Many current or soon-to-be renters assume that their landlord’s property insurance covers their personal possessions. That is a major misconception, and one that could turn out to be the biggest mistake of your life. No renter can afford to be without renter’s insurance.
The Type of Insurance Landlords Have
The type of property insurance your landlord has is not at all like homeowner’s insurance. Homeowners insurance insures the contents of the home, outbuildings and fencing and other structures. Depending on the type of home insurance you buy, your insurance may give you enough money to rebuild your house if it is destroyed. Homeowners need to opt for Replacement Cost, not Actual Cash Value, because actual cash value uses the purchase price of the home as the basis for insuring it.
Landlords want to cover themselves for liability – harm that may come to their tenants or visitors, and have enough insurance to cover the building structure, things like electrical, HVAC and appliances, and other necessary features of the property. Landlords only have to protect themselves from liability claims; they don’t have to have or pay for the insurance to cover the contents of their tenant’s rental units.
What You Risk By Not Having Renter’s Insurance
Think about any potential disaster or catastrophe. A tornado could level the property you are renting. A fire could damage the property, or part of the property, causing collateral damage to other units in the form of smoke or water damage. Your landlord’s insurance would take care of his damage or losses, but if you don’t have renter’s insurance, you have no way to cover the cost of your furniture, clothing, appliances, electronic equipment and other possessions.
What’s more, you would have to pay for temporary lodging – until the place you’re renting is safe and inhabitable again. You’d also have to pay for your food and other expenses. The worst case scenario would force you to start all over. In addition to the stress of having to find a new place to live, pay the security deposit and whatever else the new property owner requires, you would have to replace everything you previously owned because it was destroyed.
There is no way to figure out an exact dollar amount for your losses, but it’s safe to say that your financial losses would be substantial.
How You Benefit From Having Renter’s Insurance
Now go back to the catastrophic and disastrous situations that were just discussed. There are different types of renters insurance you can get, and with those different types of rental insurance, you get different degrees of protection.
- Named Perils: If you opt for Named Perils coverage when you go to purchase renter’s insurance, you will only be insured for the specific perils named on your policy. That means you aren’t protected for anything except the situations named on the policy.
- All Risks: When you choose to purchase a renter’s insurance policy that offers coverage for All Perils, you don’t have to worry about whether or not any given situation is covered. You are covered for anything that isn’t spelled out as an exclusion.
- Actual Cash Value: By opting for actual cash value, your insurance provider will take the amount you paid for furniture, clothing, electronics and other possessions. Because you used your property, its value automatically depreciates. The insurance company uses an algorithm to determine the exact amount of depreciation there is on your possessions. The depreciation is subtracted from the purchase price, and that figure is what the insurance company will pay you for your damages.
- Replacement Cost: Replacement cost coverage is naturally more expensive, but the insurance company looks at current prices, and uses that for each piece of property, clothing or other possession that is lost or damaged. They will then reimburse you for whatever the cost of replacing your losses is.
Another benefit of having renter’s insurance is that depending on the level of insurance you buy, if you’re temporarily displaced, and have to spend any time living away from your rental, your insurance company may pay for you to stay in a hotel. It is standard for All Perils policies to pay for food and lodging after a catastrophic loss. You could only collect on this benefit with Named Perils, if the disaster happened to be a peril named in the policy.
Renter’s insurance also has built-in liability protection that is designed to protect a renter for anything that might happen to someone either in the rental unit or because of something a renter does. If your dog bites another dog, and the other dog’s owner wants to sue you, you’d have liability protection that would pay for your legal fees and pay any settlement, up to the limit specified in the policy. If someone is hurt while visiting you, and they need medical attention, the liability portion of your renter’s insurance could pay for their medical expenses, as long as that is specified in the policy.
Renter’s insurance isn’t very expensive. What you pay will depend on the type of coverage you get, how much property you have, how valuable it is, and whether you need to add endorsements – which are boosters that increase the extent and amount of your coverage. Many insurance companies offer their customers package discounts, so if you are already paying for auto insurance with a specific company, you may want to contact the company or an independent agent to find out whether you can get a bundle discount for buying renter’s insurance and car insurance from the same provider.
Don’t risk losing everything because you don’t think you need renter’s insurance! Anything can happen, and without renter’s insurance, your financial health could be turned upside down, if not destroyed altogether. Even if you never have to file a claim, the fact that your property is protected so you don’t have to worry about how you’d deal with a major disaster, should give you something that is priceless – peace of mind.