Real World 101: Life After College

Renter's Insurance

You're moving into a new apartment and you have a lot to do: setting up telephone and cable service, letting people know your new address, deciding how to arrange your living room -- the last thing you're thinking about is insurance. If you live in a condominium or rent an apartment, your landlord's or condo association's insurance should cover damages to the building -- meaning the structure itself. But such a policy only covers their building and not your belongings. That's why you should have renter's insurance. Regardless of whether you live in a house, condo or apartment, replacing your stuff or defending yourself against a liability lawsuit can take a big toll on your bank account.

Tip: Some landlords may require renter's insurance before you move in. Find out if your landlord does.

What you are protected from with renter’s insurance?
Renter’s insurance is the least expensive option available to you and can protect you in two ways:

Loss and damage
Renter’s insurance covers your possessions against losses from fire and smoke, theft, vandalism, lightning, wind, explosion, and water damage from plumbing. Your things are also covered away from home – say, if you’re on vacation and lose a bag – for anywhere from 10% to their full value, depending on your policy. You’re also covered under most standard policies for any items that are in your possession, such as movies you rented or clothes you borrowed from friends.

What you are covered from with renter’s insurance:
-    Fire or lightning
-    Windstorm or hail
-    Explosion
-    Riot or civil commotion
-    Aircraft
-    Vehicles
-    Smoke
-    Vandalism or malicious mischief
-    Theft
-    Damage by glass or safety-glazing material that is part of a building
-    Volcanic eruption
-    Falling objects
-    Weight of ice, snow, or sleet
-    Water-related damage from home utilities
-    Electrical surge damage

Sounds like quite a lot, doesn't it? You may notice, however, that floods and earthquakes aren't on the list. If you live in an area prone to those, you'll need to buy a separate policy or a rider on your renter's policy. In some coastal regions, where hurricanes can cause mass destruction, you may also need to buy a separate rider to cover you from windstorm damage.

Liability
Renter’s insurance covers your liability for other people injured at your home or by your pets. It also covers legal costs you might incur if you get hit with a liability lawsuit. You'll also be covered against lawsuits that come from someone getting hurt in your apartment or using your stuff.  Individual policies may have differing degrees of coverage for this, so you should find out the specifics when you sign up.  Also find out whether your policy covers theft by a roommate - just in case.

Footing The Bill When Your Apartment Is Unlivable
If your apartment becomes unlivable due to a fire, burst pipes or for any other reason that is covered by your policy, renter's insurance will cover your "additional living expenses." Generally, that means paying for you to live somewhere else, such as another apartment that is in a similar price range as your original place. This coverage has a limit of about 30% to 40% of the total value of the policy. So, if you're insured for $100,000, your "additional living expenses" limit will be $30,000 or $40,000, depending on your individual policy. Your insurance company will continue to pay while your home is being repaired or rebuilt, or until you permanently relocate. However, sometimes 12 months is the longest an insurance company will continue paying. Other times, you're limited to what the insurance company considers a "reasonable length of time."

Insurance Compensation Options
One thing you want to look at when you shop for insurance is whether the company will be writing "actual cash value" (ACV) or "replacement cost coverage." As the name implies, ACV coverage will pay only for what your property was worth at the time it was damaged or stolen. So, if you bought a television five years ago for $300, it would be worth significantly less today. While you'd still need to shell out about $300 for a new one, your insurance company will pay only for what the old one was worth, minus your deductible.

Replacement cost coverage, on the other hand, will pay for what it actually costs to replace the items you lost. Usually, you'll have to pay out of your own pocket to replace your damaged items and submit the receipts to the claims adjuster for reimbursement. Even so, you'll still get a bigger chunk of change back than if you bought ACV coverage.

In some places, most companies write ACV coverage. In others, they'll quote you replacement cost coverage by default. Replacement cost coverage will cost you more in premiums, but it also will pay out more if you ever need to file a claim.

Before You Buy Renter’s Insurance
The cost of your policy will be base on your estimate of how much everything in your apartment is worth.  To do this, take an inventory of everything you have, from your oak bed frame right down to your gym socks.  Make a list of the biggest, most expensive items and what they cost when you bought them. If the cost of items you have exceeds the policy limit, you may want to increase your coverage by paying a slightly higher premium.

