Helpful Information About Renters' Insurance

This is a repost of an article from consumeradvocate.org, see the original here:

WHAT'S REALLY COVERED UNDER RENTERS INSURANCE?

When comparison shopping for renters insurance, there are four essential types of standard coverage you should expect:

Personal Property

This is anything and everything that belongs to you, from furniture and appliances to electronics, clothing, kitchenware, and decorations. In some cases, your pet(s) can even fall into this category. Essentially, anything that belongs to you that isn't part of the physical structure of the apartment—which belongs to your landlord and should be covered by their insurance. The best part is that it covers your stuff even when it’s outside of your home.

Personal Liability

This refers to how you might be responsible for accidental or unintentional damage or injury to someone else’s property or their person. This includes guests slipping and injuring themselves while at your place, or your pet biting the neighbor’s child.

Additional Living Expenses (ALE)

In the event that your living space becomes unlivable, through fire or water damage, for instance, renters insurance pays for the living expenses of staying at a hotel for a set period.

Medical Payments to Others

As the name suggests, medical payments to others cover the medical bills of those riding in a different vehicle involved in an accident or collision with you.

As we've mentioned, all insurers, brokers, and agents should cover these four basic areas. The extent of coverage, however, can vary from company to company.

For example, one company might include all of your electronic equipment and devices as part of your personal property coverage, while others might completely exclude them or offer them as add-on coverages.

Almost all insurance providers offer add-ons and extras. Some extras have become industry standards in the form of “riders,” “endorsements,” and “floaters.” They are used to cover pricier items such as expensive jewelry, electronics, art, collectibles, and musical instruments.

For example, personal property coverage of $10,000 is designed to cover a variety of personal property (furniture, appliances, electronics). Still, within a particular category, your insurance might only actually cover $1,500 worth of electronics damage. If you have, say, a $2,000 television screen that gets stolen, the insurance will only cover $1,500, minus your deductible.

Another common example is with jewelry. Regular jewelry is covered under personal property, usually, again, up to a limit of $1,000-1,500. If a $1,000 worth of jewelry is stolen from your home, you are covered and you only pay your deductible. However, if you have expensive jewelry like engagement rings or family heirlooms that are valued at well more than $1,000, you would not be covered unless you had a specific add-on for that item.

Riders, Endorsements, and Floaters

Riders, endorsements or floaters are category add-ons that can be applied to property, such as the examples mentioned above, or for specific situations like backed-up sewer water damage or earthquakes.

Not all insurance companies offer the same riders and endorsements or refer to them by the same name. In essence, the purpose of riders and endorsements are for you to increase the amount of coverage of a particular category.

Thinking about the electronics example mentioned before, let’s say that you don’t have a television that’s worth $2,000, but you do have over $2,000 worth of electronic equipment (tv, laptop(s), computer, DVD/Blu-ray player, sound system, game station, smartphone). If all of that was stolen in one fell swoop, how much would it cost to replace?

The insurance category will still only cover up to our hypothetical $1,500, even though your entire personal property coverage is of $10,000. That’s where the rider/endorsement comes in; you buy additional protection because you, in particular, own very valuable electronic equipment, and you purchase enough to cover all of it.

Keep in mind, of course, that this will raise your premiums. On the other hand, the cost of a slightly higher premium does not come even close to the potential loss of thousands of dollars in the long run.

Floaters are very similar to the riders/endorsements but instead of applying to an entire category, they apply to specific items. Returning to our electronics example, you might have less than $1,500 worth of electronics overall except for one particular thing that is (like a television or a custom gaming laptop). To safeguard your investment, you purchase (add-on) a floater for that item on your insurance policy.

The same principle applies to all other categories: if you have a lot of expensive jewelry that amounts to over the coverage limit, get a rider. You have one single piece of jewelry that exceeds the coverage limit, you get a floater (or, by extension, several floaters, depending on your property).

NOTE: Riders, Endorsements, and Floaters all have limits too! If you own a priceless diamond valued at millions of dollars, no renters insurance will cover it.

