Insurance Blog

NEW YORK, November 15, 2010 — With the housing market in a slump, foreclosures rising and a glut of investor-owned homes hitting the rental market, more people are choosing to rent than to buy. Renters, however, just like homeowners, need to make sure they are properly insured, according to the Insurance Information Institute (I.I.I.).

The U.S. Census Bureau noted that in the second quarter of 2010, 37.1 million housing units were occupied by renters, up by more than 800,000 units from the same period the previous year and up by 8.2 percent, from 34.3 million units, in 2006.

A survey conducted by Harris Interactive for the National Apartment Association in May 2010 found that 76 percent of those surveyed now believe that renting is a better option than buying in the current real estate market, up from 71 percent in 2008.

“If you rent a house or apartment and think that your landlord is financially responsible when there is a fire, theft or other catastrophe—think again,” warned Loretta Worters, vice president with the I.I.I. “Your landlord may have insurance to protect the building you are living in. But your landlord’s policy won’t replace your personal possessions or pay for your living expenses while the building is being repaired. The only way to protect yourself financially against disasters is to buy a renters insurance policy,” she added.

While more people are renting, nearly half do not purchase renters insurance. A recent Insurance Research Council poll found that 96 percent of homeowners had homeowners insurance while only 43 percent of renters had renters insurance.

Renters Insurance, sometimes referred to as tenants insurance, includes three basic types of protection:

1. Personal Possessions
2. Liability
3. Additional Living Expenses

1. Personal Possessions
Standard renters insurance protects your personal belongings against damage from fire, smoke, lightning, vandalism, theft, explosion, windstorm, water and other disasters listed in the policy. Floods and earthquakes are not covered. Flood insurance is available through the federal government’s National Flood Insurance Program (NFIP) and from some private insurance companies.

Earthquake coverage can be purchased as an endorsement or a separate earthquake policy. In California, coverage is also available from the California Earthquake Authority.

To decide how much renters insurance to buy, you need to know the value of all your personal possessions—including furniture, clothing, electronics, appliances, kitchen utensils and even towels and bedding. The easiest way to figure this out is to create a home inventory, a detailed list of all of your personal possessions and their estimated value. To help make this task easier, the Insurance Information Institute offers free, Web-based software, available at KnowYourStuff.org. An up-to-date home inventory will also make filing an insurance claim faster and easier.

2. Liability
Standard renters insurance policies also provide liability protection against lawsuits for bodily injury or property damage that you or your family members may cause to other people. It also pays for damage your pets cause.

The liability portion of a renters policy pays for both the cost of defending you in court and for court awards, up to the limit of the policy. Liability limits generally start at about $100,000. Some experts recommend that you buy at least $300,000 worth of protection. You can also buy an Umbrella or Excess Liability policy, which provides higher limits and broader coverage. Generally, umbrella policies cost $200 to $350 a year for an extra $1 million of liability protection.

Your policy also provides No-Fault Medical coverage. If visitors are injured in your home, you can submit their medical bills directly to your insurance company. You can generally get $1,000 to $5,000 worth of this coverage. It does not, however, pay medical bills for your own family or your pets.

3. Additional Living Expenses
Many people are pleasantly surprised to learn that Additional Living Expense (ALE) coverage is included in a renters insurance policy. If the home or apartment you are renting is damaged or destroyed due to a disaster listed in your policy and you need to live elsewhere while it is being repaired or rebuilt, renters insurance will cover your additional living expenses—namely the difference between your regular living expenses and the additional costs incurred by having to live away from your home, such as hotel bills, temporary rentals, restaurant meals, etc.

There are two types of renters insurance policies for your possessions:
Actual Cash Value pays to replace your possessions minus an amount for depreciation (the reduction in the value of items due to age and use) up to the limit of your policy.
Replacement Cost pays the full cost of replacing your possessions (with no deduction for depreciation), up to the limit of your policy. The price of Replacement Cost coverage is about 10 percent more than Actual Cash Value coverage, but can be well worth the additional cost.

A standard renters policy offers only limited coverage for items such as jewelry, silver, furs, etc. If you own property that exceeds these limits, it is recommended that you supplement your policy with a floater. A floater is a separate policy that provides additional insurance for your valuables and covers them for perils not included in your policy such as accidental loss.

How to Buy Renters Insurance
Renters insurance is easy to get, and there are many insurance companies to choose from. Insurers that offer homeowners insurance generally also sell renters insurance. In fact, a renters insurance policy and a homeowners insurance policy are almost identical. The main difference is that a renters policy does not include coverage for the building, since that is the responsibility of the landlord.

Comparison Shop
Because renters insurance covers only the value of your belongings, not the physical building, the premium is relatively inexpensive—usually around $200-$250 annually, depending on where you live and the amount of insurance you purchase. Still prices vary from company to company, so it pays to shop around. Get at least three price quotes. You can call companies directly or get quotes from the Internet. Your state insurance department may also provide information about prices.

Get quotes from different types of insurance companies. Some insurers sell through their own agents. These agencies have the same name as the insurance company. Some sell through independent agents, who offer policies from several insurance companies. Others don’t use agents at all but sell directly to consumers over the phone or via the Internet.

But don’t shop by price alone. Select a company based on service. Ask friends and relatives for their recommendations. Look for an agent or company representative who takes the time to answer your questions. Remember, you will be dealing with this person if you have an accident or other emergency.

Ask Your Insurer How You Can Save Money
There are several ways to save money on premiums. Consider taking a higher deductible (the amount of money you have to pay toward a loss before your insurance company starts to pay a claim). The higher your deductible, the more money you save on your premium. A deductible of at least $500 may save you 10 percent off the price of your policy. If you can afford to raise it to $1,000, you may get as much as 25 percent off your premium. However, it is also important to keep in mind that you will be paying the deductible each time you file a claim.

Insurance companies often offer discounts on renters insurance if you have another policy with them such as for your car or business. You can also get discounts if your apartment has a security system, smoke detectors or deadbolt locks. More discounts might be available depending on your age and whether or not you smoke.

Insurance Information Institute