You don't need to be a homeowner to be protected from financial losses when disaster strikes so be informed about the different types of renters insurance you need to be aware of if you're renting your home.
Disasters come with no prior warnings; neither do they come with a filter. They are natural, unfortunate events that are not concerned with whether you live in a rented home or your own. A natural disaster, fire, theft, or any similar event can leave you devastated if you don’t have insurance to cover your losses.
People who own their houses are required by the mortgage companies to have a homeowner’s insurance which covers all personal losses and temporary accommodations. However, not all renters have renters insurance. According to statistics, only 41% of the renters have renters insurance. As a result, in case of disasters, the renters have to bear all repair costs themselves.
Imagine waking up to a fire in your house. In just a few hours, you are torn down to a zero level. You have no personal possessions or a place to live. What will you do? Even the thought can make you shiver.
No matter how careful or cautious you are, you can never be sure about nothing going wrong. It is better to be prepared for the worst beforehand. That is why you should have renters insurance. Whether you are living in a rented place temporarily or you have just moved in, getting renters insurance should be treated as a priority.
If you are wondering why your landlord’s insurance can’t cover your losses, let us tell you why. Your landlord’s insurance will only cover structural damages to the property. It won’t cover the loss of any of your personal belongings or cover for your temporary accommodations while the place is under repair.
To cut it short, having renters insurance is not only important, but it is also necessary.
What Is Renters Policy?
Renters insurance is property insurance that is purchased by the tenant of a house. It covers personal property losses and losses from liability claims. Renters insurance covers situations like injuries that occur within your rental premises-that are not due to any structural problems.
Any injuries that are caused due to problems in the structure of the building are the responsibility of the landlord, who usually gets it covered through the homeowner’s insurance. Renters insurance can cover any rented space, whether it is a studio apartment, a house, or a mobile home.
What Does Renters Insurance Cover?
Before you invest in renters insurance, you would want to know what losses it covers.
Renters insurance covers all your personal belongings within your rented dwelling. Renters insurance covers your losses in case of fire, plumbing, theft, vandalism, electrical malfunctions, and certain weather-related damages. It also covers other hazards that are specifically named in the policy. A standard H0-4 policy is specifically designed for covering losses for renters due to riots, hail, explosion, or damages caused by vehicle or aircraft, volcanoes, vandalism, and others.
Renters policy may also cover loss of use which includes all the expenses that you will have to bear while your property remains inhabitable. However, if these expenses are covered in your renters policy, it will be clearly mentioned. If it is not mentioned, it won’t cover any expenses that you bear while your property is under repair. It may also cover the contents of your luggage and car while you are traveling.
Most renters insurance has liability coverage up to a certain amount. In a situation where you get sued for damage or injury that occurred at your home, the liability coverage will protect you. it also pays for court judgments. Legal expenses are covered too, but only up till the limit of your policy.
What Renters Insurance Does Not Cover
Before purchasing the renters’ insurance, you should be very clear about what the policy covers and what it does not to avoid any misunderstandings and mishaps in the future. We have already seen what the renter’s insurance covers, let’s see what it doesn’t have everything in black and white right in front of us.
- Renters insurance does not cover the backup of sewage into your rented home
- It does not cover losses due to acts of God, such as floods, earthquakes, etc. If you are at significant risk, you will have to purchase an additional premium to have you covered
- It does not cover the losses of unusually expensive, valuable items such as high-end electronics, jewelry, or any sort of collectibles. If you want your dearly valuable items to be covered, you will have to purchase a rider which is an additional policy such as scheduled personal property policy.
- If your area is known to have wind storms quite often, you may want to purchase a policy that covered damages caused by winds because standard renters insurance does not cover them.
- In case damage has occurred due to the negligence or intentional act of the tenant, the renters’ insurance does not cover it.
Types of Renters Insurance
The type of renters insurance depends on what the insurance covers. Based on the insurance coverage, there are three types of renters insurance:
- Personal Property Coverage
- Liability Insurance
- Additional living expenses
Personal Property Coverage
You may not realize, but the value of personal belongs in an average home can be as much as $25000. Personal property coverage sets a limit that the insurance company would pay to cover any personal loses in case of disaster or theft.
You may think you don’t own much but, before you purchase renters insurance, make a checklist of everything that you own, from clothes and shoes to furniture and electronics. Mention the estimated price of each item. This way, you will know how much worth your personal property has and it would eventually help you in deciding your insurance plan.
There are three types of policies for personal property coverage. They are:
- Actual cash value
- Replacement cost coverage
- Scheduled personal property policy
Actual Cash Value
As the name indicates, actual cash value is the actual value that your property is worth of as of today. The actual cash value may be almost half the price you paid to buy it. The value of any possession is depreciated over time. The actual cash value that your renters’ insurances cover is the actual cost of the item minus the depreciation value.
