Executive Summary

Renters insurance is more widely used than ever, but less than half of renters reported carrying this important form of insurance during 2016. With enrollment rates hovering around 41 percent (1) among surveyed renters, it’s clear than many renters still don’t understand the cost benefits of proper renters insurance coverage. Clearing up misconceptions about the costs related to rental insurance and the financial benefits it provides should help these enrollment rates rise. It’s especially relevant now since the proportion of renters to homeowners hit its highest point in over 50 years in the middle of 2017 (2).

Rental insurance is mandatory or included in the cost of rent in some properties run by the largest national management companies. However, tenants need to be aware that some of these policies are only for the benefit of the property manager, and have no contents or liability coverage for the resident. Even if you’re covered in some way by an automatic policy like this, taking out your own policy still offers more benefits than just relying on your existing coverage. Understanding what the average insurance policy covers also ensures that you get the right amount of coverage without overspending. Like most forms of insurance, a renters policy is easily tailored to your exact needs and scaled to fit your lifestyle and personal belongings. This makes it easy to afford regardless of your budget.

Introduction

As home prices and interest rates rise steadily once again across the country, opportunities for becoming a homeowner are shrinking for the majority of lower- and middle-income families and individuals. This results in many people remaining in rental properties longer than they may have planned. Of course, there are benefits to renting as well. Having a landlord available to handle repairs and solve emergencies does protect your savings. Still, unless your landlord is negligent in some way, he or she is not responsible for replacing damaged, stolen, or destroyed belongings and furnishings that you move into the rental property.

As long as the landlord does his or her fair duty in maintaining the property and installing security equipment to prevent theft, you’re responsible for what happens to your personal belongings. Most people who rent are living with minimal savings. Even if you have a few thousand dollars in your savings account for emergencies, it can cost more than that to replace every item of furniture, clothing, and dish in your apartment or house after a major emergency. A flood or fire can wipe out nearly everything you own. So if the landlord or property management company isn’t responsible for helping you replace your belongings, what can you do?

The Problem

Renters insurance doesn’t pay for repairs to the rental property because that’s the responsibility of the owner. Instead, it’s designed to protect the renter alone. This translates into compensation to help you purchase replacements for anything and everything you need to recover after a theft or natural disaster. But how do you decide

what kind of policy to buy? Many renters request a general policy and find the quote too high or surprisingly low. Unless you’re requesting a custom policy based on your actual replacement value needs, you can’t be sure that you’re getting the right kind of insurance.

It takes a little extra effort to estimate the total replacement value for your belongings as a renter. Yet it’s worth the work, because it ensures that you have enough compensation to get everything you need without spending too much on annual premiums. Homeowners tend to estimate the amount of coverage they need by taking out a policy equal to half the value of the home. For example, a homeowner who lives in a $100,000 property will take out a $50,000 policy to cover internal furnishings alone. Tenants can’t use their property values accurately in this way since the furnishings you’re responsible for in a rented property cost less than those found in an owned home. The homeowner must include paint and carpeting in their expenses, while tenants are safe to leave those expenses to your landlord.

Estimating Coverage Amounts

It’s a common mistake to assume you simply don’t have that much stuff to replace. You might be fine with thrift store and yard sale furniture in a pinch to make the most of your replacement funds, but even scrimping and stretching your pennies is not enough to recover from a major loss on your own. Just a few used furnishings can still add up to hundreds of dollars, and some items must be purchased new if you need them immediately and can’t wait for a thrift shop to stock what you need.

One quick method for estimating your personal replacement value is to add up the 10 most valuable items you own, then add 50 percent of their value again. This works well if you have a few important items and a limited amount of other items, with nothing of particular value like a family heirloom. However, it doesn’t take into account unusual circumstances like storing inventory for an online business in your rental property, having items of great value, or covering items you’re storing for family members.

Taking a Personal Inventory

Taking the time to record every item you own with a worth of more than $20 takes a few hours for most people, but it’s worth it for the accurate inventory you create. You’ll know exactly how much renters insurance coverage to purchase within a margin of just a few dozen dollars. It’s quite a depressing feeling to realize you forgot to include the replacement value of that engagement ring only after a burglar has made away with it. Going through your belongings before taking out insurance also helps you quickly determine exactly what’s missing, so you can make an accurate claim to the police as well as to your insurance company.

For the most useful inventory, take photos of most or all of the items you’re recording. Organizing these photos and blocks of data on your smartphone or computer allows you to quickly produce proof you owned certain items in case there’s a dispute in some way. It’s especially important to record the replacement value of your belongings, and not just what you spent on them originally. A computer or television purchased ten years ago can’t be

replaced at the same cost today. If something happens, you will need to purchase everything at today’s prices, with inflation and changing markets factored in.

Personal inventories should be updated once a year or anytime you make a major purchase that affects your total inventory value by $1,000 or more. For example, selling a collectible $3,000 sofa and replacing it with a $200 one from your local big box store should trigger a recalculation of your insurance coverage. Likewise, investing in a full-wall flat screen TV or hot tub for your patio also changes your insurance requirements.

