Consumer Law Newsletter
Coverage Provided by Renters Insurance
Like homeowners insurance, renters insurance may be purchased to cover specific liabilities associated with renting property. However, renters insurance lacks the same breadth of coverage. The terms, conditions, laws and regulations for renters insurance policies vary by state and locality. Typically, however, renter’s insurance covers damages to personal property, and liability to third parties (guests, workmen, etc.) injured while at the rented unit.
Renters Insurance Coverage
Renters insurance typically covers the loss of possessions resulting from major perils including fire, smoke, storms, theft, water damage from leaking pipes, and broken glass (if part of the building), but not damage or loss due to floods or earthquakes. “Additional living expenses” will also be reimbursed under a renters policy if the rented unit should become uninhabitable while repairs are made. Furthermore, renters insurance provides liability protection, which covers the insured’s responsibility to third parties that are injured in the apartment and pays the insured’s legal costs in the event of a lawsuit.
Landlord Insurance Coverage
It is important to note that, while most landlords have insurance policies on the rental property, landlord insurance only covers damage or destruction to the building structure itself. Landlord insurance is designed to protect landlords against their own losses, not against the loss of a tenant’s possessions or against a tenant’s third party liability. Accordingly, landlords insurance will not pay for renters’ losses of personal property due to burglary or break-in, but such losses are covered by renters insurance.
Types of Renters Insurance Policies
There are two types of renters insurance policies; actual cash value policies and replacement cost policies.
Actual Cash Value
Actual cash value coverage compensates the insured for the value of the items at the time of the loss. Thus, the value of the damaged possession is depreciated to reflect its current value. For example, an insured television set that was purchased for $500 may only be worth a fraction of that cost or nothing at all if it is damaged five years later. As a result, actual cash value policies are generally the least expensive.
Replacement cost coverage pays the insured to replace the item upon loss, up to the stated policy limits. Thus, there is no deduction for depreciation of the possession, but replacement cost is limited. Using the same example as above, with a replacement cost limit of $1,000, even though the damaged television set is worth little or nothing at the time of the loss, the insured may use the $1,000 in coverage toward the purchase of a new set. Replacement cost policies are more expensive, but may provide more security.
Costs of Purchasing Renters Insurance
As compared to homeowners insurance, renters insurance premiums are relatively inexpensive. This is because renters insurance is designed to cover only the value of the tenants’ possessions, not the physical building itself. The premiums for renters insurance depend on many factors, such as:
- Location of the residence
- The nature and extent of coverage
- Any deductible
- The particular insurance company
Also, since standard policies provide limited coverage for certain luxury items such as jewelry, furs, and silver, renters may wish to consider purchasing floaters, which will further increase the cost of renters insurance. “Floaters” are separate policies that provide additional insurance coverage for high priced valuables and may also cover them for perils not included in the standard renters policy.
Preparing to Purchase Renters Insurance
As with any insurance, it is prudent for renters to obtain several price and coverage quotes before purchasing. Personal property coverage may require itemization and descriptions of each valuable article and its worth. Coverage should be checked, and increased if major new purchases are contemplated. Renter policy holders are urged to document covered personal property by making a comprehensive inventory of the personal property. Inventories should be stored away from the rental property in the event the unit is completely destroyed or damaged.
Methods of taking inventories may include:
- Keeping a written list of possessions
- Taking photographs and/or a video
- Getting an appraisal for valuable items
- Recording details such as serial numbers, identifying marks, and coin dates
- Keeping receipts for major items
- Documenting possessions using a personal computer and personal finance software
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