Is Rental Insurance For You?

So my landlord upsells rental insurance every month (she doesn’t require I outright buy rental insurance), plugging the idea when I pay my rent electronically. US rental insurance generates 4.5 billion dollars in profits, so it’s not unusual to buy rental insurance or for a landlord to suggest it to renters. My landlord isn’t getting a kickback, but my rental insurance purchase adds to her insurance picture. And it would lessen the possibility I’d sue her in the event of loss. So, my landlord wants me to buy rental insurance.

That said, any insurance costs money. Rental insurance, on average, costs about $15 a month, according to experts, and most people believe it’s a good deal. Is rental insurance something worthwhile, and if it is, how much insurance do I need? At $15 a month, your coverage is for $30,000. Check your budget!

What is Rental Insurance?

Renters insurance protects your furnishings and stuff in your rental unit from losses due to burglaries, fire, or water damage. If you’ve lived in an apartment long enough, you get a feel for the risk you face from each hazard. For example, I’m in a split-level, below-grade, one-bedroom apartment and feel vulnerable to break-ins.

There are several steps I could take to ensure a break-in doesn’t happen, but I’m usually just putting up scarecrows in front of thieves. A determined thief would likely brush my security measures aside: security warning signs, cams with lights, extra locks on the windows, etc.. In light of that ineffectiveness, it makes sense to buy rental insurance.

Remember the Deductible

If I suffer loss and want to claim my lost phone and laptop, I must consider how much I designated as a deductible in a rental insurance policy. When signing a renter’s insurance policy, I choose a deductible between $400 and $1100. So, the insurance company won’t pay out until my deductible is met. Should you make a claim?

You’d think so. Who doesn’t want to get rid of that nasty deductible? And my phone/laptop is a total loss. However, experts argue that making a claim may push the cost of my monthly premiums up, even though the insurance company has paid nothing to replace my laptop and phone. So, the experts say don’t claim until the amount exceeds my deductible. That’s one I didn’t know.

Do Rental Insurance policies pay out?

When you shop for insurance, can you ascertain whether the insurer pays out on claims? Sometimes. The industry numbers suggest that insurance companies generally honor anywhere from 80 percent of the claims to 95 percent. If it’s 80 percent, I feel less than heartened. A 95 percent number here is much better.

Of course, making a claim gets involved. For example, I’d have to provide documentation (a receipt for that Fender guitar) to settle a claim quickly. With the fear of fraud in the insurance industry, it’s best to document your stuff for future claims. But what if the lack of documentation is also an excuse for not buying renter’s insurance? “I don’t document anything I own.”

Is it ever a bad thing to buy?

Let’s look at life insurance. If I have no dependents, do I need life insurance? Are there instances when I don’t need renter’s insurance?

Not if it costs you more to insure than your stuff is worth. Over twelve months, at $15 a month, you’ll pay less than $200. If everything you own in the world costs less than $200 to replace, you don’t need renters insurance. Why pay anything when replacing your stuff costs less than the policy over twelve months? And $200 won’t meet the deductible anyway.

But wait. Insurers will argue you’re thinking about the actual value of your stuff, not the “replacement cost.” If you find your furniture in a dumpster, it costs you nothing, but that doesn’t mean the replacement cost will be nothing. Most renter’s insurance policies cover the replacement cost. It’s heartening to know that the insurance industry’s usual coverage is the replacement cost.

In truth, it comes down to what you’re getting from the policy. Of course, everybody wants to be safe from loss due to burglary, theft, or fire. Renters insurance will give you peace of mind.

Most insurance policies cover the replacement cost, but read the fine print on the critical detail of replacement cost vs. actual cost.

Replacement Cost Vs. Actual Cost

When an insurer tells you they are insuring for replacement cost, they won’t subtract depreciation when they replace your stuff. So, if your three-year-old Apple phone is stolen, you’ll get a new one to replace it.

But suppose the insurance policy only covers the actual cost. In that case, the value of your eight-year-old Samsung Jumbo TV set is what you’ll get in payout, which sometimes is zero dollars after subtracting depreciation. Then be sure to understand which option the insurer offers: Replacement or actual cost.

Sometimes, consumers buy new furnishings and tech for their new digs. In that case, renters insurance seems a necessity. Again, get after the documentation of your purchases.

So, We didn’t Buy Renter’s Insurance. Are We S.O.L.?

If you don’t buy rental insurance, are you out of luck? What people do inadvertently is use self-insurance because they failed to buy rental insurance at all. While almost 60 percent of renters buy rental insurance, more than 40 percent do not. For many renters, the stuff lost to theft, fire or water damage is not insured. It’s a total loss.

Self-Insurance

I often assert that people don’t always buy insurance; sometimes, it’s a deliberate choice. Life’s bad things, including theft, fire, or water damage, do not happen to everyone, which fires the imagination. In addition, history can reinforce such a decision. I mean, how many times have you made an insurance claim? If you buy a lot of priceless antiques, you need insurance. But otherwise? If bad things haven’t happened in the past, they won’t happen in the future. You can always think of the money you saved by not paying for insurance.

Are there Alternatives to Renters Insurance?

Sure, here’s a list:

• Self-insurance: Money you’ve got in savings. It should be earmarked for “self-insurance funds,” but it’s probably whatever funds are available.
• Dorm insurance: This is a form of rental insurance with a much lower deductible, $25, but as expensive as rental insurance. The source suggests that the much lower deductible means dorm insurance will cover the loss of smartphones, laptops, and tablets.
• Parent’s homeowner’s insurance policy. This is one great stretch, but you hear stories… I mean, it’s just hearsay, but a kid called up his folks when his dorm room got sacked, and they called their insurance rep, and sure enough, the parent’s homeowner’s insurance paid!
• Landlord’s insurance: For your purposes, landlord’s insurance only covers stuff the landlord owns, so your items will not be covered here.

Like all insurance policies, I only use rental insurance for catastrophes. Regardless of how small, any claim will increase my monthly premium with no cap on how long. Rental insurance is no different.

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