Renters don't always realize that they need renters insurance to safeguard their possessions, but buying renters insurance is a smart purchase for people who don't have the protection of homeowners insurance. Unless you're a student living in a college dormitory--in which case, you're probably covered by your parents' homeowners policy--if you are renting your residence, you should consider renters insurance.
Types
There are two types of renters insurance. Actual Cash Value policies take into account the effects of depreciation on your possessions, so you'd collect more insurance money for a brand-new couch than for one that's several years old. Replacement Cost policies reimburse you for the purchase price of your possessions. According to the Insurance Information Institute, you'll pay about 10 percent more for a Replacement Cost policy than for an Actual Cash Value policy.
Identification
Renters insurance protects the personal property of people who live in apartments, rented homes, co-ops, condominiums, dormitories and other rental living situations. Renters pay a monthly or annual premium, and in return, the insurance will pay for your personal possessions and living expenses if you experience a catastrophic event.
Misconceptions
Many renters believe their possessions are protected by their landlord's insurance, but that insurance only protects the property itself, not your belongings. Landlords are not responsible for carrying insurance on their tenants' personal possessions.
Benefits
Renters insurance allows you to replace your belongings in the event of a catastrophic event, such as a fire, lightning strike, vandalism, theft or water damage. (Renters insurance does not usually cover damage done by earthquakes or floods, which may require a separate policy.) Renters insurance also gives you liability protection in case anyone gets hurt on your property or you or your family cause damage to someone else's property. Renters insurance also helps cover the costs for additional living expenses (ALE) if damage to your property means you have to stay in a hotel or secure a temporary rental for a period of time.
Considerations
To calculate how much renters insurance you need, add up the total value of all the things you own, including big things, such as your computer, television and bicycle, and small things, such as your dishes and linens. Add up the cost for all your belongings to determine how much coverage you would need if you had to replace all your belongings. Keep in mind that the more coverage you have, the more expensive your premium payments will be.
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