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What is Renters Insurance?

When you rent your home, your landlord is responsible for much of the structural upkeep of the residence. This is an expense rolled into the cost of your rent and provides protection if something needs to be fixed. What happens if your belongings are stolen, or a fire destroys your property? Your landlord doesn’t reimburse you for your loss. Renters insurance, on the other hand, makes you whole.

If you currently rent and don’t know how renters insurance works, keep the following confidence-inducing facts in mind.

Home Renters Insurance Explained

If you’ve ever wondered – what is renters insurance? – it covers the belongings in your home in the event that they are lost, damaged, or stolen. Instead of having to come up with the money to replace your big-screen TV or buy new furniture after a fire or theft, home renters insurance pays to replace those items. Such an unfortunate event can cause budgetary strain, especially if you don’t have the funds saved to replace those objects.

You may think that renters insurance is expensive and decide to pass on coverage. Thankfully, renters insurance is relatively inexpensive. According to the Insurance Information Institute, the average cost of home renters insurance was $190 annually, as of 2014 – making it very affordable and one of the perks of renting instead of buying. Many insurance providers offer renters insurance, so it can be relatively simple to purchase.

What Does Renters Insurance Cover?

Renters insurance, which is also referred to as tenants insurance, covers a wide range of items, but typically covers one of three specific items. Those items are:
- Personal possessions
- Liability
- Additional living expenses

To be fair, these three areas can be fairly broad. For personal possessions, this can include most items like electronics, clothing, furniture, and more. Many renters insurance policies also provide liability coverage. If someone visits your home and is injured, your policy typically pays for legal representation as well as any damages given to the other party. Each insurance company has a maximum they will pay out, so make sure to be aware of the coverage your insurance provider offers.

The final area, additional living expenses, covers any expenses you incur due to your home being destroyed. This can range from the cost of food, hotel expenses, and more, related to your temporary housing needs.

In order for your claim to qualify, it typically must have occurred from one of the following events:
- Theft
- Fire, wind, hail
- Smoke
- Explosion
- Damage caused by a car or plane
- Vandalism

There may be other qualifying events, so check with your policy to see what other circumstances may be covered.

What It Doesn’t Cover

Asking the question, “what does renters insurance cover?” reveals that it covers quite a number of events and situations, as is apparent above. However, there are some particular situations you must keep in mind where home renters insurance will not provide protection. Those specific situations are:
- Flood coverage
- Earthquake coverage
- Collectibles coverage

With the two natural disaster situations, you’re on the hook to pay for any damages. Thankfully, you can buy separate policies to cover you if you live in an area where they’re a concern. Some states may allow coverage along with your renter’s policy, but you will need to check with your provider to see if that’s an option.

If you have valuable collectibles like jewelry, furs, or some other type of valuable collector’s item, renters insurance does not provide coverage but may make it available as a rider for a relatively inexpensive fee.

How Much Do I Need?

The amount of renters insurance coverage you need is dependent on your particular situation and belongings. Studies indicate most renters have between $20,000 and $30,000 in belongings. You want to determine the rough value of your belongings. This will provide a good starting point to determine how much coverage you need. Take an inventory of everything you own and then price out what it would cost to replace those items as new.

Don’t forget to include things like clothing and jewelry, which may be covered under a separate policy. Creating an inventory serves a dual purpose in that it can make filing a claim simpler to manage if you suffer a loss. Also, keep in mind that your landlord may require a particular amount of coverage.

How To Choose a Renters Insurance Policy

Choosing a provider can be relatively simple as many insurance companies provide coverage, but you must keep in mind the importance of reimbursement when selecting a policy.

A renters insurance policy provides for two reimbursement options:
- Replacement cost
- Actual cash value

The key thing to keep in mind with the replacement cost option is that the provider pays for a similar replacement item. So, if your 40-inch TV was stolen, they will replace it with a new, similarly sized TV – not an 80-inch TV.

Actual cash value coverage, on the other hand, reimburses you for the value of the item at the time of the loss. Using the previous TV example, your provider will account for depreciation, meaning you likely won’t receive the funds needed to replace your item with something of equal value. Given that, replacement cost coverage is more expensive but may be worth it if you don’t have the savings needed to make up the difference.

Bottom Line

Life is full of unexpected events. Renters insurance provides a reasonable and relatively affordable way to protect against the unknown, so you don’t have to deal with added financial stress after a traumatic loss.
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