I Don't Own the Place, So Why Would I Insure it?

If you’re a part of the Millennial generation, there’s a high probability you’re renting the space you live in. If you’re anything like me, you’ve probably also spent more money on “stuff” to furnish and fill that apartment or rental home than you would like to think. As you look around your living space, add up how much you think it would cost to replace not just the big-ticket items like a sofa or a laptop, but also the little things down to your silverware and kitchen towels. I’m guessing the number is much higher than you thought it would be, even if you bargain-shopped your way through furnishing your place. If there was a fire in your building while you were away for work and you lost all your belongings, do you have enough cash reserves to replace it all? Most likely, the answer is no. So, let’s talk about renter’s insurance and why it’s such a great thing to have in place.

 What does it cover? Renter’s insurance covers replacement of the things you own, up to your policy limits, either at actual cash value or at replacement cost. Cash value coverage means the insurance company will pay out replacement cost minus any depreciation (in other words, what it’s worth today). Replacement cost coverage provides you with a payment equal to what would be required to buy all new possessions. This is considered superior to actual cash value because it allows you to replace your items at their current cost.

 In addition to covering the contents of your rental, a renter’s insurance policy gives you some liability coverage for accidents that may happen in your home. As well, most policies cover additional living expenses if your rental becomes uninhabitable. It can also cover things you wouldn’t expect, like food spoiled due to an appliance failure. I once had a neighbor who was on vacation during the winter when one of the pipes in their kitchen burst and flooded their entire apartment. The moisture in the drywall affected the places where the kitchen cabinets were attached to the wall, so those fell off and landed on the top of the freezer, cracking open the freezer door. Every dish and glass they owned was broken and all of their frozen foods spoiled. The landlord was only responsible for fixing the pipe, replacing flooring and ruined cabinets, and repairing soggy drywall. Thankfully, they had renter’s insurance and were able to pay just their deductible to replace all of the damaged furniture, the dishes and glassware, and the spoiled food.  I’m also (selfishly) thankful they lived downstairs.

 Isn’t someone else responsible for these things? Many tenants make the mistake of assuming their landlord has insurance that will cover the contents of the place they are renting. This is not the case. Landlords insure the structure against loss or damage, but that insurance doesn’t cover the contents, i.e. your possessions. Even if you’re renting a fully furnished apartment, you’ll still need your own policy to cover things like liability against accidents, your clothing, electronics, instruments or personal linens. Another common mistaken assumption is if your roommate has insurance, you don’t need it. That’s also not correct. Your roommate’s insurance covers his or her belongings and liabilities, not yours.

 How much is this going to cost me? The answer is, it depends on how much coverage you need. You’ll need to take an inventory of your belongings and estimate how much it would cost for you to replace them in a total loss. This should be your starting point. Look for insurance that provides replacement cost for more sufficient coverage than actual cash value. Most renter’s insurance policies cost less than $30 per month. If you have a pricey piece of jewelry or an expensive collectible, you may want to consider adding a special rider to your policy to ensure those items are covered. Many renter’s policies also cap how much they’ll pay out for computers or laptops, so make sure you understand whether or not you need to buy more coverage for that. As well, check with your landlord to understand their requirements for liability coverage.

 If you’re renting, even from a close friend or family member, you should have a renter’s insurance policy in place to protect your financial well-being. Take a home inventory and add up the amount you’ll need to cover your personal belongings. At the very least, we recommend taking pictures of each room, inside every closet and drawer with your phone, so you’ll have visual references if you ever need to file a claim. Also, make sure your liability coverage is in line with any requirements from your landlord, then shop around for the best policy. If you want help, talk with a licensed, independent insurance agent that can help you find an adequate policy to meet your needs.

Margaret Gooley, CFP®, Worley Erhart-Graves Financial Advisors