Insurance may not be the most glamorous topic of discussion, but hopefully, you leave this article with greater understanding and more confidence toward making the decision that\u2019s right for you. Let’s start by understanding what renter’s insurance covers.<\/p>\n
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<\/p>\n
What is Renter\u2019s Insurance?<\/h2>\n
Renter\u2019s insurance protects you in two ways:<\/p>\n
- \n
- It protects against personal property loss or damage, and<\/li>\n
- Covers the financial cost of any accident on your rented property for which you are legally liable.<\/li>\n<\/ol>\n
Let\u2019s take a closer look at these. Personal property loss or damage can be a consequence of any number of situations, but the most common ones are burglary, theft, or fire damage. There are various hazardous situations that are typically covered in a renter\u2019s policy, and they include:<\/p>\n
- \n
- Electric surge damage<\/li>\n
- Ice, snow, and sleet damage<\/li>\n
- Water damage from utilities<\/li>\n
- Fire and lightning<\/li>\n
- Falling objects<\/li>\n
- Volcanic eruption<\/li>\n
- Loss resulting from glass or any glazing material considered part of the building<\/li>\n
- Theft<\/a><\/strong><\/li>\n
- Smoke<\/li>\n
- Vandalism and mischief<\/li>\n
- Riot<\/li>\n
- Hail and wind<\/li>\n
- Aircraft<\/li>\n
- Explosion<\/li>\n
- Vehicles<\/li>\n<\/ol>\n
With a renter\u2019s policy, I could have been financially reimbursed for my losses because a policy acts as an investment where I deposit a small payment to be used toward an emergency. In addition to property protection, renter\u2019s insurance also protects your liability in the event of an accident. What does that mean? Let\u2019s use some examples.<\/p>\n
Let\u2019s say you decide to have a movie night in your rented property with some friends, and at some point in the night, one of your friends trips on the corner of your rug and gets seriously injured. Sure, you guys are friends, and maybe you can settle the situation together. But if your friend decided to press charges (maybe for medical bills or not being able to work and get their paycheck due to the injury that occurred in your home), then you are legally liable for the accident.<\/p>\n
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<\/p>\nYour renter\u2019s policy comes in handy by diverting the financial responsibility onto the insurance company and therefore protecting you. Here\u2019s another example. You live on the second, third, or maybe even fourth floor in your apartment complex, and you treated yourself to a waterbed. Gnarly. Until one day, it floods your apartment and causes water damage to the floors below you. Oops. That\u2019s legally your liability, but with renter\u2019s insurance, the financial burden can be diverted so that you\u2019re not paying thousands to fix everyone\u2019s leaky ceilings, floors, and water-damaged stuff.<\/p>\n
Now that we know what a renter\u2019s policy covers, let\u2019s look at the types of policies<\/strong>.<\/p>\n
- \n
- Actual Cash Value (ACV) coverage<\/li>\n
- Replacement Cost coverage<\/li>\n<\/ul>\n
The difference is in the amount they cover. Replacement cost coverage compensates you the amount you need in order to replace your lost or damaged possessions, whereas ACV covers the depreciated value of your belongings at the time they were lost or damaged.<\/p>\n
Let\u2019s say you lost your sofa in a catastrophic fire in your rental property, and you sought to replace it. If you have replacement cost coverage, you will be compensated the amount you initially paid for it when you bought the sofa, which is also usually enough for you to buy a new sofa today. If you have ACV coverage, you\u2019ll receive compensation for the market value of the sofa on the day you lost it, which is probably worth less than you bought it for and definitely less than the amount you\u2019d need to buy a new sofa.<\/p>\n
It makes sense that most purchasers of renter\u2019s policies will be pointed toward replacement cost coverage policies. ACV is still an attractive option if you are trying to save per month, as ACV coverage is typically cheaper than purchasing replacement-cost coverage.<\/p>\n
How to Buy Renter\u2019s Insurance<\/h3>\n
Now that we have investigated some basic tenets of a rental policy, the next question in determining whether a renter\u2019s insurance is smart is how much a policy will cost you. An insurance agent can help answer your questions and point you in a helpful direction, but while we\u2019re here, let\u2019s go through how to make a rough estimation.<\/p>\n
Step 1: Analyze your risk of liability damage<\/h5>\n
As we discussed, liability damages cover a range of potential scenarios for which you are legally responsible for the damage incurred. Think about your living space and the potential liabilities. Are you the guy with a waterbed on the second floor? That\u2019s a liability.<\/p>\n
Having any potentially dangerous pets, like a large dog, for example, can also be a liability, especially if you live near small children. It may be hard to imagine your sweet pet harming anyone, but if they ever get provoked and incur damage to property or people, you\u2019ll want to have calculated them as a liability already.<\/p>\n
