Purchasing Renters Insurance

Retirement often involves downsizing: selling a large home, selling off possessions, moving into smaller quarters, simplifying your financial life. If you’re selling a home that you’ve owned for a long time, you no longer need homeowner’s insurance, which would protect you should your house be damaged. And if you plan to move into a rental property, either for a short period of time or for the long-term, the home owner is responsible for insuring the building’s structure.

Insure the Contents of a Rented House

However, what about your possessions? If a violent hurricane tears the roof off a house you’re renting, the homeowner’s insurance should pay for fixing the house (provided your landlord has sufficient insurance). However, if the collapsed roof destroys your stereo equipment, your bedroom furniture, your collection of Chinese porcelain, you’re out of luck; your landlord’s insurer knows that the house is a rental, and will insure the owner for the structure only. Anything inside the house that does specifically belong to the owner is your responsibility.

A renter’s insurance policy can help you cover your personal possessions, and can also provide insurance for other contingencies as well. Such a policy will place a fixed dollar amount on the sum total of your possessions, rather than listing your possessions piece by piece, and will insure you for that amount. Obviously, the higher the amount, the more your premiums will cost. To determine a proper amount of coverage, you should take an inventory of your possessions, which can be as detailed as you like, assigning a dollar value to each item or each group of items. If possible, try to assign an actual cash value (ACV) — a twenty-year-old turntable is probably not worth very much — as well as replacement cost for each item. A new turntable might cost a few hundred dollars. And remember to include everything you own that is not separately covered. You’ll probably have most of your possessions with you in your rental house, but you may have other items in a separate storage facility. Take note of what you’re keeping where, as an insurer will calculate premiums separately for blocks of items stored in separate places.

Actual Cash Value and Replacement Costs

In establishing a renter’s policy, your insurer will offer quotations for both ACV and replacement cost. It’s worth it to pay a little extra in premiums for replacement cost coverage; the payouts for an ACV policy will not be helpful to you if you need to replace a stereo system or a closetful of clothing.

Read your policy carefully to see what else it may cover. Usually, your possessions are covered against theft as well as damage or loss; if you travel to India with an expensive camera and the camera is stolen during an overnight train ride, your policy should cover your loss. Bear this in mind if you purchase separate travel insurance for trips that you take; in most cases, you won’t need to duplicate your insurance coverage.

A homeowner’s policy almost always has a liability provision: if a guest hurts himself at your home due to your negligence, you are liable, and a homeowner’s policy can provide you with $100,000, $300,000, or more of coverage for your guest’s medical bills, pain and suffering, and other losses, as well as your own related legal bills. However, if you’re renting and your guest slips on a loose throw rug, the house owner is unlikely to be found responsible — it’s your throw rug, and your negligence in creating a hazardous environment. A renter’s policy can help you with the liability coverage you need for such incidences.

A Separate Policy For High Value Items

If you have high-value items, worth a few thousand dollars or more, take special note. Such items might include antique furniture or carpets, jewelry, paintings and other artwork, high-value collectibles, and more. These are usually best insured under a separate policy, often referred to as a personal articles floater. The insurance company may wish to see an appraisal, a photograph, a receipt of sale from your dealer, or other information pertinent to the items you wish to insure. If your high-value items tend to increase in value annually, as good investment pieces should, you can build this into your policy — whereby the policy is automatically renewed on an annual basis, with each item listed showing an automatic increase in value, and a correspondingly higher insurance payout should the item be lost or stolen.

You may not require renter’s insurance, particularly if you don’t have many possessions or aren’t concerned about their loss. However, if you’re a renter, the liability provisions of a renter’s policy can save you from financial catastrophe. Talk to an insurer about your options; an umbrella policy can cover you for liability just as easily, but won’t cover your possessions. Calculate what’s best for you.