Secondary Expenses

When you’re trying to live on a limited budget and make the most of every penny, carrying insurance based on the replacement value of your belongings alone is your best option. However, renters who can afford just a little more every year should consider bumping their coverage up by a few hundred dollars. Why?

Consider the secondary expenses that accompany almost every kind of disaster or crime. You can’t sleep in an apartment that is being repaired for fire damage. A damaged or missing bed leaves you camping out on the floor or asking friends for a stay on their couch. Extra apartment insurance coverage helps you cover these secondary costs, including:

• Moving, delivery, and installation fees for your new furnishings

• Replacement of consumables that are impossible to track on personal inventories, such as food and toiletries

• Hotel stays and transportation costs related to these stays

• Moving costs if you have to seek new accommodations.

None of these costs are covered by your landlord unless negligence somehow caused the damage. Your landlord is also not required to provide you with alternative housing while they’re rebuilding or repairing a damaged property. Rental insurance does more than just keep you comfortable with the right furnishings if it’s calculated to the risks you face as a renter.

Liability Costs

Liability doesn’t just apply to your landlord or property owner when it comes to the cause of damage to the rental property you’re occupying. As the tenant, you’re still partially responsible for the condition of the property when you invite a third party, like a friend or family member, to visit. Someone who is injured or suffers a loss while at your home can sue you, resulting in costly court fees and judgments you pay out of pocket.

Thankfully, a renters insurance policy protects you in these cases as well. The landlord’s property insurance protects him or her from claims made against negligence on their part, such as failing to maintaining a walkway. But if you were the cause of the problem, such as spilling oil on an otherwise safe path, their insurance does not apply to the situation. You need your own liability and negligence coverage in case there’s ever a legal dispute, and that’s easily accomplished with the same policy you’re relying on to replace your belonging and pay for hotel expenses.

You don’t need to invite anyone over to become liable for damages or injuries, either. Someone who slips while delivering the mail has a right to sue you or the landlord. So does a neighbor whose belongings are damaged by a leak that starts in your apartment.

Weighing Premium Costs vs. Out of Pocket Costs

Once you know exactly what you stand to lose in a fire or burglary, you can start to appreciate the importance of renters insurance. When you separate the potential out-of-pocket costs in three categories, you will see that any type of emergency or problem is made better by appropriate coverage. Accidents and emergencies result in multiple types of loss, like damaged belongings and liability claims, so consider how quickly renters insurance costs can rise.

Lost Belongings

Less than 5 percent (3) of stolen household goods and items are recovered. This means there’s a 95 percent chance you’ll be paying to replace everything out of pocket after a theft. Cleanup after a fire costs between $2,000 and $6,000 to salvage what’s capable of being cleaned. While much of that cost will be your landlord’s responsibility – removing soot and smoke from the walls and floors – you can spend up to 50 percent of that value on recovering belongings like furniture. Replacing just a single set of living room furniture can cost $2,000 or more. Since most renters can get the insurance coverage they need for less than $200 a year, that’s a 90 percent reduction in cost for a single claim.

Liability Claims

Businesses receive the bulk of slip and fall claims, and they tend to spend between $20,000 and $50,000 (4) to settle these injury claims. That may sound ridiculous to you as a humble tenant, but you’re facing the exact same risks as a business owner. The cost could rise to $100,000 or even more depending on the severity of the injury and how negligent you were in causing the problem. Few people can afford even the low end of the average personal injury claim range, making a $180 average annual premium sound far more attractive.

Alternative Housing

The $180 most renters spend on a year’s worth of renters insurance is enough to cover just two to three nights at your average hotel or motel, yet few repairs after a fire or flood are completed that quickly. Add in $200 for renting a moving truck and $20 to $50 per piece of furniture for oversized shipping and assembly costs, and you’re quickly spending far more than you would on an insurance policy.

Relatively Fixed Costs

Renters also benefit from a stable market that has not changed much in the last ten years. While homeowners have watched their annual premiums steadily increase with inflation, rates are practically the same they were in 2005(1). This means you can expect stable prices and affordable renters insurance coverage in the future as well, so there are no surprises when it’s time to renew your policy for another year.

Conclusion

Renters insurance is more than just a good idea. It requires such a low investment on the tenant’s behalf and offers so many benefits that it’s no wonder more and more property managers are requiring it as part of a lease agreement. When you’re ready to shop for renters insurance that fits your needs and your budget, Freeway Insurance has what you need. Freeway Insurance compares renters insurance rates to find you the best renters insurance coverage at the best price. Request a free renters insurance quote online or over the phone at 800-777-5620 today and find out just how cheap renters insurance can be.

Sources:

1. https://www.iii.org/fact-statistic/facts-statistics-renters-insurance

2. http://www.pewresearch.org/fact-tank/2017/07/19/more-u-s-households-are-renting-than-at-any-point-in-50-years/

3. https://www.statista.com/statistics/252444/recovery-rate-of-stolen-property-in-the-us-by-type/

4. http://www.bicmagazine.com/departments/health-safety-environmental-subsection/business-cost-of-slips-trips-and-falls/