Do you need renters insurance?
Most people think the benefit of renting is that the landlord is responsible for all the homeowner stuff, including the stuff inside. But that's not actually true! So, if the worst happens, do you need coverage?
According to a May 2012 survey by the Insurance Information Institute, only about 31 percent of renters in the U.S. buy renters insurance. And according to the National Fire Protection Association, in 2011 there were 370,000 home structure fires, causing $6.9 billion in direct damage. Given the numbers of homeowners displaced to apartments and rental properties during the economic downturn, renters insurance has become a real concern for many Americans.
What does renters insurance cover?
Your landlord's insurance covers the physical property he or she owns, but it doesn't cover anything that belongs to you. It also may not cover liability from accidents that happen on your property as the result of your negligence (like leaving your water hose unwound in the wrong place).
Renters insurance does cover these things: It covers your personal property against "named perils." That is, all of your furniture, clothes, books, electronics, etc. are covered against any type of damage named in the policy. Typically, the list includes fire and smoke, electrical surge, water damage from bursting pipes, lightning, vehicles, falling objects, theft, vandalism, riots and even lava. What it normally doesn't cover is flood damage from a natural disaster, but you can get that from the National Flood Insurance Program.
Additionally, the policy may cover you for some other place to live if your dwelling is in a state that makes staying a non-option. Just carefully read those provisions, as some may cover you up to a certain amount, a certain time period, etc.
It also covers your personal liability (like medical costs) if someone is injured on your property (for example, if they're bitten by your dog). It may also cover any court costs if they sue you.
How does renters insurance work?
The price of your policy will vary based on the type of coverage you choose and any add-ons. If you have very few possessions or they're all secondhand items that aren't worth much, you could feasibly get away with a policy that covers only liability. But before you make that decision, consider this: If something destroys all your possessions, meager though they may be, could you afford to replace them?
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Which brings us to the second point. There are two types of renters insurance: cash value and replacement value. Your policy will outline the exact terms of each and how they're calculated (which can vary slightly from policy to policy), but in general, cash value policies give you the amount of money the items you lost were worth at the time of loss (minus depreciation). Replacement value insurance is more expensive, but it covers the full replacement value of your stuff. That doesn't mean you'll get a $5,000 plasma TV to replace your $200 pawn shop TV, but it does mean you'll get enough money to buy a TV of similar quality and size to the one you lost.
How much does it cost and how much do I need?
The price varies based on the amount of coverage (which should be determined by what you need covered). It's between $150 and $200 a year (less if you only want liability, more if you need enhancements to cover extra valuables).
According to Elaine Baisden, vice president of Travelers Personal Insurance, to determine how much insurance they need, "renters and homeowners alike should make sure they do a home inventory to find out just how much money is in their homes. They should also talk to their insurance agent to find out what is covered and what isn't under their existing policies." There are several checklists available online to get you started, including this one from the Insurance information Institute.