Visitors are also a liability, per our initial example, and the more frequently you receive visitors, the greater the likelihood that a non-inhabitant will incur some injury. If you already recognize elements of your living situation as liabilities, then you definitely want to think about getting a rental policy; but for now, liability risk is just one part of the equation.<\/p>\n
Step 2: Assess the value of your total possessions<\/h5>\n
You want to be thinking about the cost of replacing your life if, due to some catastrophe, you didn\u2019t have the means to live your life as usual. The value of your total possessions should be an estimate, but this estimate includes everything and is probably higher than you think. If you don\u2019t believe me, try this.<\/p>\n
For one day, calculate your total cost just to do your morning routine. Your bed, the clothes you wear, the products you use, the breakfast you eat, and the appliances you use in cooking, everything. You\u2019ll see the numbers add up quickly. Another trick insurance agents often use is simply shorthand each room’s value at $10,000.<\/p>\n
Separate your estimate into the value of all of your \u201cstealable\u201d possessions and another for the total. Your \u201cstealable\u201d possessions mean anything likely to be stolen in the event of a burglary. So I immediately categorize my laptop and phone as part of my \u201cstealable.\u201d But TVs, jewelry, cash, or consoles are additional examples. Also, if you are a collector of art or possessions that incur value and are likely to be stolen in a burglary, include the value of these in your estimate. It\u2019s important as a collector for you to regularly schedule appraisals of your collectibles so that your estimate is more accurate and you\u2019ll be adequately covered in the case of a catastrophe.<\/p>\n
Step 3: Estimate your risk of loss<\/h5>\n
This one is less fun, but it\u2019s useful for you to understand your likelihood of suffering total loss. As we’ve discussed, the most likely causes are fire and burglary. To estimate your risk of burglary, sites like NeighborhoodScout<\/a> can help you look up crime rates in your state and even specific areas. For the state of Georgia, for instance, there are 46 burglaries per 1000 people per year, making the risk of burglary about 4.6%.<\/p>\n
Your odds of complete destruction due to fire will be around 0.3%. There are 105 million homes in the United States, and there are around 350,000 fires for which a fire department is necessary. Based on these numbers, there is close to a 0.3% chance of catastrophic fire in the home. We\u2019ll stick with this number because while not every one of these fires will result in a total loss, it allows accommodation for additional obscure risks like falling objects or vehicle damage.<\/p>\n
Step 4: Put it all together<\/h5>\n
Next, we\u2019re interested in calculating your risk of annual loss and what that is worth to you. Probability is NOT the same as calculating risk. The difference is that risk takes the probability of loss and the estimated value of that loss if realized. It looks something like this:<\/p>\n
Risk Factor = Probability X Value of Loss<\/p>\n
This can be expanded to calculate what the risk of annual loss is worth. We already know that our risk of total loss (which we assign to our risk of catastrophic fire) is 0.3%, and our risk of burglary is 4.6%. For the sake of illustrating, let\u2019s assign the value of total possessions at $15,000 and the value of \u201cstealable\u201d possessions at $5,000. Our equation will look something like this:<\/p>\n
(.003 x $15,000) + (0.46 + $5,000) = $275<\/p>\n
This takes 3% of your $15,000 value of total possessions and adds it to the 4.6% of your $5,000 value of \u201cstealable\u201d items to give you the annual cost of covering potential property losses or value of annual risk. Incorporating our earlier consideration of the risk of liability, this equation also suggests an insurance policy quoting $275 coverage annually.<\/p>\n
Step 5: Choose an appropriate deductible<\/h5>\n
We\u2019re not done with the insurance jargon just yet. A deductible is an annual amount you, as the insured, must pay before an insurance company pays your claim. Or you can think of it as the amount you, as the insured, must pay before the insurance company pays you back. A premium is the (usually) monthly amount you are charged by your insurance company for coverage. Typically, a higher deductible means a lower premium, but there are pros and cons either way.<\/p>\n
When choosing a policy, you want to consider what deductible best serves your finances and living situation and provides you the closest to the ideal coverage you are willing to pay. Again, a licensed insurance agent will usually be willing to help explain your options to you and help you assess which decision is best for you.<\/p>\n
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<\/p>\nIn the meantime, let\u2019s run through some of it ourselves. To estimate your appropriate deductible, start by comparing your risk of liability to your risk of total loss. Combining these, you\u2019ll arrive at an appropriate estimate for your ideal deductible.<\/p>\n
First, let\u2019s look at legal liability coverage. For the sake of simplicity, we\u2019ll talk about low, medium, and high legal liability and value them at $100,000; $300,000; and $500,000, respectively.<\/p>\n
- \n
