Stephanie Garman had just returned from a vacation in Mexico last February when her roommate called to tell her that their Hoboken, N.J., apartment building was on fire. The fire claimed all of Garman's belongings, including the living room and kitchen furniture she owned, and the city demolished the building later that week.
Garman's roommate had renters insurance, so she filed a claim and received close to $30,000. Garman hadn't bought a renters insurance policy, so she moved in with her fiancé instead of replacing all the furniture herself. "I knew in the back of my mind that it would be a good idea to have it, but I honestly never thought that anything would happen before I took the time to sign up," she explains. Now she has a renters insurance policy on her new apartment and encourages friends to buy renters insurance, too.
Experts say it's common for renters like Garman to skip insurance. In fact, a 2006 Insurance Research Council poll found that while 96 percent of homeowners have homeowners insurance, less than half of renters have a renters insurance policy.
Many incorrectly assume that their landlord's insurance policy will cover their belongings in the event of a fire or that renters insurance is simply too expensive. However, according to Loretta Worters, vice president of the Insurance Information Institute, an increasing number of landlords now require their tenants to buy their own renters insurance policy. "A typical renters policy runs around $250 to $300 a year, depending on where you live," she adds.
Bob Hunter, director of insurance at the Consumer Federation of America, says middle-income tenants need renters insurance the most because they have personal property to protect and likely lack the resources to replace those items themselves. "At some point when you begin to accumulate things, you have to be more serious about protecting them," he explains.
There's an important distinction between policies that cover replacement cost and actual cash value. For instance, replacing a 10-year-old couch would cost more than the couch is actually worth because of wear and tear over the past decade. Renters with expensive personal property like fine art or jewelry may want to buy an insurance rider, as regular policies are subject to limits (for instance, jewelry is often capped at $1,000 per policy).
In addition to replacing belongings in the event of a fire or theft (flood damage is typically not covered by homeowners or renters insurance), renters insurance also has a liability component, which Worters says is the most important part of a policy. "We've become a very litigious society today, so it's very important to get something that protects you and your family against any lawsuits for bodily injury by you or even your pets," she adds.
Even if you don't entertain friends or family on a regular basis, issues could arise if a repair or delivery person sustained an injury in your apartment. The standard renters insurance policy covers about $100,000 in liability but Worters says many people should consider getting up to $300,000 of coverage, depending on their financial situation.
Renters insurance policies may also cover additional living expenses. "Maybe you don't have a lot of things, but what if your apartment is damaged to the point that you have no place to live?" asks Worters. "Additional living expenses will pay for hotel bills, temporary rentals, restaurant meals, and any other expenses you incur while your home is being repaired or rebuilt."
When comparing policies, ask how much additional living expenses coverage each policy offers and what the limits are. "Some companies provide coverage for a certain amount of time, while others have a financial cap of a certain dollar amount," explains Worters.
To determine the value of your belongings, conduct a home inventory and estimate replacement costs. According to Hunter, "people tend to underestimate the value of their stuff." Be sure to include electronics, furniture, jewelry, musical instruments, sports equipment, and any outdoor items, like lawnmowers or patio furniture. If you're able to videotape a walkthrough of your apartment, also capture the serial numbers on the back of your electronics.
The Insurance Information Institute offers a free online home inventory tool at knowyourstuff.org, and some insurance companies offer similar tools, like the Allstate Digital Locker. Remember to update your inventory as you acquire new items.
For cost-conscious renters, Worters suggests asking about discounts through your employer or professional association. Insurance companies also offer discounts for having features like a security system or smoke detector in your apartment or for having multiple insurance policies like renters and auto insurance. The higher your deductible, the lower your premiums, but remember that you'll have to cough up the deductible if and when you need to file a claim.