coverage for more costly valuables if they are lost or stolen. If you have expensive jewelry, furs, collectibles, sports equipment, or musical instruments, consider adding a floater to your policy to protect against their loss.
When purchasing a renter's insurance policy, you will need to choose between actual cash value or replacement cost coverage. Actual cash value policies include a deduction for depreciation, the idea being that items lose value over time. Replacement cost coverage is more expensive but can be worth the extra expense if your belongings are damaged or destroyed. For example, consider how much you'd get for your TV used (actual cash value) versus how much it would actually cost to replace (replacement cost).
Typically, renter's insurance covers you against lawsuits for bodily injury or property damage done by you, your family members, and even your pets through the liability portion of your policy. This coverage pays for the cost of defending you in court up to your policy's limit. Your renter's policy should also include no-fault medical coverage as part of the liability protection. Medical payments coverage allows someone injured on your property to submit their medical bills directly to your insurance company so the bills can be paid without resorting to a lawsuit. Make sure the liability coverage provided by your policy is sufficient to protect your financial and other material assets in case of a lawsuit. It is a good idea to review this with a trusted insurance agent and decide what fits your financial situation.
Additional living expenses:
Additional living expenses (ALE) coverage provides coverage if an insured disaster destroys your home and you need to live elsewhere for a time. The additional living expenses portion of your rental insurance policy usually pays for hotel bills, temporary rentals, restaurant meals, and other expenses you incur while your rental is being repaired or rebuilt. Most policies reimburse you for the full difference between your additional living expenses and your regular living expenses. However, there are generally limits to the total amount the insurer will pay or time limits specifying how long you're eligible for the ALE payments. Make sure you understand and are comfortable with the limits of the policy you choose to purchase.
If you need renter's insurance, don't rush purchasing coverage if you don't fully understand it. Taking the time to read the policy carefully and understand what is and isn't covered can save you time and money down the road. We also suggest you shop around for coverage as renter's insurance policies can differ in price and coverage depending on the insurer.