A generation ago, renting was viewed largely as a temporary living situation on the road to home ownership. However, thanks to various economic and lifestyle factors, people in their 20s and 30s are now waiting longer to buy a home. Some are foregoing it altogether. In general, one of the advantages of renting is that it comes with less personal responsibility than owning a home. If something needs to be fixed, your landlord takes care of it for you. However, that doesn’t mean they’re responsible for looking after your possessions. That job falls on you. This is where renters’ insurance comes in handy.
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Unfortunately, most people who rent either don’t care about having insurance or don’t think to even get it. In fact, only 37 percent of renters actually buy renters’ insurance. That’s compared to 97 percent of homeowners who have their homes insured. Look, we get it. Rent prices are already out of control in most major cities. The idea of taking on an additional living cost may seem like an unnecessary burden. However, even though renters’ insurance isn’t required by law, it’s definitely worth the money.
The Main Objections To Renter’s Insurance
Tenants forego renters’ insurance for a variety of reasons, but their objections usually come down to the following reasons:
- Lack of Information – Unlike car insurance, renters’ insurance isn’t something that is required by law — although some landlords require it as part of a lease. For this reason, many tenants, especially young first-timers, may not understand the benefits of renters’ insurance. Some might not even know it exists.
- Cost – Rent prices are skyrocketing in many Canadian and U.S. cities, so tenants may not want to be burdened by an additional costs. So they choose to live without insurance instead.
- Not a Priority/Don’t See the Value – A tenant may believe that their possessions aren’t worth enough to bother insuring. They may also think the odds of something catastrophic happening are so slim that it doesn’t make sense to pay for insurance.
Now that we know the main objections to renters’ insurance, let’s take a look at the benefits it offers.
What is Renters’ Insurance?
Renters’ insurance works similarly to home insurance. It provides liability coverage in the event of an accident or other disasters. However, the actual coverage provided is quite a bit different since you don’t own the property. Although your landlord will (hopefully!) have property insurance, their coverage only covers the structure. For instance, if your apartment building burns down, your landlord’s policy would not cover any of the possessions in your unit. Renters’ insurance is often referred to as content insurance. That’s fitting since it covers the contents of your rental unit. In other words, it covers your stuff.
Let’s say you don’t care that much about your possessions. After all, most things can be replaced and aren’t we all supposed to be living a minimalist lifestyle anyway? Well, renters’ insurance actually covers more than just the stuff you own. In addition to content, there are two main areas of coverage provided by renters’ insurance.
- Protection from personal financial liability in the event someone gets hurt on the property you rent.
- Covers your living expenses if your home is unlivable for a short period of time.
In other words, renters’ insurance extends well beyond just protecting your record collection. That being said, it’s easy to look at the coverage provided by renters’ insurance and assume that it’s priced comparably to other types of insurance. However, it may not set you back as much as you think.
How Much Does Renters’ Insurance Cost?
The average cost of homeowners insurance in the United States sits at $1,083 per year. Auto insurance is significantly more than that, averaging $1,502 per year. It’s easy to look at those figures and assume you’ll also be stuck paying out the nose for renters. insurance. Believe it or not, renters’ insurance premiums are only a fraction of the cost of your typical home or auto policy.
According to statistics from the Insurance Information Institute, the average cost of renters’ insurance in the U.S. is $185 per year. Over the course of a year, that’s only about $16 per month. It’s honestly a small price to pay for peace of mind.
Much like other types of insurance, the price you pay will be determined by a variety of factors. However, it generally comes down to the amount of coverage needed and the location of the property. For instance, if you live in a flood zone and own a lot of high-value jewelry, your premium is going to be higher than your average person renting in Minnesota. Like with other types of insurance, you’ll need to shop around to find the best quote. Don’t worry, we have some tips on how to do just that at the end of this article!
What Renters’ Insurance Doesn’t Cover
Alright, so we’ve covered what renters’ insurance is and why it’s so important to have. Unfortunately, while renters’ insurance will protect you in the event of a fire or theft, it’s important to know your coverage limits. Depending on where you live, you may need to purchase additional coverage on top of your tenants’ insurance policy to cover potential damage from natural disasters such as floods or earthquakes. This additional coverage can add hundreds or even thousands of dollars on top of your existing renters’ insurance. Therefore, it’s important to do your research and figure out the type of coverage that is available in your area.
What To Know When Buying Renters’ Insurance
In general, renters’ insurance is much easier to get than other types of insurance. There’s less risk involved for the insurance company. You can purchase a policy through an agent, insurance carrier, or aggregate platforms such as Insurance Hotline or Young Alfred. However, if you already have auto or life insurance, your first step should be to check with your current provider. More than likely, you’ll be able to bundle auto and renters’ insurance together at a discounted rate.
Once you’ve chosen a provider, you’ll next need to estimate the value of your personal property. This can be a bit of a confusing process. Many of us find it difficult to ballpark how much our stuff is worth. The Independent Insurance Agents & Brokers of America defines a “typical” renters’ insurance policy as $30,000 of contents coverage and $100,000 of liability coverage. This is a good amount to start from if you’re younger and don’t own a ton of valuable possessions yet.
Determine How Much Coverage You’ll Need
If you want to ensure you’ll actually be able to replace all your personal property in the event of an emergency, it’s better to do some preparation. Take an inventory of your possessions and add up their current value. No, not what you paid for them — you’ll need to take depreciation into account. This way, you’ll have a more accurate idea of how much coverage you’ll need. If you go this route, it may be best to deal with an insurance agent, as they’ll be able to assist you in determining the value of your personal property and find a plan that suits your needs.
Generally, policies are separated into different tiers. Policies with low contents and liability limits will have the cheapest annual premiums but come with high deductibles ($1,000 or more). On the opposite end of the spectrum, top-tier policies have very low deductibles (between $0 and $300) and provide more than $50,000 in content coverage. However, they’re also saddled with premiums that are far higher than the national average quoted above.
One Last Thing
There is a viable alternative to getting renters’ insurance. That’s having an emergency fund set aside specifically for any unexpected expenses related to your apartment’s contents. Essentially, the premiums you would have paid for renters’ insurance would just go into your fund instead. While this is a great option for covering your personal property, the big drawback to an emergency fund is it doesn’t give you any liability coverage.
While you could certainly use your emergency fund as a substitute for this too, remember that a typical renters’ insurance policy comes with $100,000 in liability coverage. If you can save this much in an emergency fund, more power to you. However, for most people, it’s simply going to be more realistic to pay $100 and $200 a year for insurance.
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