Renters insurance is a great tool to protect the personal space and items that you use the most. When choosing a renters insurance policy, keep these tips in mind when determining which policy will best protect you, your things and your bank account.
1. Check the policy’s timeframe
When purchasing your renters insurance policy, be sure to compare apples to apples. One way online insurance comparison platforms are able to show extremely low rates versus their competitors is by showing policy rates for six months, as opposed to annual rates. As a result, when the renter sees a rate online that is significantly lower than their current annual policy price, the renter jumps on the deal, and rightfully so! It’s not until the renter reads the fine print (or should I say hopefully reads the fine print) and realizes that the policy is for six months and not for the entire year.
2. Recognize what the renters insurance policy does not cover
When a renter buys insurance, not everything is covered. Floods, earthquakes, mudslides, landslides, war, nuclear hazard, neglect of property (e.g. failing to protect your property at the time of loss or soon thereafter), intentional loss or destruction of property, and governmental action are not covered. So if you are if you are in a high risk flood zone area and think your renters insurance covers you, think again! A renter would need to purchase a separate policy to cover flooding. However, one exception to flood damage that renters should be aware of is if there is damage caused by flooding, but the flood damage is caused by an incident that is covered by the policy, for example a washing machine malfunction that floods an apartment, that damage is covered up to the policy’s limits.
3. Know what the renters insurance policy does cover
In a typical renters insurance policy, there are sixteen “perils” or scenarios that renters insurance covers. Despite this coverage, not all property is protected the same way. There are preset limits on certain types of valuable. For example, jewelry and electronics may be capped at $500. But if your apartment is robbed, and they steal your brand new laptop, you would only be covered up to $500. Before signing on the dotted line, physically walk around your rented property and take pictures and video of your valuables. Be sure to show your agent and insurance carrier these valuables, inform them of their value and let them know that these are the items that you want protected.
4. Realize your property is not covered 100%
Renters insurance is a great way to protect your belongings, but if your property is damaged, the insurance carrier isn’t going to hand over a blank check. Depending on the policy, the renter will be responsible for his deductible. A deductible is the amount that is “deducted” from the final amount of the claim owed by the insurance company. It is the upfront cost that the renter is responsible for. For example, if the renter’s deductible is $500, and the damage that is covered by your policy is $5,000, then the renter is responsible for the first $500, and the insurance company is responsible for paying the remaining $4,500.
5. Understand the value of the protected property
Renters insurance covers the value of your property, but does it cover what is worth today or what it was worth when you originally purchased it? That’s the difference between “actual cash value” (ACV) and “replacement cost coverage.” ACV covers the depreciated value of your property. If your property is damaged or stolen, the insurer will determine the value of your property based on what that three year old television is worth today, not what it will cost you to replace it. The replacement cost coverage values the items at what it actually costs to replace the items you lost. This is important because if you do file a claim, the amount you may be out of pocket may be a lot higher than you anticipate if you have ACV coverage as opposed to replacement cost coverage. However, the premium rate for a policy with ACV coverage will ultimately be less because the insurer will be required to pay less if there is a claim. The question you have to ask yourself, is do you want to pay more in upfront costs knowing that if you do file a claim you will pay less, or do you want to pay less in premiums at the outset in the hopes that you never have to file a claim. The choice is yours.
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