Insuring a micro-apartment: Being tiny doesn’t mean big savings
Thinking small when it comes to choosing an apartment may save big bucks on rent or a mortgage, but not necessarily your insurance premiums.
These tiny apartments are a growing part of the housing landscape in cities like New York, Boston, Chicago, Seattle and San Jose, Calif.
In San Francisco, city officials were scheduled to vote in November 2012 on reducing the minimum size of apartments to 220 square feet from 290 square feet.
A nearly 500-square-foot studio apartment in San Francisco goes for about $2,000 a month. By comparison, the average U.S. apartment measures roughly 800 square feet, with average rent hovering around $1,000 a month. Monthly rent for micro-apartments in San Francisco could be $1,250 to $1,500, according to the Los Angeles Times.
To insurers, size does not matter
For micro-apartment dwellers, insurance needs are basically the same as those other renters or apartment owners, says Shelly Kozel, owner of Lezok Ltd., an insurance agency in New York City. Insurance companies don’t appear to be dropping the basic minimums to cater to people opting for pint-size apartments, Kozel and other insurance agents say.
And for insurers, size generally doesn’t matter.
“From an insurance point of view, insurers don’t really care whether it’s a micro-apartment. They care about how much damage they have to cover if something catastrophic happens,” says interior designer Kittie Lonsdale, who has a micro-apartment in Manhattan.
Cities such as San Francisco and New York don’t require insurance for apartments, but landlords may require it as part of the lease. If not, some micro-apartment residents may choose not to buy insurance.
And the reason for this is that micro-apartment dwellers are usually on a budget. These renters will “take their chances” when it comes to buying insurance, Kozel says.
One micro-apartment owner’s story
Lonsdale bought her micro-apartment on New York City’s East Side in 2004, for $160,000, and then gutted and renovated it in 2009.
“It was affordable in the neighborhood that we (she and her husband) very much wanted to live in,” she says. “It was a wreck. We used to have to pick the ceiling off the floor. We cleaned it up. It was not a picnic.”
Lonsdale’s annual homeowner’s insurance premium (with Travelers) is $384 and carries a $500 deductible. It covers:
• Personal property: $53,050.
• Dwelling: $31,800.
• Loss of use: $26,525.
• Personal liability: $500,000 each occurrence.
• Medical payments to others: $5,000 each person.
She knew she needed coverage, particularly if a disaster in her 225-square-foot apartment (which is on the 13th floor of a 24-floor building) damaged other units.
“It’s certainly worth it to me,” Lonsdale says. “Anything could happen. The homeowner is liable for those damages.”
Insurance options for micro-apartments
A micro-apartment may not be able to hold as many possessions as a standard apartment, but the minimum coverage offered by a basic homeowner’s or renter’s insurance policy remains the only choice when looking for insurance. A budget-minded occupant of a micro-apartment should seek out an insurer that offers the lowest personal property minimums and premiums, but should make sure the coverage is adequate.
The minimum coverage for personal property on a small apartment, often important in the case of events such as fire or water damage, typically is $20,000 to $25,000, says Richard Signorelli, owner of AZBY Brokerage, an insurance brokerage in New York City.
Deductibles typically are $500 to $1,000 for property coverage, although someone living in a micro-apartment might be able to negotiate, decreasing the deductible to $250, Kozel says.
Some insurers will write a policy with $15,000 in personal property coverage, Kozel says. If you chose lower personal property coverage, you’re not likely to receive replacement costs, which covers the difference between the cash value (the purchase price minus depreciation), and what it actually costs to replace a TV or other belongings.
Whether in a micro-apartment or standard apartment, residents likely would need the same amount of liability coverage if the toilet or tub overflows and causes water damage to the unit below.
Other micro-apartment coverage considerations
Here are other key components of a renter’s or homeowner’s insurance policy that an occupant of a micro-apartment should consider.
• Loss of use/additional living expense coverage. If you can’t stay in your apartment during repair of disaster-related damage, insurers offer 20 percent to 40 percent of the amount of the contents for additional living expenses, Kozel says. If you have $15,000 in personal property coverage, for instance, an insurer may pay $3,000 for you to stay in a hotel room or another apartment.
• Medical payments coverage. If someone trips over your furniture in your cramped micro-apartment small and hurts himself, he could ask you to pay for his medical care. A homeowner’s or renter’s insurance policy can carry between $1,000 and $10,000 in medical payments coverage, Kozel says. No matter the apartment size, the cost of medical care would be the same, of course.
• Personal liability coverage. If a policyholder is sued for an injuries or property damage, personal liability coverage would kick in. Most policies start at $50,000, but you can buy an add-on, known as an endorsement, if you want greater protection.
• Betterments and improvements coverage. Since space is a premium in a micro-apartment, built-ins, custom shelves, storage systems and other features can maximize the size. An extra expense for micro-apartment renters or owners is increasing the betterments and improvements coverage (typically part of the policy’s building or dwelling category), which could help cover replacing custom features in your unit. A micro-apartment owner may want to bump the betterments and improvements coverage from $5,000 to between $10,000 and $20,000, Signorelli says.