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Is it dumb to not buy renter's insurance?

Ask a group of people which types of insurance are most important, and odds are you won’t hear anything about renter's insurance. In fact, according to two recent surveys, most American renters forfeit renter's insurance, putting them at risk of losing thousands of dollars in possessions.

apartmentJust as homeowner’s insurance protects homeowners, renter's insurance protects renters from losses incurred by such events as fire, lightning, theft and water damage.It also covers injuries to visitors, and it pays for living expenses if you have to leave your home temporarily because of damage. Yet only 45 percent of renters actually have renter's insurance, according to a survey released in July 2012 by Allstate.Another survey released in July 2012 by the Insurance Information Institute found the number of uninsured renters to be even higher, with only 31 percent of renters taking advantage of renter's insurance.

Whichever survey you look at, it’s evident that most renters are turning down insurance despite the fact that in many large cities, renters outnumber homeowners. In fact, according to the U.S. Census Bureau, renters make up 69 percent of households in New York City, 62 percent in Los Angeles and 55 percent in Chicago.

Reasons behind the numbers

Renters have three major reasons why they turn down renter's insurance, says Steve Hall, senior manager of Allstate's consumer household unit.

One reason: Some assume renter's insurance will cost them hundreds of dollars a year, as most auto insurance policies do, Hall says. But in reality, the cost of renter's insurance is relatively low, averaging $184 a year, according to the National Association of Insurance Commissioners.

Another reason some renters refrain from buying renter's insurance is because they don’t think their belongings are valuable. But many don’t consider how much it would cost to replace everything at once, Hall says. According to Allstate, the average renter’s possessions are worth about $30,000. Not only that, but 54 percent of renters in the Allstate survey said it would take them at least three years to pay to replace everything in their homes.

Finally, many renters mistakenly believe their landlords' insurance will cover them. Actually, a landlord's insurance likely cover structural damage, but it won’t cover any of your belongings that are lost or damaged, Hall says.

Tough tales of woe

Many renters have learned the hard way about the value of renter's insurance after a disaster has struck. When LinDee Rochelle moved to San Diego in 2007, she didn’t think she could spare the extra money to pay for renter's insurance. However, about three weeks after she moved in, the water pipes that run along the ceiling of her rented garage burst and warm water flooded her possessions, ruining vintage furniture, art and antique books. Although she promptly bought renter's insurance after the fact, it was too late to help replace all of the items she had lost. In retrospect, “I was able to afford it after the fact, so I could have afforded it before,” she says.

A similar experience occurred when Gina Baker and her husband, Shane, rented a home in Ogden, Utah. They chose to forfeit renter's insurance “because my husband and I are very careful with our belongings and have rarely had an issue,” Baker says.

However, when a window in a downstairs room sprung a leak, the couple lost $3,000 worth of clothing, including a Dale of Norway sweater that had been purchased at the Winter Olympics in Salt Lake City. The landlord refused to cover the damage, and the couple learned that no matter how careful they were, they couldn’t control every mishap that could affect their home.

However, not every person with renter's insurance is a huge fan of the coverage. Scott Lee of Los Angeles carries renter's insurance, but only because he owns computer equipment. “Clothing, dishes, glasses and utensils are easily replaced at a Target or Walmart,” Lee says. “I chose to purchase renter's insurance to protect my expensive electronic devices.”

Jane Santucci of Indiana is required by her apartment complex to purchase renter's insurance. If her landlord didn’t insist that she buy it, “I am pretty conservative with my money and probably would do without it,” Santucci acknowledges.

But LaTrice Roman of Dallas says she thinks all renters should be required to buy renter's insurance, particularly since a lot of policies cover belongings that aren't inside your home. When a thief broke into her car in 2011, Roman’s renter's insurance covered some of the items that were taken, including a new iPad. “For the little bit that Ipay each year, I feel it’s not wasted because I can travel worry-free knowing that myhome is covered and the items that I cherish are, too,” Roman says.

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