An often pondered, yet rarely considered device that may or may not be a good idea – Renters Insurance is surely a phenomena once uttered in your presence. All too often, it is regarded as if applicable to all or none, with no middle ground. “Renters insurance is a good idea”… or “renters insurance is a rip off;” heard either one? Thought so. Oh, how generalities plague market demand.Anyhow,I will take an unusual approach, showing how to determine if renters insurance is a good or bad idea for YOU….specifically.
A brief overview: What is it?
Insurance of the renter exists to protect the belongings of inhabitants who do not own the dwellings in which they reside. Additionally, it diverts the financial risks of liability to the insurance company, meaning if an accident occurs on your rented property for which you are legally liable, the financial damage will be incurred by the insurer (the company). Examples here include, but are not limited to, someone tripping over your rug and breaking an arm, leaving a bathtub running and destroying the property of those in an apartment beneath you, or even shooting off fireworks indoors and burning down your entire building, including all of your neighbors possessions (anyone?).
Back to personal property loss: here are the 17 types of perils that result in loss to your property that will be covered by renters insurance:
- Electric surge damage
- Ice, snow, and sleet damage
- Water damage from utilities
- Fire and lightning
- Falling objects
- Volcanic eruption
- Loss resulting from glass or any glazing material considered part of the building
- Vandalism and mischief
- Hail and wind
Nationwide, the most widely considered prospects of property loss to renters are Theft and Fire. Depending on your area and location of dwelling, flooding may also be an issue; however, flood insurance is not included on a standard policy, requiring an extra rider to be included. Regardless, for our purposes today, we will focus on theft, fire, and liability. There are two types of policies: Actual Cash Value coverage and Replacement Cost coverage. The first (ACV coverage) covers only the depreciated value of your items, not the cost of actually replacing your items; for this, RC coverage is required. We will get into recommendations between the two in just a bit.
Here is the process of rough calculation that we suggest to assist in deciding whether renters insurance is a worthwhile purchase. Keep in mind, most insurance policies carry annual costs between $150 and $300 with some sort of deductible.
Step 1.) Analyze your risk of liability damages
- Those living on the second floor or higher have a higher propensity to be liable for property damage to neighbors, considering people are directly underneath. Waterbeds can ruin your life; if it pops, be ready to cover the damage of those living beneath you.
- Do you have a dog? If so, renters insurance will provide protection in the event the animal releases its testosterone on your neighbors or visitors. Be especially cautious if there are small children living near by.
- Those with frequent visitors are more likely to have a non-inhabitant incur some type of injury in the residence in question. Careful.. never know when a buddy will get litigious on your butt.
If you consider your home to be high risk, it’s an automatic trigger to start insurance shopping. If not, dig deeper and let’s analyze the value of your property and potential loss.
Step 2.) Asses the value of your total possessions, segregate the “steal-able” possessions
- “Steal-able” possessions are items likely and available to be stolen in the event of burglary: TV’s, DVD players, computers, jewelry, or even cash typically kept on hand amongst other things. This is to asses the potential damage incase you are the victim of burglary, as it is unusual that all possessions are lost.
- Total possessions: include everything here from your shoes all the way to your hair dryer. Estimates are exactly as said, estimates. Simply imagine losing everything and consider the costs of getting it all back. This is necessary to asses your loss in the event of catastrophe such as fire in which everything is lost.
Step 3.) Estimate your risk of loss
- There are 105 million homes in the U.S., and there are around 350,000 fires for which a Fire Dept. is required to cease the flames, so based on history, there is nearly a.3% chance of a catastrophic fire in your home. Although not all these fires will destroy everything, it’s worthwhile to keep the odds of complete destruction at.3%, as it helps to accommodate for obscure risks such as falling objects or vehicle damage.
- For Burglary, check out Neighborhoodscout to look up crime rates in your state and even your specific area. We’re gonna use the state of Georgia as an example in which there are 46 burglaries per 1000 people per year (4.6%).
Step 4.) Put it all together
–I now know that my risk of total loss is around.3%, and my risk of burglary is 4.6%. If my total possessions are worth $25,000 and I gauged my “steal-able” stuff to be worth $5,000, than here is how to calculate what the risk of annual loss is worth to me.
(.003 * $15,000) + (.046 + $5,000) = $275
– Essentially this takes 3% of your $15,000 in total items and adds it to the 4.6% of your $5,000 “steal-able” items… add them together, and you’ve got what the risk to cover potential property losses should be worth to you on an annual basis. Also, if your domicile is, by your estimate, considered “risky” in terms of liability, than a quote from an insurance company of $275 annually isn’t half bad.
Next, let’s be clear on who should definitely look into renters insurance:
- Families with children (this is a must)
- Those who run businesses from their dwellings – everything worked for could be lost.
- Dog Owners
- And, my favorite, those with water beds on the second (or higher) floor
Keep in mind even if you live in a house of friends, a negligent act on your behalf that results in property loss to a room mate leaves your checkbook on the hook. To track back a bit, when deciding between ACV (actual cash value) coverage and RC (replacement cost) coverage, you must truly consider what it would cost to replace your items. ACV will simply take the depreciated value of your items and give you whatever you stuff is worth. However, it may actually cost you more to replace said items, as you will be troubled to find similar items for the money you received. If your stuff is aging, get replacement cost coverage (a little more expensive, but worth it). If your stuff is relatively new, you can probably slide with the less expensive ACV coverage, as your stuff has not had much time to depreciate.
On a final note, it’s important to know exactly why you are purchasing renters insurance and what items you are actually protecting. In this way, you truly understand whether or not it is worth your time and money to sign up. Monthly costs can come down by increasing your deductible or simply taking precautionary measures to prevent catastrophe (fire extinguishers, bolt locks etc.). If you have a few extra bucks to spare, and the quote from Senor insurance broker seems to be a good deal, than go for it, but if it just simply doesn’t add up… you shouldn’t be ashamed to turn the other cheek to insurance. It’s your world, protect it as you see fit. Bada bing, bada BOOM…….. Salloum. Until next time.