Renters insurance that is based on the actual cash value is less expensive. However, you may want to reconsider the insurance policy if it is based on the actual cash value. You won’t be able to buy back everything that you have lost in the unfortunate event from the money your renters’ insurance is going to get you.
Replacement Cost Coverage
A renters insurance that is based on replacement cost coverage is pricier than the one that offers actual cash value. This type of personal property insurance will provide enough money that would allow you to replace all your personal belongings altogether.
For example, if your furniture got damaged in a fire incident, your renters’ insurance will cover the loss completely and support you in replacing the furniture from scratch. Though it is a lot more expensive than actual cash value policy, it has you well-covered.
Scheduled Personal Property Policy
It is extremely important that you study your renters’ insurance policy thoroughly. Generally, renters insurance does not cover the actual cost of any personal belongings that are highly valuable, like jewelry, collectibles, and antiques. The basic renters’ insurance will offer only a small amount for these valuable belongings which is not enough to cover the loss.
In order to get additional protection for your valuables, scheduled personal property policy is what you should get. If you own valuable jewelry, coins, antiques, or any sort of collectibles, you should consider getting the scheduled personal property policy a priority because you never know when things turn ugly.
Let us explain to you what exactly is the difference between standard personal property coverage and scheduled personal property policy. Personal property will provide $1500 for a piece of jewelry, for example. If your jewelry is worth $1000, you will in a good position but what if the piece of jewelry costs $3000? This is where scheduled personal property policy comes to rescue. It is an add-on to the standard renters’ insurance. It increases the limit of the coverage that you get for specific, high-value items.
The items this insurance policy covers are:
- Coins and stamps
- Expensive cameras
- Musical instruments
In order to get this policy for any of the items above, you need to provide the insurance company with an official proof that states the actual value.
Benefits of Getting Scheduled Personal Policy
Although this add-on will cost you premiums, it is totally worth it. It comes with major benefits that we have listed for you.
- It provides increased It may offer coverage for additional risks like losing your scheduled belongings accidentally (like dropping your wedding band down the drain). Standard insurance policies do not cover such loses.
- There is no deductible in this policy. You are given an option to either choose a low deductible or no deductible at all.
Just to make things clearer to you, a deductible is a portion of the insurance amount your policy entitles you to which you have to pay yourself in case an event occurs. For example, if a value is worth $5000, you will decide to pay a deductible, let’s say, $500 when you lose the belonging. The insurance company will pay the remaining $4500.
Liability insurance is a type of renters insurance that has you covered in case you accidentally damage the property, or if someone gets hurt within the premises of your property. It covers situations where you may be found legally responsible for someone else’s loss.
For example, if guests trip over something and fall in your home, you may have to cover their medical expenses. Or if your child accidentally breaks your neighbor’s window, you might be asked to cover their loss. In situations like these, liability insurance comes to your rescue.
Liability insurance is particularly helpful when a claim has been made against you or you have been sued as a result of a certain incident. It can help you cover legal costs and other damages that may be related. Most of the liability insurance provides a minimum of $100,000 worth financial protection that covers accidental bodily injuries, property damages, or others.
Personal Umbrella Policy
If you are seeking additional liability coverage, you may be interested in the personal umbrella policy. The limits of this policy begin after the limit of your underlying insurance ends that provides you with additional coverage and greater liability protection.
It is particularly helpful in cases where you find yourself liable for a claim that is fairly large than what your standard insurance would cover. If someone does have to face such a scenario, he may have to spend all that they have earned in the entire life. Personal umbrella policy makes sure that you don’t have to live a nightmare like the one we just mentioned.
An example of the situation where you would bring the personal umbrella policy in use is- your dog attacks your neighbor you were doing the dog no harm that results in serious injuries. In case you get sued and are asked to cover all the treatment expenses, the personal umbrella policy will cover it all for you. the thing about this policy that makes it worth the investment is, it not only covers you but all your family members as well.
How the Personal Umbrella Policy Works?
Like we mentioned earlier, the limit of umbrella policy begins from the point where the limit of your standard rental policy ends.
For example, you have a standard rental policy worth $300,000. You have a party at your rented home during which a guest slips from the stairs and gets a severe concussion. They decide to sue you. The judgment is passed where you have to pay the guest $1 million. That would mean, the insurance company would pay only $300,000 and the rest $700,000 has to be paid through the pocket. Where does that leave you? Nowhere. If you have an umbrella policy worth $1 million, it would pay the rest of the amount and you won’t have to withdraw your retirement funds.
Now that you have a clearer picture of what the umbrella policy is and how it works, we are sure you might be pretty convinced that you need it!
