Why Get Renters Insurance? We will Tell You.
The news last month was full of awful pictures of the tornado damage that occurred
throughout Missouri and Illinois. Along with the continuing debacle in Louisiana
and Mississippi, the topic of insurance is once again on our minds.
Back in the fall, post Katrina, we did several articles on homeowners
insurance and flood insurance
but there was one type of insurance we did not mention and it is past time to
bring it up; tenant or renters insurance.
Homeowners insurance is required by the mortgagee to protect its collateral
and the mortgagee is unlikely to let borrowers off of the hook when it comes
to obtaining and maintaining a policy. Homeowners' insurance covers the
building, any outbuildings, and, although the bank doesn't really care,
the contents of those structures. For example, a homeowner's policy that
insures a structure for $200,000 will automatically insure the contents for
a mathematically determined number - perhaps $50,000. The larger the homeowner's
policy limits, the greater the coverage of the contents.
A landlord's insurance policy, also required by the mortgage bank, covers the
building and any outbuildings and protects the landlord against lawsuits arising
out of accidents on the property. However, landlord insurance does not
the personal possessions of the tenant. This is a piece of information
that seems to come as a shock to many tenants after disaster strikes.
A staggering number of renters (and possibly a lot of condo owners, but more
about them in a minute) do not carry renters insurance. Marshall Loeb, writing
in MarketWatch last year estimated that nearly two-thirds of the 81
million people who rent their homes are uninsured for their contents
or for any liability arising out of their tenancy.
While some renters may assume that they are covered by some mythical insurance
umbrella held by the landlord, others simply do not associate the need for insurance
with their own circumstances until it is too late. They aren't homeowners so
they don't need homeowners insurance, right? They do not think beyond that question
and many probably don't even know that tenants' insurance exists.
If you rent, look around. You probably have a pretty substantial amount invested
within those walls you do not own. A stereo, high-def TV, a business and a leisure
wardrobe, all of those small appliances in the kitchen, the electronics in the
study; even if your furniture was bought second hand or from WalMart it all
adds up and should disaster strike, everything will have to be replaced out
And there is the matter of liability. Should your television
repairman trip on the front walk he will probably sue your landlord. But if
the repairman takes a swan dive over a poorly positioned coffee table inside
your apartment or if sweet little Fluffy decides that his ankle looks like lunch
it will not be your landlord's problem. It will be yours.
Tenant's insurance covers personal property within a home or apartment
against the same types of loss covered by homeowners insurance - fire,
theft, vandalism, and water damage (but not flood damage and probably not earthquake
damage either) as well as protecting your interests should someone have an accident
within your dwelling unit for which you might be held liable.
Condo owners sometimes are unknowingly or carelessly uninsured
even though they are "homeowners." Condominium associations carry a master policy
which insures the physical structure of the building or buildings and protects
the association (and its owner-members) against any civil action against the
association. A bank that gives a mortgage on an individual unit is pretty uninterested
in its borrower's 108 inch plasma TV and is more than satisfied with proof of
a master policy on the condominium. Therefore, the pressure on a homeowner to
maintain appropriate insurance is usually absent in the case of a condo owner.
The condo owner may assume that he is somehow individually protected under the
master policy or he may be pinching a few pennies at a time of unusual expenses.
In any case, his personal property is not covered and the owner is left wide-open
for lawsuits if something untoward should occur within his own walls.
Tenant insurance (a term that we will use here to apply to a condo owner's
policy as well) is usually available from any agent who writes homeowners' insurance
and it is not expensive. A typical policy that would insure personal property
of $25,000 and liability up to $100,000 will cost around $125 per year in most
areas. Be aware, however, that expensive jewelry, coin or stamp collections,
high end art, antiques, sterling silver, oriental rugs, or really expensive
electronics may not be included in the coverage without a rider
that specifically covers such items (named coverage) and these can be expensive.
It is also possible to buy earthquake or flood coverage but again at a premium
Make a list of what you own beyond the ordinary and go over the list item by
item with an experienced insurance agent. The cost of renters insurance will
also vary depending on the deductible chosen, typically $250, $500, or $1,000,
meaning that the insured will have to pay that much toward any claim before
the insurance kicks in. Also, as with homeowner's insurance as we discussed
last fall, policy prices will vary depending on whether belongings are to be
valued at replacement cost or at actual cash value. The difference is critical
at a time of loss. If a five-year-old stereo is stolen, a replacement cost policy
will pay an amount sufficient to replace the item with a comparable unit; an
actual cash value policy will depreciate the item a percentage amount for every
year since it was purchased, often as much as 50 percent. While some recovery
is better than none, talk with your agent about the cost of a full replacement