How much does renters insurance cost?

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More Americans are renting out their homes than at any time since the mid-1960s.

In the wake of the recession, stagnating wages and student debt, the number of renters across the country has skyrocketed, and at this point more than 43 million households rent. Student debt is a particular factor here given that, like so many economic concerns, this issue is generational. About two-thirds of millennial households are renters, compared to 21% of their parents.

While a full discussion of this topic will have to wait for another article, make no mistake: Millennials are getting hosed. We owe over $1.5 trillion high-interest student debt, while our parents could wait tables for tuition. The average income of a 62 year old has increased by 40% in recent years, while take-home pay for those under 40 has fallen by almost a third. And to put the icing on the cake, there are many of us can’t even afford to marry.

We don’t have much. What little we have is sucked up by the Ministry of Education. So it might be a good idea to protect what’s left. It’s probably time to get tenant insurance.

How much does renters insurance cost on average?

About $20 per month.

If you’re paying less than $15 a month, you’re getting a good deal and should probably confirm the quality of coverage. If you’re paying more than $25 a month, make sure it offers the substantial protections that should come with a relatively expensive policy.

If you’re paying more than $35 a month, shop around for something more competitive.

What is tenant insurance?

Renters insurance is a form of general loss protection that covers people who rent out their homes in the same way that most home insurance policies protect people who own their property. The two are distinct, mainly in that home insurance is more expensive because they have more to lose than renters.

By Allstate Insurance Company:

A renters insurance policy is a group of coverages designed to protect you and your property. A typical tenant’s insurance policy includes liability coverage, protection for your possessions, and coverage for additional living expenses, should the home you’re renting become temporarily uninhabitable. Although you can’t always prevent certain situations, such as a break-in or injury to a visitor, tenant’s insurance, sometimes called “tenant’s insurance,” can help minimize the impact whether you’re renting a single-family home or a apartment.

That pretty much sums it up. A typical renters insurance policy will cover three main areas:

• First and foremost, loss of property. For almost all renters, this is the true value of renters insurance. It covers objects inside your home and insures you against their loss in the event of events such as fire, theft or other destruction.

Some policies will also protect your insured property outside the home. They could, for example, cover you in case your laptop is destroyed while on vacation or your jewelry is stolen from a hotel room.

Fundamentally, tenant insurance covers your personal belongings in case something happens. This is general loss coverage, and is the most useful feature for the average renter.

• Disruption and dislocation. As noted above, if your rented home becomes uninhabitable for any reason (for example, if the heat fails in the middle of winter), a typical renters insurance policy will cover your hotel room and other related costs. While technically you have the right to collect this money from your landlord, it’s much easier to leave this fight to your insurance company‘s attorneys.

• Responsibility. This is the least likely but potentially the most valuable aspect of renters insurance. It will include general liability coverage if someone is injured on your property.

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Now, this is the least relevant aspect of renters insurance for most people, as most bodily injury falls on the landlord, so if someone gets hurt while visiting your apartment, there are strong chances that their lawsuit will name the owner. But there’s always the possibility that the injury is actually your fault, let’s say your dog bites someone, or he’ll sue you anyway just to rack up expensive legal fees.

In those rare cases, general liability coverage is a godsend.

What is the use of renters insurance?

Very.

As a tenant, you are more vulnerable than you probably realize. Apartment buildings are filled with strangers who, in turn, constantly invite other strangers to pass by your front door. Chances are you live in a city with higher associated crime rates. And you have little or no control over your home’s security features; if your landlord wants to install new locks or bars on the window, there’s not much you can do about it.

And contrary to popular belief, landlords have almost no responsibility to refund you if things go wrong. This author is not aware of any jurisdiction that requires landlords to generally insure tenants against loss, even if they neglect building security. Your landlord only has to reimburse you if he caused your losses.

If a pipe bursts in the building and ruins all your clothes, then yes, your landlord will owe you compensation. In this case, however, renters insurance can save you a long and potentially expensive fight, because every landlord has a speed-dial housing lawyer and they all fight dirty.

Breakdown of tenant insurance costs

It’s surprisingly small, since more than half of tenants do not have rental insurance. Most policies cost between $15 and $25 per month and the average renters insurance policy costs around $15 per month, $184 per year according to the National Association of Insurance Commissioners.

However, many factors go into the individual cost of renters insurance, all of which can significantly alter your own policy numbers. These include:

1. Location

Your ZIP code is the single most important factor in renters insurance pricing. If you live in the city, it will cost you more than if you live in the countryside. If you live in a high crime area, it will cost you more than living in a safer place.

As we noted above, general loss is the most important coverage offered by renters insurance. Chances are that if you make a claim, it’s because you’ve lost property to theft or damage. Location is the best way for an insurance company to assess this risk.

2. Type of residence

Any type of home, such as a single family home, duplex, or even a condo, is more prone to theft than an apartment building. (Those first-story windows are a bear.) As a result, they cost more to insure.

3. Credit score

Experian is your leader now. Just get used to it.

Yes, just like it determines if you can get a job, own a cell phone, and even have a love life, your credit score can determine how much you pay for renters insurance. Rest assured, however. If you have bad credit, you can’t rent an apartment anyway.

4. Amount of coverage

Most renters insurance policies are quite broad. They simply ask you to estimate the value of your possessions and then issue a policy that will cover you up to that amount.

It’s not unreasonable, the higher your coverage, the higher your monthly premiums.

5. Dogs

Dog bites, as noted above, are one of the relatively rare liability issues for renters. Therefore, owning a dog can increase your rates. In the case of particularly aggressive breeds, your carrier may not offer coverage at all.

6. Condition

Some states have significantly higher average insurance costs. In Mississippi, for example, the average insured pays more than $20 a month. In Louisiana, renters average $21.

The common link is the weather. Since renters insurance covers most forms of loss (often, but not always including water damage), the more inclement weather you are likely to face, the more your policy will cost.

By contrast, in North Dakota, with no coastal flooding or California fires, the average renter pays just $9.50 a month.

Actual cost vs replacement cost

The last word we’ll leave you with is this: replacement.

Some insurance companies offer you the choice between what are called “actual cost” or “actual cash value” and “replacement cost” policies.

Under a true cost policy, you receive the depreciated present value of everything you have lost. This means that if your old sofa catches fire, you will receive what it was worth today, not what it was worth when you bought it seven years ago. So probably around $50.

Under a replacement cost policy, you will receive the amount of money it costs to replace the thing you lost, or at least to buy its nearest available equivalent. Here, if your battered old sofa burns down, you will receive the few hundred dollars it will cost you to buy a new piece of furniture.

Replacement cost policies are more expensive because they tend to pay a lot more. However, if you can fit it into your budget, a replacement cost policy is much more useful than actual cost coverage.

If your sofa burns down, you won’t need $50. You will need a new place to sit.

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