Additional Living Expenses (ALE)
An additional living expenses (ALE) policy comes into play when you are unable to live in your rented house due to any mishap or accident. Let’s suppose there is a fire or some natural disaster which has left your home wrecked, where would you go? The repairs may not begin immediately and the work may even take some time. In that case, the ALE policy will have you covered.
Additional living expenses policy covers your hotel bills, your meals, and all the necessary spending that you will have to do in case you are displaced from your home due to a certain disaster. Standard renters insurance does not cover any of these additional expenses. It covers about 10% to 20% of the insurance covering the dwelling.
When purchasing rental insurance, it is always better to consider all the possible worst scenarios so that you can be well-prepared beforehand. If you overlook the need for additional living expenses policy, you may end up spending all your savings which is a lot more than what it will cost you to purchase the insurance policy.
Items Covered Under ALE
The items that are provided under the additional living expenses policy are:
- Restaurant Meals
Since you aren’t living in your home and would be eating out most probably, ALE covers the cost of restaurant meals.
- Costs of Laundry
If the policyholder does not have access to a washer and dryer in their temporary home, the ALE would cover laundry costs.
- Furniture Rents
ALE would cover the costs to rent some of the basic furniture that you may need in your temporary home. Usually, the furniture that the policyholder is used to using regularly is considered and covered.
- Under special circumstances, ALE covers storage costs for the contents as well.
- ALE covers all the moving and displacement costs.
- In case you have a pet, ALE covers the cost of pet boarding
If you think you can have the insurance company pay you as much as you ask for to have a quality of life that is better than the one you lead, you are mistaken. Before you are granted anything under ALE, the company evaluates what lifestyle you had before the incident took place. ALE is only meant to cover the difference between what your living costs would have been if you were living in your home and what you now have to pay.
How to Get Maximum Benefits
You should not expect the insurance company to reimburse every penny that you spend. You shouldn’t spend a reckless amount of money in hopes that all of it will be reimbursed because that is not the case. The ALE has certain limits and you need to stick to them. However, there are certain ways in which you can get the maximum benefits from this policy:
- Provide receipts of all the expenses that you made during the time you had to stay away from your home
- Document everything. Note down where you had to spend an increased amount as compared to what you would normally pay
- You should provide proof that shows what your normal expenses are usually so that the insurance company can use that information as a comparison
- In case you have had the insurance company to cover any special expenses, make sure that it is documented from the insurance company to avoid any sort of misunderstandings
Applying For Renters Insurance
Now that you have gone through all the types of renters insurance and the related policies, it’s time for you to understand how to apply for renters policy.
Assess Insurance Needs
We have mentioned this earlier and we will mention it to you again; assess your insurance needs and purchase a policy accordingly. Prepare a checklist or a videotape that cover all your personal belongings within your rented property. If you own any expensive items, make sure that you have them on the list along with their estimated value.
Assessing the value of personal belongings is very important as it helps you decide the type of renters insurance that you will need. If you are assuming that the worth of your personal belongings is quite less, you may end up under-insuring yourself. In case of a mishap, the insurance won’t be enough to cover the losses of your belongings, which were worth a lot more than you claimed. Assessing the worth would give you a true picture of your property’s worth.
Secondly, having an inventory a spreadsheet, or a videotape is beneficial to strengthen your claim. The insurance company might not ask for it but when filing a claim, your documentation will be indispensable and will be a strong proof that what you are claiming is exactly what you need.
Remember to keep a copy of these documents that is safe and away from home so that even if the property is damaged, your documentation is safe. You can also email relevant documents to yourself.
Choose an Insurance Company
Now that you know how much insurance you need, you can start looking for insurance companies in your area. You can either check the internet or you can ask around in family and friends for their recommendations. Do not forget to tell the insurance provider how you got to them because many insurance companies provide lower family rates. Lookup the company on the internet to see reviews and ratings before you invest with them.
Initiating the Application
After you have settled for one company, you can then formally apply. Most companies have online applications while some companies would prefer talking to you over the phone. In most cases, you don’t actually have to meet the company representative.
Fine-Tune Your Policy
You will now need to opt for the types of renters insurance you want. Depending upon the budget and the risk factor, you will have to opt for either actual cash value policy or cost replacement policy. You will also have to decide the deductible at this stage.
Make the Payment
Now that everything is settled, you can make the payment have yourself covered in case of an unanticipated incident. The cost of renters insurance is lower than the homeowner’s insurance. The prices vary from state to state.
We cannot stress further on how important renters insurance is. Even if you are living in a rented house, it is still your home that houses your family and all your personal belongings. You would want everything to be safe at all times. Planning proactively for any mishaps is a wise decision. You won’t have to worry about exhausting all your savings in repairing your home if you have already purchased a renters insurance.