Tenant insurance: is it necessary and is it worth the cost?

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It’s moving day and all your stuff fits in the back of a mid-size rental truck. With only one trip between your old and new apartment required, you’re glad you don’t own much.

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But, as you unload the truck and unpack the boxes at the other end, take a mental inventory of all the things you own – and their value. What you lack in quantity, you could certainly make up for in value.

70 inch television. The expensive laptop. High-end AirPods. Your golf clubs. Jewelry you have acquired over the years. Oh, and don’t forget the $1,000 sofa the furniture store will be shipping to you soon.

So maybe the value of your stuff is more than you thought. And here’s the question: if something happened — a fire, water damage from a broken pipe, a theft — could you afford to replace your belongings?

If the answer is no, it’s time to consider tenant insurance.

What is tenant insurance?

The owner of your property takes out insurance on the building. Renters insurance protects you against the loss of the personal property you own. It’s everything from your clothes to your electronics to your kitchen utensils and even the contents of your pantry.

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Many insurance policies also pay for losses to your personal property if you are traveling and your property is stolen while you are away from home. If you can’t live in your apartment or rental home while the damage is repaired, your policy will likely cover the costs associated with finding temporary accommodation. Finally, if someone is injured in your apartment and it is found to be your fault, your insurance will cover your civil liability as well as legal costs.

No law requires you to have tenant insurance. Still, some apartment complexes or individual landlords might mandate it and specify minimum amounts of personal liability coverage you must carry.

How much does tenant insurance cost?

Renters insurance premiums range from $15 to $30 per month, reports the National Association of Insurance Commissioners. The cost depends on where you live, how much property you own, and the square footage of the rental property. Some companies, such as Liberty Mutual and Lemonade, offer insurance policies for renters starting at $5 per month.

As with any insurance you buy, it’s wise to shop around with at least a few carriers to find out exactly what you’re getting for your monthly premium. Questions to ask include:

  • What are the policy coverage amounts for loss and personal liability?
  • What deductible amounts are available and what is the price difference per month?
  • Are there coverage limits for certain items, such as jewelry, electronics, or collectibles?
  • Are additional living expenses paid if your unit is uninhabitable for a period of time?
  • Will insurance protect you if your dog bites someone?
  • Are there natural disasters not covered?
  • Are discounts available if the rental property has smoke detectors, deadbolts, a security system or smart devices designed to protect it?

Actual cash value versus replacement cost

Another important question to ask is whether the policy has actual cash value or replacement cost coverage. The agent will explain the difference to you, as well as the difference in premium cost.

In short, actual cash value tells you what an item is worth today if it is stolen or damaged beyond repair in an insurable incident. Replacement cost pays to replace an item.

For example, if that $1,000 couch you bought burns down in three years, the insurance company might value it at just $250. This is the amount you would receive with an actual cash value policy — once your deductible has been reached. Items such as depreciation and normal wear and tear are factored into actual cash value coverage. But if you have a replacement value cover, you will receive the amount required to replace the sofa.

The essential

The cost of renters insurance is low compared to the potential benefits. For the price of a few fancy cups of coffee or a few fast food meals each month, you can insure your personal property, guarantee that you will have the money to pay for the loss of use of your home and protect yourself from financial risk. ruin in case of liability.

It’s worth taking a few minutes of your time to consider the costs versus the benefits.

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About the Author

Jami Farkas holds a degree in communications from California State University, Fullerton, and has worked as a reporter or editor for daily newspapers across the United States. She brings to GOBankingRates her experience as a sports writer, business writer, religious writer, digital writer – and more. Passionate about real estate, she passed the real estate licensing exam in her state and is still debating whether to get into home selling – or just writing about home selling.

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