An often considered, but rarely considered device that may or may not be a good idea – Renter’s Insurance is certainly a phenomenon once it’s articulated in your presence. All too often it is viewed as applying to all or nothing, with no middle ground. “Tenants insurance is a good idea”… or “Tenants insurance is a rip off;” heard of either? I thought so. Oh, how generalities plague market demand. Anyway, I will one unusual approach, which shows you how to determine if renters insurance is a good or bad idea for you…specifically.
A brief overview: what is it?
Renter’s insurance exists to protect the property of residents who do not own the properties in which they live. In addition, it diverts the financial risks of liability to the insurance company, which means that if an accident occurs on your rented property for which you are legally liable, the financial loss will be incurred by the insurer (the company). Examples here include, but are not limited to, someone tripping over your rug and breaking an arm, running a bathtub and destroying the property of those in an apartment below you, or even setting off fireworks indoors and burning down your entire building, including all belongings of your neighbors (anyone?).
Back to Loss of Personal Property: Here are the 17 types of perils leading to loss of your property covered by renters insurance:
- Electrical surge damage
- Ice, snow and sleet damage
- Water damage from utilities
- Fire and lightning
- Falling objects
- Volcanic eruption
- Damage due to glass or any glazing material considered part of the building
- Vandalism and mischief
- Hail and wind
Across the country, theft and fire are the most commonly considered property loss prospects for tenants. Depending on your area and residential location, flooding can also be a problem; however, flood insurance is not included in a standard policy, requiring an additional rider to be included. Anyway, for our purposes today, we’ll focus on theft, fire, and liability. There are two types of policies: actual cash value coverage and replacement cost coverage. The first (ACV coverage) only covers the depreciated value of your items, not the cost of actually replacing your items; this requires RC coverage. We’ll get into recommendations between the two in a moment.
Here’s the rough calculation process we suggest to help decide if renters insurance is a worthwhile purchase. Keep in mind that most insurance policies have annual fees between $150 and $300 with some sort of deductible.
Step 1.) Analyze your risk of liability damage
- Those living on the second floor or higher have a higher tendency to be held liable for property damage to neighbors since people are directly below. Waterbeds can ruin your life; when it pops, be ready to cover the damage of those living below you.
- Do you have a dog? Then renter’s insurance offers protection in case the animal releases its testosterone to your neighbors or visitors. Take extra care if small children live in the vicinity.
- Those with frequent visitors are more likely to have a non-resident sustain some kind of injury in the property in question. Watch out.. never know when a buddy sues your ass.
If you believe your home is high risk, this is an automatic trigger to start buying insurance. If not, dig deeper and let’s analyze the value of your property and potential loss.
Step 2.) Assess the value of your total assets, separate the “assetable” assets
- ““Steelable” possessions are items that are likely and available to be stolen in the event of a break-in: TVs, DVD players, computers, jewelry, or even cash typically kept on hand, among other things. This is to assess the potential damage in case you are a victim of burglary, as it is unusual for all belongings to be lost.
- Total Assets: Include everything from your shoes to your hair dryer here. Estimates are just as said, estimates. Just imagine losing everything and think about the cost of getting it all back. This is necessary to determine your damage in the event of a catastrophe such as a fire where everything is lost.
Step 3.) Assess your risk of loss
- There are 105 million homes in the US and about 350,000 fires that require a fire department to put out the flames, so based on history, there is almost a 3% chance of a catastrophic fire in your home. While not all of these fires will destroy everything, it’s worth keeping the probability of complete destruction at 0.3% as this helps to address obscure risks such as falling objects or vehicle damage.
- For burglary, visit Neighborhoodscout to look up crime rates in your state and even your specific area. We’re going to use the state of Georgia as an example where there are 46 burglaries per 1000 people per year (4.6%).
Step 4.) Put it all together
–I now know that my risk of total loss is about 3% and my risk of burglary is 4.6%. If my total assets are worth $25,000 and I estimate that my “adjustable” items are worth $5,000, here’s how to calculate what the risk of annual loss is worth to me.
(.003 * $15,000) + (.046 + $5,000) = $275
– Essentially this takes 3% of your $15,000 in total items and adds it to the 4.6% of your $5,000 “assetable” items… add them up and you have what the risk is of potential property losses cover on an annual basis worth to you. And if your place of residence is considered “high risk” in terms of liability in your estimation, then an insurance company quote of $275 per year isn’t half bad.
Next, let’s be clear about who should do that Surely look at renters insurance:
- Families with children (this is a must)
- Those who run businesses from their homes – everything they’ve worked for could be lost.
- Dog owners
- And, my favorite, the ones with waterbeds on the second (or higher) floor
Keep in mind that even if you live in a friends house, a negligent act on your behalf that results in property loss for a roommate will leave your checkbook on the hook. To go back a bit, when choosing between ACV (actual cash value) coverage and RC (replacement cost) coverage, you should really consider what it would cost to replace your items. ACV simply takes the depreciated value of your items and gives you everything your stuff is worth. However, it may cost you more to replace these items as you will have a hard time finding similar items for the money you received. If your stuff gets older, take care of replacement costs (slightly more expensive, but worth it). If your stuff is relatively new, you can probably slide with the less expensive ACV coverage since your stuff hasn’t had much time to depreciate.
Finally, it’s important to know exactly why you’re buying renters insurance and what items you’re actually protecting. This way you really understand if it is worth your time and money to sign up. Monthly costs can be reduced by increasing your deductible or simply by taking precautions to prevent calamities (fire extinguishers, bolts, etc.). If you have some extra money to spare, and the quote from Senor insurance broker seems like a good deal, go for it, but if it just doesn’t add up… the other cheek to the insurance. It’s your world, protect it the way you want. Bada bing, bada BOOM…….. Salloum. Until next time.