Do you really need renters insurance?

Most homeowners need homeowners insurance to get a mortgage. But what if you rent? Is renters insurance worth the investment?

Most likely, yes. Why? Because renters insurance is surprisingly affordable. According to the Insurance Agents and Brokers of America, the average cost for renters insurance is only $12 per month, or $144 per year. While all policies differ, that minimal investment covers approximately $30,000 of property coverage and $100,000 of liability coverage. Not a bad rainy-day plan. Of course, plans differ and the higher your deductible, the lower your premium.

Renters insurance coverage

Renters insurance covers all your beloved property, electronics, and keepsakes inside your apartment. While your landlord’s homeowner’s insurance covers the actual building (inside and out), it doesn’t cover your laptop.

Renters insurance and roommates

While some renters insurance covers roommates, typically all parties need to be explicitly on the policy to be covered. Even so, it certainly would be less messy to have your own policy. Like all roommate living issues, sharing can be dicey, especially when determining who pays what. For instance, if your deductible is $500 and only your roommate’s room got flooded – should you have to pony up half the cash?

Liability protection

Renters Insurance also protects you against liabilities that occur within your home. For instance, if your best friend slips on your bathroom floor, you don’t want to have to worry about taking care of the financial ramifications. Renters insurance covers her medical bills point blank.

Natural (and preventable) disasters

From tornados to kitchen fires, there’s no telling what the future can hold. Really, the only constant is that the future is out of your control. That’s really why all insurance exists; you have to weigh the odds of the cost of peace of mind vs. the likelihood that disaster will strike.

Types of renters insurance

There are two main types of renters insurance: Actual Cash Value coverage and Reimbursement Cost coverage.

Actual cash value reimburses you for the amount you could expect to receive if you sold the stolen/destroyed items on the open market – say on Craigslist or eBay. Think of it as cost minus depreciation. This insurance is usually cheaper, but it can make replacing your item much harder – especially if you had a perfectly good computer from a few years ago that now needs to be replaced with a brand new computer (with a brand new price tag).

Reimbursement cost coverage pays you the amount of money you would need to replace the lost item with a brand new item. From my experience, there’s not a huge difference in cost, and paying for reimbursement cost will make life much easier in the long run should you need to use your coverage.

Downsides of using renters insurance

The only downside to using your renters insurance to be reimbursed is that once you move and need to purchase new renters insurance (or new homeowners insurance), your premiums will go up because of your previous claim. Even if you move to an entirely different neighborhood and move from the garden apartment to the third floor, because you took out a claim, you’ll be perceived as a higher risk – and charged higher premiums. It’s unfair and should be illegal, but it’s how the business currently works. As a result, if you would only have a minimal claim, think carefully about whether to actually submit it to the insurance company.