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The costs of having -- and not having -- renter's insurance

In this dismal housing market, more people are choosing to rent rather than buy. But as the number of renters rises, the number of them buying renter's insurance is not. A survey by the Insurance Research Council found that while 96 percent of homeowners carried insurance for their residences, only 43 percent of renters had it.

Insurance experts say the 43 percent of renters who have insurance are playing it smart, while the 57 percent who don't are playing with fire. After all, the average renter's policy costs less than $300 a year. Many folks spend more than that on coffee at Starbucks each year.

So, what’s the problem? Yumi Sam, owner of Sam & Associates Insurance Agency in San Francisco, offers four reasons for the low number of renters who carry insurance:

renters insurance

1. They don’t think they have enough items to cover.

2. They underestimate the value of their belongings and, therefore, don't think coverage is needed.

3. They think they can’t afford it.

4. They think the landlord will pay for it.

By and large, those reasons are wrong-headed.

If an apartment building goes up in flames, your landlord's insurance will cover the structure but likely won't cover your possessions. Furthermore, your landlord's insurance won’t pay for your living expenses if you need to move out while the fire damage is repaired.

“Think of your apartment unit as a box,” says Kip Diggs, a spokesman for State Farm. “Renter's insurance covers everything you put in that box: furniture, clothing, electronics, jewelry and the like. But it’s up to you to get coverage.”

These days, however, more landlords are requiring that tenants buy renter's insurance -- to protect the landlord's own assets.

“If tenants get policies, it means smaller premiums for the landlords, and their premiums won’t go up because they’ll be servicing fewer claims,” says Lauren Boston, a representative of the National Apartment Association.

Nearly 20 percent of apartment management companies require renter's insurance, Boston says, and the number is growing.

What does renter's insurance cover?

Renter's insurance offers three standard types of protection:

Personal possessions. A standard policy protects your personal belongings against damage from theft, vandalism, leaky water pipes, fire, smoke and various natural disasters. Flood and earthquakes are not covered; insurance for those are available separately through federal and state government agencies, and some private insurance companies.

Liability. Say a guest comes over to your apartment, slips on the wet kitchen floor and breaks an arm. If he sues, you’re protected against lawsuits for bodily injury or property damage caused by you or other family members in your home. The policy offers no-fault medical coverage that pays your injured visitor’s medical bills. You’re also covered for any damage your pets may cause to a rental unit.

renters insurance

Most policies automatically give $100,000 for paying legal costs in case you’re sued, but the Insurance Information Institute recommends that renters buy at least $300,000 worth of protection.

“If you have a lot of assets and want to protect them against a lawsuit, you can buy what’s called an umbrella policy,” says Jeanne Salvatore, a spokeswoman for the Insurance Information Institute. That costs between $200 and $350 a year for an extra $1 million of liability protection.

Additional living expenses. If the place you’re renting is damaged or destroyed by a disaster covered by your policy, forcing you to live elsewhere while it’s being fixed, your insurance will pick up the additional living expenses, like a hotel room and restaurant meals.

Besides floods and earthquakes, renter's insurance doesn’t cover injuries from equipment that requires individual insurance policies, like cars or motorcycles, or injuries caused by business conducted in your home. If you’re running a bakery out of your apartment and forget to turn the oven off, the fire damage isn’t covered.

How much coverage should I buy?

First, you need to know the value of all your personal possessions, from computers to clothing. To do this, make a detailed list of all your personal possessions and their estimated value.

“By making an inventory, you’re making sure you buy enough insurance to cover it all, and you can substantiate what you have if you file a claim,” Salvatore says.

You can use pencil and paper or software. The Insurance Information Institute offers a free online inventory program at It’s even better if you add receipts and documentation to your inventory file.

“But if you bought a sofa and have no receipt, just write details like, ‘brown leather sofa, purchased at IKEA in 2008,’” Salvatore says.

There are two types of renter's insurance policies:

Actual cash value. It pays to replace your items, minus an amount for depreciation to account for age as well as wear and tear.

Replacement cost. It pays the full cost of replacing your possessions, with no deduction for depreciation.

While a replacement-cost policy costs about 10 percent more than an actual-cash-value policy, experts generally recommend it.

“If you have to replace an older sofa, actual cash value will only pay you for what you can buy or sell that sofa for today,” Salvatore says. “With cash replacement, you can either buy the model of the sofa currently in the store, or receive the current sales price in cash, so you sofa is replaced at today’s cost.”

renters insurance

How much will it cost?

Not too much, actually. The typical annual premium for renter's insurance averages $250, although costs can vary a little from year to year, as insurers often change their rates. For example, Allstate is dropping the price its California renters will pay by 20 percent in 2011, as "favorable" trends in losses on renter's insurance there are letting the company pass savings along to its customers.

According to State Farm, a renter in San Francisco with possessions worth $25,000 will pay $12 to $15 a month for a standard policy, while a New Yorker will pay no more than $22. However, a standard policy offers only limited coverage for items such as jewelry, furs, artwork and other valuables. If your property that exceeds these limits, you should get a “floater” -- a separate policy that provides extra insurance for valuables and covers them for incidents not included in your policy, like accidental loss.

Buying renter's insurance is similar to buying a homeowner's policy. Insurers that offer the latter generally sell renter's insurance, too, but it pays to shop around and get several price quotes.

While renter's insurance is relatively cheap, you still can save money on premiums. One way: Go for a higher deductible. A deductible of $500 can shave 10 percent off the cost of your policy, while a $1,000 deductible can gain you 25 percent.

“It also depends on your credit history and you loss history,” Kim says. “If you have your car insurance with the same firm, you can get the home-and-car discount.”

You also can score discounts if your apartment has a security system, deadbolt locks or smoke detectors. And it doesn’t hurt to ask about discounts related to your age (seniors over age 55 can get better rates than younger renters) and your smoking status (insurers believe the risk of non-smokers starting a fire in their apartment is lower than smokers).

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