UNDERSTANDING DISASTERS

As the Insurance Information Institute puts it, “Sharing, or pooling, of risk is the central concept of the business of insurance.” That means that the more money in the pool, as it were, the more the insurer can assure customers that they can cover their losses. This is why, for instance, it’s good when companies are reinsured (it means they have an extra back-up).

When it comes to natural disasters, insurers and carriers have to be careful about what kinds of losses they can conceivably cover too. This is why, almost universally, companies will not directly cover flooding; the kind of economic loss from mass external (or subterranean) flooding is too costly to be sustainable.

According to the standard ISO homeowners forms (specifically the HO4, which refers to tenant’s insurance), there are 16 named perils:

• Fire or lightning
• Windstorm or hail
• Explosion
• Riot or civil commotion
• Aircraft
• Vehicles
• Smoke
• Vandalism or malicious mischief
• Theft
• Volcanic eruption
• Falling object
• Weight of Ice, Snow, or Sleet
• Accidental discharge or overflow of water or steam
• Sudden & accidental tearing, cracking, burning or building
• Freezing
• Sudden & accidental damage from artificially generated electrical current

It should be understood that these perils are not blindly covered either; conditions can be placed that determine how claims are processed. For example, theft is generally covered as a “named peril.” However, if you leave your front door unlocked every day when you leave and someone goes into your apartment and steals your stuff, your insurer might interpret that as negligence on your part and not cover your claim. Similarly, if you have a property that you are renting but which you mostly leave vacant during the winter, make sure to take the necessary steps to avoid pipes freezing and bursting. If you don’t shut off the water, for instance, you might be considered to have been negligent.

As mentioned above, though, there are certain perils that are not covered at all (or by many insurers). Damage caused by a flood or earth movement is not typically covered in your average renters insurance. Some insurers only offer earthquake coverage in select states (such as Lemonade, which offers it in California and Arkansas), as an add-on (Liberty Mutual), or with a separate cover (State Farm).

When it comes to flood coverage, however, it almost universally needs to be acquired separately through the National Flood Insurance Program (NFIP), which is offered by FEMA. Several insurance carriers, such as Liberty Mutual, Allstate, American Family, Nationwide, Travelers, Amica, offer flood insurance coverage through the NFIP.

WHY YOUR NEIGHBORS’ RATES ARE HIGHER OR LOWER THAN YOURS

There are many factors that affect a client’s premiums and coverage, meaning that two people living in the same building, with the same insurance company, can easily end up with different bills each month:

• Factors such as age, gender, education, and even credit score can contribute to lower or higher premiums.
• Your belongings and their value (see above discussion on riders, endorsements, and floaters) also naturally increase or lower your monthly costs.
• Fire and burglar alarms, as well as security measures like deadbolts, often qualify you for discounts.
• Finally, your insurance history can be another contributing factor, especially if you have a history of filing claims (this can raise your premiums)

Choose Your Coverage Wisely

Choosing the best coverage starts with knowing what you own. There comes a point where speaking in hypotheticals doesn't work anymore and that's when you have to get right down to choosing your policy. In order to get the best coverage for your money, you need to know what you're covering.

This may seem obvious, but oftentimes we might be tempted to eyeball it: “Let me just get the $20,000 insurance coverage. That should be enough!” Don’t.

Inventory

The first step that almost every insurance company recommends (and, note, it should ring warning bells if any insurance provider does not make this recommendation) is inventory. You need a detailed record of your stuff, with as close-to-accurate estimates on 1) Your priciest items, and 2) The value of broad categories (like all of your books, films, clothing, and kitchenware, etc.).  

Although it may seem daunting at first, doing an inventory can be quite easy when you divide it into categories, and take it one step at a time. There are some insurance providers that offer inventory calculators (like Allstate’s “What’s Your Stuff Worth?,” Geico’s “Cost Calculator,” or Liberty Mutual’s “Coverage Calculator,” which gives you premium estimates), but ultimately, your inventory is unique to you (which can make using calculators that cater to a wide range of people frustrating).

Starting a custom-made list by hand or on your computer might be more useful. Then, instead of doing an inventory of your belongings your entire house or apartment, start with one single room and a single category.

Example: