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:
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.
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.
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
- Riot or civil commotion
- Vandalism or malicious mischief
- 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
- 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.
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.
Start with rough estimates, but see if you can dig up some receipts for the pricier items later on to make your list as accurate as possible. Don’t force yourself to do your inventory in one go; pace yourself.
Several articles on renters insurance and inventories recommend that you keep your inventory on the cloud, an online drive, an inventory mobile app, or in a safe place (like a physical safe or a bank safety deposit box). We recommend that you check out QuoteWizard’s article on creating an inventory and important areas to watch out for.
The reason for this is that, in the event that your computer is stolen or damaged, or your belongings are catastrophically destroyed, you can have the peace of mind that you know exactly what you owned and can file accurate claims.
By the end, you should have a working estimate of your personal property, which gives you an idea of how much coverage you need. This inventory should also give you an idea of whether or not you will need to get add-ons (riders, endorsements, or floaters, discussed above).
Bottom line: You save and wisely manage your money when you know what you own.
DON’T OVER OR UNDERVALUE YOUR PROPERTY
It’s important that you neither overvalue or undervalue your property.
Overvaluing can be a needless waste of money. It means you will end up paying higher premiums than you need. Although renters insurance is relatively inexpensive, no one wants to pay more for something they literally don’t need. If your property amounts to about $15,000, there’s no reason to invest in a $30,000 policy.
Bottom line: You save money when you choose a cover that fits the value of your property.
Undervaluing, however, can be risky. Even if you are tight on money and are looking for ways to cut down on premiums, it’s not a good decision to undervalue the price of your belongings because, in the event of a disaster, it will be far more expensive to cover repairs and replacements.
Bottom line: You save money when you make sure your property is sufficiently covered in the event of a disaster.
DEDUCTIBLES VS. PREMIUMS
As you are no doubt aware by now, deductibles are the amount you pay after you have filed a claim and the insurance has been approved. The insurer puts in a particular amount (based on the value loss incurred and up to the limits of your coverage), and you pay a set difference.
Deductibles can range from as little as $250 to as much as $1,000 (or even $2,000). This is the amount you would pay before the insurance kicks in when a situation occurs.
Your premiums are your monthly (or annual) payments for the insurance coverage policy. This is the regular amount you pay to ensure you are covered when a situation occurs.
The catch is that the lower your deductible, the higher your monthly premiums. Conversely, the higher your deductible, the lower your monthly premiums. It comes down to a question of “when do you pay? Regularly throughout the year(s) or in one go when a claim is filed?”
HIGHER DEDUCTIBLES = LOW PREMIUMS AND VICE VERSA.
Choosing a higher deductible and lower premiums can be a wise option if you are looking for ways to lower your monthly bills. However, this option should only be chosen after considering the following factors:
- Do you live in a relatively safe neighborhood? This lowers the possibility of theft (and therefore the chances of having to file a claim).
- Do you have fire and burglar alarms? This lowers the possibility of theft and out-of-control fires (as above).
- Do you have a relatively low history of filing claims? This suggests that your no-claims history might continue similarly for the foreseeable future.
- Do you have enough money saved up to cover up to your deductible? This means that you can afford to pay it if anything should happen, and can opt for lower premiums now.
Given the general affordability of renters insurance, it may be a wiser option to go for the higher premium now but have the peace of mind that you’ll easily be able to cover your deductible at any time if a situation arises. This is particularly true if you can't afford to set $1,000 aside for a rainy day. A lower deductible makes sure that your stuff will definitely be covered and you won’t be left to foot a huge bill of hundreds of dollars.
Your inventory can help you make this choice. For example, if you are a college student with a few possessions, a lower deductible might be the safest option. Say your television is one of the cheapest on the market (Amazon’s >$130 screens for instance), your laptop is similarly low-cost, at $200, and your smartphone is another $200. Together, that’s less than $500. When calculating your inventory, you will, of course, own much more than this, but if a thief were to break into your apartment, the tv, laptop, and phone are much likelier to be taken than your couch or your fridge. If your deductible is $1,000, you will have to replace your lost electronics on your own.
By comparison, typical renters insurance reaches an average high of $360 per year (lower than what it would cost to replace the TV, laptop, and phone). Thus, paying a slightly higher premium but having a lower deductible can be a smart choice.
Note that deductible and premium costs are ultimately set by your insurance provider, so while some might be able to offer lower deductibles, others might not. This is why it’s important to get at least three quotes.
Also be aware that whichever option you choose, it’s particularly important to still make an effort to save up the amount of your deductible (in a savings account, for instance) in case of any situations that would require it.
Bottom line: You save money when you carefully think about your individual situation and manage your policies accordingly. Pay more now and save later, or save more now and pay later; use your inventory and consider your finances when making this decision.
CASH VALUE COVERAGE VS REPLACEMENT COST
When choosing your coverage and looking for ways to save money, it’s important to consider the difference between cash value coverage and replacement cost coverage.
