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Renters Insurance: What You Need To Know
It is an all-too-familiar news image: An apartment building smolders in the hours after a major fire. In all likelihood, the residents have lost most of their possessions.
Some of those tenants will find financial support for their losses through their renters' insurance policies. However, a majority of renters don't have coverage, either because they believe they can't afford it or because they don't even know such a thing exists, according to a 2007 survey by Apartments.com.
"The average renters' insurance in the U.S. is about $200 annually," said Loretta Worters, a spokeswoman for the Insurance Information Institute.
"A lot of people don't think about purchasing [it because they think] their landlord is responsible, but in reality, it's the tenant that's responsible for their own belongings."
And the value of those belongings can add up, even in the households of young adults just starting out on their own: Computers, stereos, plasma TVs and so on are part-and-parcel of many an urban lifestyle these days.
Here are a few things renters should know about insurance:
•What's the real cost? That $200 annual cost is a generalization, though it's generally regarded as a reliable one.
"It depends on where you live and how much property you're insuring," said Janet Patrick, a spokeswoman for the Illinois Insurance Association in Springfield, Ill. "It also depends on the size of the deductible and other coverage."
Patrick said a $250 deductible (an amount the insured party pays out-of-pocket before coverage kicks in on a claim) is commonly found in the standard wording of renters' policies. "But you should take the highest deductible you can afford, maybe a $500 one, because it's going to lower your [premium] cost," she said.
•Two forms of coverage. Policies usually cover property in one of two ways, providing either the "actual cash value" or the "replacement value" of the household objects in paying out a claim.
Actual cash value policies pay what a possession is deemed to be worth at the time of the loss. In other words, if, your laptop cost you $800 a few years ago, its value would be less today, an amount the insurer would calculate in determining how much to pay you for the loss.
Replacement-cost coverage is just what it sounds like: It pays out the equivalent cost if you were to go out and get a similar laptop today. Such coverage, because of the higher payout, carries a higher premium.
•Beyond property. Policies cover more than lost property. For example, they also provide payment for living expenses if you're displaced from the unit for covered events, such as fires.
Another major area of coverage is liability. "If somebody comes into your apartment or rented home and trips on a rug, that's still a liability issue," Patrick said.
Generally, policies include up to $100,000 liability coverage, according to Worters. "However, experts recommend that you purchase at least $300,000 of protection," she said.
•Catastrophes. The list of catastrophes and circumstances that are likely to be covered by renters' insurance is a long one, ranging from such "typical" events such as fire, vandalism or theft to things such as damage from frozen pipes or even riots. What often isn't included is damage from flooding, and insurance experts suggest that if you live in a flood-prone area, you'll need separate coverage.
•Other cost issues. There may be ways to keep your premium costs down, or drive them up.
Some policies, for example, may give you a discount if your building has a security system.
And if you have a dog, that might make your coverage pricier. "Some companies are concerned because of the additional liability of certain dogs that are aggressive in nature," Patrick said.