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 cover 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 of pocket.
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 price.
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 cost policy.