Be sure to take some photos around your apartment and keep them with your list. Otherwise, you may not realize that something is missing until many years later, by which time it will be tougher to collect.

Tip: Here are some great websites that can help you keep an inventory of your valuables: www.realworld101.org/apartmentliving/insuranceinventory

What Your Policy Covers
Your policy covers all your furniture, clothes, electronic equipment, dishes - in short, everything in your apartment. There are a few extra things to keep in mind:

•    If you have expensive jewelry, worth more than $1,000, or a computer worth more than $5,000, you'll need to buy a separate category of insurance to cover them.

•    Your bike is covered, even if it's stolen when it's parked outside the 7-Eleven down the block.

•    Your roommates may or may not be covered.  If you and two roommates buy a policy together and then one roommate moves out, the new roommate isn't automatically covered.  Call your insurance agent to revise your policy.

•    Rented items that are stolen or damaged while in your apartment are generally covered, but ask your insurance agent to make sure.

•    Anything below your deductible is your responsibility.  Generally renter's policies have relatively low deductibles - $250 to $500 - and the insurance doesn't pay for any losses until you've met your deductible.

If you want to know exactly what your policy covers, ask for a copy of the insurance company's plain-language guide, together with a list of items covered and their maximum insured values. If you have an item that is not covered and you want it to be, see if they'll include it.

Where to Get a Renter's Policy
Any insurance agent that sells homeowners' insurance can write a renter's policy. You can find an agent in the phone book and have a policy written over the phone.  Your policy will cover either actual cost or replacement cost.  It's important to know the distinction between the two.
 
Some reputable insurance companies that offer renter’s policies include Nationwide Mutual, Prudential, Allstate, Liberty Mutual, Erie Insurance, and State Farm. Check your phone book for agents who sell these brands.

Tip: Check whether your parents' insurance covers you while you're away at school. Some policies cover you as long as you are younger than 26, but check to be sure.

What will it cost?
Just like any other insurance policy, your premium depends on a number of factors: where you live, your deductible, your insurance company and if you need any additional coverage. However, if you don't need any extra coverage for expensive jewelry or computers, and you shop around, you probably will pay somewhere between $150 and $300 per year for coverage. That will get you about $30,000 to $35,000 worth of coverage for your personal possessions and somewhere between $100,000 and $300,000 worth of liability protection.

Keeping your premium low

There are a few ways you can lower your policy costs:

1. Shop around. Not all companies charge the same for the same coverage. Renter's insurance premiums vary by address, so you'll need to get a specific quote for your new place. You can get free quotes from www.insweb.com, NetQuote.com, or any major insurance company's Web site.

2. Increasing your deductible (the amount you pay before your coverage kicks in) is one way to keep your costs down. However, be sure that you'll be able to afford whatever deductible you choose.

3. Ask if your car insurance company also has homeowners' and renter's policies. Sometimes you can get a discount if you have more than one policy with a company.

4. Ask if you can get a discount for living in a relatively safe area or in a building with gated entry, bars on the windows or an alarm.

5. If you need to buy insurance and have valuables worth a minimum of $2,000, purchase at least a basic policy.

6. Go in together with roommates to keep the cost low (the regulations on allowing policies with your roommates vary from state to state).

7. If you're on your own and your only valuable possession is your computer, it may be cheaper to buy only a computer policy, which some companies offer now.

8. Most companies offer a discount for having "protective devices," including smoke and fire detectors, burglar alarms and fire extinguishers.

Other available discounts will depend on your insurance company -- be sure to ask what discounts it offers.

Filing a Claim
If you need to file a claim, start by writing down everything that happened.  For example, if there was a fire, write down the date and approximate time it occurred. Also write down what was destroyed.  If you have pictures of the items you need to have replaced, have these handy.  Call your insurance agent and ask for claims forms. Fill them out as completely as you can, assessing all the damage. The insurance company will process you claim and mail you a check.
 
Hopefully, you'll never file a claim.  If ten years down the line you end up resenting all the money you paid for insurance that you never needed, you'll be in good shape.

This is an excerpt from the upcoming booklet "Real World 101 Apartment Living Booklet" which will be included in all Real World 101 Care Packages. If you are interested in purchasing care packages for your students or a recent grad, please contact me at patricia@realworld101.org.