Let me give you a quick scenario.

You go out on a date with a girl you have been crushing on for months. It is going great so you guys decide to go back to your apartment to… you know… play Scrabble. You get back to your apartment and realize you have been ripped off. Do you have enough money to replace your laptop, HDTV, and Xbox 360?

Let me throw another scenario out there.

New neighbors move in and bring over a jello mold. You, being the equally friendly neighbor, invite them in for a drink. You hit it off great and are excited about the new neighbors. On the way out, one of them trips over the rug, smashes into your wall, and gets a concussion.

Would you be concerned? I sure would! But don’t worry, you might be safe! How, you ask?

What is Renter’s Insurance?

Renter’s insurance is a type of property insurance that provides coverage to an individual(s) who live in a rented apartment, condo, dwelling, or other location that is owned by someone else.

Renters insurance provides a safety net if something were to happen to your personal property. What kind of “something” am I talking about? A whole slew of things, including, but not limited to:

• Theft
• Vandalism or mischief
• Weather (ice, snow, sleet, lightning, rain, wind, hail)
• Plumbing (like if it freezes)
• Fire or smoke
• Explosion
• Riot or civil commotion
• Damage caused by vehicles or aircraft
• Falling objects (trees, poles, etc)
• Damage from electrical current (not counting TVs or certain other devices)
• Plenty more…!

Have any of these things ever happened to you? Did you have to pay out of pocket? Did it eat into your emergency fund? Ahhh so many questions! My assumption is that some of these occurrences have happened to a sizable portion of us which makes the insurance a good hedge against misfortune.

Why Buy Renter’s Insurance?

Renters, myself included at one time, automatically assume that renter’s insurance is not needed because the landlord already has insurance on the building. Unfortunately, this is a dangerous line of thinking. Landlord’s policies almost never cover personal property (I don’t know of any instances but don’t want to say absolutely never). So, now we know that by default you have no coverage when you are renting.

People who come to that realization, or who already knew this, often decide to skip out on renter’s insurance because they think they don’t have enough property to make it worthwhile. But if you list what you stand to lose if your apartment were to burn down, for example, you may realize you have a lot more than you think!

What are some things in my personal apartment that are of value?

• (2) 32″ LCD TVs – Valued at about $550 each, me and my roommate each have one.
• An iPod mini and an iPod Touch – Both were won in contests, but approximate value is around $400
• Xbox 360 w/ Games – $550
• Desktop Computer w/ 17″ LCD – I built it a long time ago, so replacement value is probably around $500.
• Computer speakers – Surround sound, still sell for $110 (got them for $30 on Black Friday :) )
• Printer – Also very old, replacement for $60 or so.
• Digital Camera – A pretty good Canon with 10x optical valued at about $300 now.
• Clothing – A bunch, including 3 suits. So to throw a figure in the air… $3,000.
• Furniture – King size bed, dresser, computer desk, mini-fridge, couches, bookshelves, entertainment stand, etc… probably totals up to around $2,600… a lot of it being the bed and couches.
• Jewelry (watches for most part) – About $200
• Cookware – I have a lot of decent pots and cookware, to replace it all it would probably cost close to $800
• Books – Man I have a ton of books, I would wager about $3,500 worth (using new values). Used is probably closer to $400.
• And there’s more…

I could go on but the point is we all have more valuable things than we think of. Just listing those things totals up to more than $12,000. And I just realized I am missing a DVD player, all my movies, my roommates clothes and bedroom furniture, etc.

So now that you have all those costs in mind, what would you do if your apartment were to unfortunately burn down? Or if a thief looted your apartment? Without renter’s insurance you would have no coverage to protect you in these instances. Fortunately, you can get renter’s insurance for a pretty affordable rate from a lot of different companies. I just did a quick quote for myself and it comes out to $25o/year with a $250 deductible. If I knock it up to a $1,000 deductible it only comes down to $230/year.

Factors to Consider

Actual cash value vs. replacement cost

You will notice I kept valuing my belongs in terms of what it would cost to replace. This is not a standard by any means so be on alert! Some insurance companies follow ACV coverage which means they will only pay for what the item was worth when it was damaged or stolen. So if you bought a laptop four years ago for $2,000, the actual cash value of the item is substantially less than the original $2,000. You may only get a few hundred dollars after your deductible.

Replacement cost coverage, which is what I have been referencing, will actually pay what it costs to replace the item that was broken or stolen. Minus the deductible, of course.

Obviously (at least it should be!) replacement cost coverage will cost you more in premiums than replacement cost coverage. What is the default coverage may vary from company to company and state to state. You may need to tell your agent what valuable items you have so that you can find out how much each plan would pay if those items were lost. In the end you need to weigh the burden of premiums with the benefit of payout.

Extremely expensive items

If you have a few items that are above and beyond in terms of value, you may want to get a separate rider (modification of the insurance policy) that covers that item in particular. What kind of item would you do this on? A very expensive diamond engagement ring, or a 70″ plasma TV. Getting a rider will allow the insurance company to actually compensate you for the full loss despite the policies normal limit.

Other things

If you want to be prepared, take an accurate inventory of your items. That way you never get caught off guard. To lower your premiums you can choose a higher deductible.

So what do you need to do now?

Sign up for renter’s insurance. It may just protect you from a misfortune and implosion of your finances. And the maximum damage it can do to you? About $250 per year. To me, that is worth it.

Does anyone have any additional comments or suggestions?