Anyone that leases or rents an apartment, condominium, duplex, or house, should consider purchasing renter's insurance. The landlord's homeowners policy should cover damages to the building, but this coverage does not protect the belongings inside the structure or protect the renter from liability claims.
Insurance policies will differ from company-to-company, so it pays to shop around and develop a good system to make an apples-to-apples comparison. For example, many insurance companies will optionally offer "replacement cost" coverage. This type of policy will pay the actual cost to replace an item that was damaged or stolen.
A policy that offers "cash value" will only pay the fair market value of the item as of the date it was damaged or stolen. This second type of payment takes into account the depreciation in value of the insured items over time.
This is an extremely important point, and the following example demonstrates the value of this coverage:
A neighbor's oak tree blew down in a storm, and came crashing into Bill's kitchen. It destroyed not only a portion of his home, but also damaged the appliances in the kitchen. Because Bill had "replacement cost," he was able to go to the store and figure out what new items would cost; items that were similar to the ones that were destroyed. After paying his policy deductible, his insurance company reimbursed him for the replacement cost of each appliance.
In this example, if Bill did not pick up the "replacement cost" option on his insurance policy, then he would have been paid only a fraction of the actual cost to replace many of the items damaged. A ten year old refrigerator might have a fair market value of $100, while the cost of a new unit might be closer to $1,000.
Renters insurance is very similar to a homeowners policy except it does not include the "dwelling." That's because the actual owner of the home would insure their property for damage to the structure itself.
People renting or leasing a home need to insure the items in the structure from damage. They also need to protect themselves, and others, in the event someone is injured in the home. That's one reason renters qualify for coverage such as flood insurance offered through the National Flood Insurance Program; to protect their belongings from flood damage.
For individuals that are thinking about renting an apartment or home, the following is a quick run down of the common categories of coverage provided by these policies.
This coverage protects the personal property in the home or apartment such as clothing, furniture, appliances and certain other assets - subject to limits. For example, there may be a limit on how much the policy will pay for a personal computer, artwork, or jewelry.
If valuable collections, or even individual items such as an engagement ring, go beyond the standard coverage values stated in the insurance policy, then an endorsement or rider is needed to cover the full value of each item. As part of that process, a professional appraisal may be needed to validate the value placed on an item.
The loss-of-use option provides payments for certain types of losses when the home is damaged and the insured cannot safely occupy the dwelling. For example, if an apartment is damaged by fire, the insured may need to stay at a hotel or motel until repairs are made, and they can move back into their home.
Personal liability insurance provides payments for legal liabilities stemming from damages related to bodily injury or property damage. Liability insurance is used to protect against lawsuits that might arise because something happened to someone else on the property.
This coverage offers protection against property damage or an injury that might have occurred. Liability insurance will usually pay for the policyholder's defense in court, if necessary. The amount of coverage provided by a policy is usually stated for "each occurrence."
"Medical payments to others" is another form of liability insurance that pays for medical treatment of individuals that might be injured in the home or on the property. Medical payments covered could include doctor's fees, x-rays, hospital stays and similar expenses. This coverage does not cover the policyholder or their family members, and is not as substitute for medical or health care insurance.
It's extremely important to understand what is, and is not, covered by a renters insurance policy. For example, policies typically cover damages related to incidents such as fire, ice, snow, explosion, smoke, vehicles, falling objects, vandalism, theft, hail, wind, and freezing of plumbing systems. Some of these categories of coverage might sound silly, but coverage is usually not provided for acts of war, earthquakes, nuclear explosions, floods and landslides. (Earlier we mentioned how to obtain flood insurance.)
The above information is meant as a general guide to renters insurance policies. Be sure to check the limits of the policy, especially if expensive jewelry, electronics, or antiques are owned. Taking an inventory of these items is an important process that individuals should go through before purchasing a policy. Many companies offer riders to policies, which can be purchased to close a coverage gap and ensure all items of value are adequately insured. It's also important to take a close look at the deductibles for each category of insurance, and balance the cost of higher or lower deductibles with the ability to pay this money in a time of crisis.
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