- Cash Value – the value of your stuff now (today, at this present point in time) as opposed to when you bought it. Example: your laptop was worth $1,299 when you bought it three years ago. It is typically considered a 5-year property. Using a straight-line method of depreciation, in three years, it would depreciate by $779.40. If it were stolen today, its cash value (and therefore the amount the insurance would cover) would be $519.60.
Although this seems like a bad deal, it does mean lower premiums.
- Replacement Cost – the equivalent value of your stuff (equal to a replacement or a reasonable substitute if the item is no longer available exactly as it was). Taking the above example, if your $1,299 laptop was stolen, you would be compensated for the same amount (minus the deductible, of course).
Although this seems like a nice arrangement, it does mean much higher premiums.
It’s, therefore, definitely worth considering the replacement cost coverage for the peace of mind. According to InsuranceQuotes.org, replacement cost premiums usually cost “about 10% more each year”. Even with a high annual premium of $300, that only comes up to an extra $30 (or less than $3) per month.
Bottom line: Although replacement cost coverage = higher premiums, in the long run (and especially in that awful moment when disaster strikes) it’s the coverage that saves you money!
WHAT TO WATCH OUT FOR WHEN BUYING RENTERS INSURANCE
In the course of our research, we narrowed down on a few things consumers should keep in mind when looking for renters insurance. Let’s go over them in detail.
ASK ABOUT EXCLUSIONS
While low premiums, extra add-ons, and discounts are all attractive factors when deciding which insurance carrier to pick, the most important factor to consider are the exclusions - things that are explicitly not covered by your policy. Low rates and endorsement coverage for all of your valuables won’t mean much if your claim is denied because your particular situation is excluded.
According to law professor Daniel Schwarcz of the University of Minnesota, some policies have exclusions for “mysterious disappearances”.“There are insurances that won’t cover you if your property mysteriously disappears. For example, you left your door open, someone stole your computer, you don’t know who it was, you don’t know how it happened.”
Another example of a mysterious disappearance would be if you had a family heirloom tucked away in a jewelry box in your dresser, and one day you discover that it’s gone; you’re not sure when or how it happened, and your insurer might not cover it.
There can also be exclusion clauses that apply depending on how the damage occurred. For example, if windstorms pull up part of your roof causing water to get in and flood your home, is that wind or flood damage? Under some exclusions, such as “anti-concurrent causation,” your claims might be denied because some damage was caused by water (flooding), which is often listed as an excluded peril.
In order to know what is excluded and what is not, it’s important to speak directly with an agent. Understanding exclusions is important because a person’s unique situation determines what kind of coverage they need and what kinds of claims they might conceivably find themselves filing.
“There are so many [factors when considering policies] and they depend a lot on people’s situation. If I had teenage kids, I’d really worry about policy-backed exclusions for underage drinking. I’d worry about an exclusion that involved any criminal acts related to the consumption of marijuana or something like that. You know, accidents can happen! I’d worry about ‘intentional acts’ exclusions. I’d worry about ‘concurrent causation’. I’d worry about whether or not there’s specific deductibles or limits on wind or mold or pollution. There’s a lengthy list.” - Prof. Daniel Schwarcz, University of Minnesota
It’s essential to understand how the exclusions on your policy affect you when you need to file a claim for damages of any sort. As Bill Wilson, a former employee of the Insurance Services Office and insurance expertsays, Read The “Full” Policy! When it comes to questions of whether or not a policy covers something, navigating the vague language and, oftentimes, lack of transparency from a website, will not likely yield answers. Promises of “we’ve got your back” and “we’re here to secure your dreams” sound pretty but are not legally binding.
A significant amount of negative customer reviews on the BBB website complain about insurance companies sending investigators to their premises to check out and confirm damages before finishing the claims process. This is despite most companies making it clear on their website that this is a typical part of the process.
Insurance companies need to make sure their policyholders are not committing fraud, as this would harm other policyholders and the company itself. This is why insurance companies should investigate each claim—or run fraud-catching algorithms like Lemonade. In other words, your insurer is not obligated to believe you.
There are ways to provide your insurance carrier with proof of your claim. For example, keeping receipts of your most valuable possessions, maintaining an up-to-date inventory of your stuff (with photographs, if possible), taking demonstrable preventative measures (like keeping the yard clean to avoid fire hazards or infestations, having a fire extinguisher, installing fire and burglar alarms, etc.), informing your insurance agent of any renovations or alterations to your property, and paying your bills on time, all help to establish your commitment to avoiding unnecessary risks.
Conversely, certain behaviors and actions can raise red flags with insurers and can hinder the claims process. If you purchased an insurance policy only last month and you file a claim for a large amount of money upwards of thousands of dollars, you’ll be investigated thoroughly. If you file a claim for theft but there’s no accompanying police report, it’s going to look like you might be trying to defraud your insurer. If you’ve filed a previous claim for water damage from leaky pipes and you’ve done nothing to fix it, your insurer might think twice about processing your new claim.
Bottom line: keep your insurer informed of what you own and what your situation is at all times. The moment anything happens for which you might need to file a claim (after making sure you and your property are safe), call your agent, keep them up-to-date, and follow their instructions. This goes a long way toward establishing your credibility.