The Basics of Renters InsuranceThe Cliffs Notes Version
Simply put, renters insurance allows you to replace your belongings if they are damaged or destroyed due to a covered event. You pay an insurance company to cover you up to a set dollar amount, based on the value of what you own. Renters insurance may not cover all your things, or protect you from every kind of loss, so keep reading.
Just as important is the protection that renters insurance gives you when other people get hurt or suffer damages at your place. Renters insurance policies also provide liability protection. So if someone sues you for tripping over garbage piled up in your kitchen, you are covered for your legal expenses and any judgments made against you, for which you are legally liable, up to your policy's limit.
Know Your Limits
It's important to understand that renters insurance doesn't cover everything, especially that bet you made with your brother-in-law about the Redskins going to the Superbowl. While big ticket items like jewelry and watches are covered, there will typically be a cap on the payouts if they are stolen. This includes hard to value items like antiques and collectibles and business assets. Some events, both natural (like floods and earthquakes) and man-made (like wars) are also excluded.
The good news is that you can often take out a special policy or buy an extension to your policy (called a rider) to adequately cover items like expensive jewelry and priceless antiques that would not be fully covered under your standard renters insurance policy. Take time to research specific items of exceptional value.
Different Kinds of Coverage
One important difference between policies is how they value your stuff if it needs to be replaced. Policies that use the "Actual Cash Value" (ACV) method pay for what your stuff was worth at the time of the claim, whereas "Replacement Cost Coverage" pays you for what it would take for you to buy it back new. This is especially important where computers are concerned, since the actual value starts dropping as soon as you leave the store but it will still cost you a pretty penny to replace that stolen laptop.
Also, your policy will most likely include a deductible, which is a set dollar amount that you would have to cover before any insurance payments kick in. For example, if your $1,500 flat screen TV is stolen and you have a $100 deductible, your insurance company will only reimburse you $1,400 if you purchase replacement cost coverage.
Replacement cost coverage is typically more expensive, and may be harder to find in some areas. And the lower your deductible, the higher your insurance premiums will be. Read the fine print or ask your agent to know what kind of coverage is being offered and what the deductible on your policy is.
A Matter of Records
In the unfortunate event that you have to file a claim, it's critical that you have some record of what was lost or stolen. This is called a "home inventory" and it needs to be kept up to date. You should write down a list of your things, including a detailed description, purchase date and price paid. You can even download a free home inventory log from Liberty Mutual.
Once you've done a home inventory, make sure you keep it somewhere safe and NOT at your place. This may seem like common sense, but only in hindsight to folks who have lost their stuff (and all of their records) in a fire.
Need to know more? Don't feel bad, nearly two-thirds of those living in U.S. rental properties don't have renters insurance coverage. But HotPads has even more great information for you including online resources, helpful articles, tips on protecting your place and links where you can get renters insurance online.