- Low liability ($100k) is for the individual with the least risk. This person does not live with relatives, receives few visitors, and has few dangers on their property, including no pets or potentially dangerous animals.<\/li>\n
- Medium liability coverage ($300k) has a slightly greater amount of risk, meaning some potential dangers present, some relatives in the home, and consistent visitors to the property.<\/li>\n
- High legal liability ($500k) has an even greater presence of the risk factors we\u2019ve mentioned.<\/li>\n<\/ul>\n
Bear in mind that there are even higher options for legal liability coverage that you may consider if you have all of these factors and heightened associated degrees of potential damages. From these, estimate which level of coverage is most relevant to you.<\/p>\n
Next, let’s look at the value and probability of property loss<\/strong>. We conceptualize this by thinking of value distribution across your possessions.<\/p>\n
- \n
- A first option is a large number of possessions with medium to high value. This means that a person has a large amount of value distributed across many belongings. This person requires the smallest deductible to protect their belongings because the distribution of value in this scenario is broad, meaning individual belongings are of a lower dollar value. A robbery, for example, is less likely to cause economic devastation because there are few possessions of significant value and significant amounts of possessions of moderate value. When selecting a deductible, this person will rely on the liability coverage they need, as property loss or damage is a comparatively lesser financial threat to them.<\/li>\n
- Then a low number of possessions of medium to high value. This person, in contrast, has the same amount of value spread across fewer possessions, meaning the individual value of each possession is higher. This person is concerned with protecting their valuable possessions because a burglary could be catastrophic for them economically. Unless this person also requires high liability coverage, their deductible is more pertinent to covering property damage or loss.<\/li>\n
- And finally, low value of possessions. Property loss or property damage would not significantly harm this person financially, and they may not even need insurance<\/a> coverage at all because a deductible may be even more costly to them than paying for repairs and replacements for their property out of pocket.If this person still does wish to purchase rental insurance, their policy will be determined by their level of liability. If they have a low risk of liability, then insurance may be costlier to them than helpful. However, medium and high legal liability necessitate coverage, regardless of property value distributions.<\/li>\n<\/ul>\n
Who Needs Rental Insurance<\/h3>\n
Putting these elements together, you should be able to estimate whether rental insurance fits your situation or not. Aside from weighing liability to property value, let\u2019s be clear on who definitely needs to consider purchasing a rental policy:<\/p>\n
- \n
- Families with children<\/li>\n
- Anyone who runs a business from home (work and personal loss are conjoined)<\/li>\n
- Dog owners<\/li>\n<\/ul>\n
Rental insurance is an investment to protect what you have and where you live. Whether you\u2019re wealthy and in a midtown apartment or a student living in a dorm and anywhere in between, burglary, fire damage, and liability can be financially catastrophic.<\/p>\n
You now hopefully are better prepared to consider whether or not renter\u2019s insurance is right for you, based on the factors we\u2019ve discussed. We leave you with this advice: \u201cIt\u2019s your world; protect it as you see fit.\u201d<\/p>\n","protected":false},"author":7,"featured_media":0,"parent":0,"menu_order":0,"template":"","format":"standard","meta":{"_acf_changed":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"jetpack_post_was_ever_published":false,"footnotes":""},"manualknowledgebasecat":[46],"manual_kb_tag":[],"ppma_author":[365,371],"class_list":["post-1275","manual_kb","type-manual_kb","status-publish","format-standard","hentry","manualknowledgebasecat-renter-advice","author-karina","author-jacob-thomason"],"acf":[],"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/rentpost.com\/resources\/wp-json\/wp\/v2\/manual_kb\/1275","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/rentpost.com\/resources\/wp-json\/wp\/v2\/manual_kb"}],"about":[{"href":"https:\/\/rentpost.com\/resources\/wp-json\/wp\/v2\/types\/manual_kb"}],"author":[{"embeddable":true,"href":"https:\/\/rentpost.com\/resources\/wp-json\/wp\/v2\/users\/7"}],"version-history":[{"count":18,"href":"https:\/\/rentpost.com\/resources\/wp-json\/wp\/v2\/manual_kb\/1275\/revisions"}],"predecessor-version":[{"id":4650,"href":"https:\/\/rentpost.com\/resources\/wp-json\/wp\/v2\/manual_kb\/1275\/revisions\/4650"}],"wp:attachment":[{"href":"https:\/\/rentpost.com\/resources\/wp-json\/wp\/v2\/media?parent=1275"}],"wp:term":[{"taxonomy":"manualknowledgebasecat","embeddable":true,"href":"https:\/\/rentpost.com\/resources\/wp-json\/wp\/v2\/manualknowledgebasecat?post=1275"},{"taxonomy":"manual_kb_tag","embeddable":true,"href":"https:\/\/rentpost.com\/resources\/wp-json\/wp\/v2\/manual_kb_tag?post=1275"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/rentpost.com\/resources\/wp-json\/wp\/v2\/ppma_author?post=1275"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}