Renters often believe they have little in common with those who own their homes. While there are some significant differences between renting and owning, the need for insurance is not one of them. Indeed, renters and homeowners have very similar insurance needs. Unfortunately, many renters incorrectly believe that the need to insure their home vanished along with their obligation to maintain the lawn.
Unlike homeowners, renters are typically not required to insure the physical structure of the rental property since landlord’s often assume this responsibility. However, renters have valuable personal property that remains unprotected because it is not covered by the landlord’s policy. Renters also face possible liability if someone is injured on the rented premises. Since these risks are as harmful to renters as they are to homeowners, renters should obtain adequate insurance to protect against potentially devastating losses.
A renter’s insurance policy, also known as an HO-4 policy, covers damage or loss to personal property caused by various perils, including:
- Fire, lightning, and smoke;
- Windstorm and hail;
- Explosion and volcanic eruption;
- Riot, civil commotion, vandalism, and malicious mischief;
- Damages caused by aircraft and vehicles;
- Falling objects;
- Weight of ice, snow, and sleet;
- Accidental discharge or overflow of water or steam from within plumbing, heating, air conditioning, or automatic fire suppression systems, or from household appliances;
- Sudden and accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system, an air conditioning system, or an automatic fire suppression system;
- Freezing of plumbing, heating, air conditioning, or fire suppression system, or of a household appliance;
- Sudden and accidental damage from artificially generated electrical current.
Note that floods, earthquakes, and hurricanes are not included in this list of covered perils. If a renter lives in an area that is exposed to one or more of these perils, additional coverage must be obtained so that any property loss caused by one or more of these events is covered.
A typical renter’s policy also provides personal liability protection against liability claims and lawsuits brought by others for accidental bodily injury or property damage suffered while such person is in the rented property. If, for example, a person is injured from a slip-and-fall while in the rented property, the policy will cover the cost of any judgment and expenses resulting from the claim, up to the policy’s coverage limits.
Since these coverages provide invaluable security for many of the risks associated with renting a home, the decision to obtain renter’s insurance should be an easy one. Nevertheless, there are many factors that must be considered when purchasing renter’s insurance, including:
- Amount of Coverage. The amount of coverage needed depends on the value of the personal property that needs to be covered. The amount selected must be enough to cover the value of the property to be covered.
- Deductible. Since a higher deductible will decrease the premium, many purchasers are tempted to select the highest deductible available. However, since choosing a very high deductible may undermine the very purpose of the policy, purchasers should set the deductible at a rate that works with their financial situation.
- Actual Cash Value (ACV) vs. Replacement Cost. When purchasing a policy, an insured will be given the option of selecting ACV or Replacement Cost coverage. ACV will pay what the item was actually worth at the time of the loss, whereas Replacement Cost will pay what it actually costs to replace the item. To understand the significance of the difference, consider a situation involving the theft of a computer that was purchased for $3,000 two years ago. If Replacement Cost is selected, the insured will receive enough money to purchase a comparable replacement. However, if ACV is selected, the insured will receive the actual value of the two year old computer, which will likely be significantly less than the $3,000 originally paid. As a result, an insured selecting ACV will likely not be able to purchase a replacement computer of similar quality.
- Dog Ownership. Owning a dog may result in a premium increase to account for the perceived increase in risk associated with dog ownership. In fact, some companies will not offer coverage at all if certain breeds are owned.
- Protective Items. Certain items, such as smoke detectors, monitored burglar alarms, sprinkler systems, fire extinguishers, and deadbolt locks, may either prevent a loss from occurring or limit the extent of the loss suffered during an occurrence. The existence or availability of these items may influence the policy form selected and the cost of the insurance.
- Valuables. Some policies either limit or exclude coverage for high-priced items, such as jewelry. Depending on the nature of the personal property owned, separate policies or coverages may be required.
These are just some of the factors that must to be considered when purchasing renter’s insurance. Unfortunately, the general lack of understanding about renter’s insurance makes it increasingly difficult for many consumers to successfully navigate all of the available options and relevant factors. An individualized assessment of risks and circumstances is necessary to ensure that appropriate coverages are put in place.
While knowing the right answers is important when shopping for insurance, the real value lies in knowing the right questions. Without knowing what to look for, consumers may end up paying for unnecessary coverages, or worse yet, overlooking coverages they do need. Thus, a trusted and qualified insurance agent can be a valuable asset when shopping for insurance.
If you would like more information about purchasing renter’s insurance, or if you would like a quote, please contact us. Click here to go