Owning your own home used to be the American dream. But today, the aftermath of the mortgage crisis, the burden of student loans, and a mobile workforce have combined to encourage more people in their 20s and 30s to rent instead of buy. No matter what the reason you're renting, it's important to understand why you need renter's insurance and what it does -- and doesn't -- cover.
1. Think twice before skipping rental insurance. Your landlord has insurance on the building and common elements, but you are responsible for all of your property and contents of the apartment you are renting. Depending on your lease, you may even be responsible for the major appliances, carpeting or window treatments. Add it all up, and the cost of replacing your possessions in case of fire or smoke, flood or theft, would cost you a lot of money. That's why you need renter's insurance.
2. Think about what needs coverage, not price alone. Not all rental policies are alike, so be sure to read the coverage carefully. You want replacement cost insurance -- not the current cash value of your old couch or bedroom set. In addition, it's important to compare the coverage offered.
For example, in addition to replacement, you want protection against loss of use of your apartment while it is being repaired. Make sure you have personal liability insurance and medical benefits for someone who might be hurt in an accident in your apartment. Look for coverage for appliances and electronics in case of a power surge. Ask for mold coverage, even though it usually costs extra. And the best policies have benefits for financial fraud. Don't make your decision based on price alone; coverage is critical.
3. A higher deductible makes coverage more affordable. If you agree to pay the first $500 or $1,000 of loss, instead of the more enticing $250 deductible, it can lower the annual premium for your renter's insurance. A higher deductible is about more than saving money. You might not want to file a claim for a small loss anyway, choosing instead to cover it out-of-pocket. That will keep your premiums from rising next year because you made a claim.
4. Schedule expensive items separately. If you have a coin collection, fur coats, valuable antiques or the family silver in your rented apartment, get an appraisal. You'll need specific coverage for those items, which adds to the policy cost but is well worth it.
5. Carry an umbrella. Your renter's insurance may not provide enough liability insurance in case you are sued for a non-business reason. In our litigious society, it's possible that you will be sued because you are part of a group and are perceived to have "deep pockets." That's where an umbrella liability policy comes in. Coverage comes in millions -- starting with a minimum of $1 million in coverage. It costs only a few hundred dollars a year per million. That's the price of peace of mind if you have a lot of vulnerable assets. Be sure to coordinate your umbrella policy with your underlying renter's coverage so there is no gap.
Most major home insurers offer renter's insurance policies. But technology is making it easier to compare policies and even buy online and on your smart phone. Check sites like eSurance.com or ProtectYourBubble.com, where it's easy to click and buy. Procrastinating could be more expensive than the renter's insurance. And that's The Savage Truth.
(Terry Savage is a Registered Investment Advisor, blogger and the author of four best-selling books, including "The Savage Truth on Money." Terry responds to question on her blog at