Just after college, I moved to New York, took a job as an editorial assistant making $11,000 a year, and rented an apartment in Brooklyn. I made ends meet, but barely, and there wasn’t a lot of wiggle rooms for extras.
And so I did what many renters do — I skipped renters insurance. At the time, I didn’t have a lot that I considered valuable, but in hindsight, I actually had plenty — a television, clothes, various pieces of furniture. Piece by piece, it adds up, and I would have been devastated by a fire or other disaster.
Many times, people assume that what they have doesn’t have a lot of value, but that would be a really hard lesson to learn in the event of a fire or theft. If you came home, and suddenly all your possessions were gone or destroyed, how would you even begin to replace them? says Amy Danise, senior managing editor at Insure.com.
Unfortunately, less than half of renters have coverage, a sad statistic for more than a few reasons. Not only are rented homes more likely to be burglarized than owned households, but renters-insurance policies are extremely inexpensive. According to the National Association of Insurance Commissioners, the average premium is $182 a year — the cost of two sandwiches a month.
So it’s time to start preparing for the worst. Here’s what you need to know about buying renters insurance.
Take a home inventory. Most renters are really surprised when they add up the value of what it would cost to replace their property, especially when you factor in clothing, electronics, computers, jewelry and artwork. So the first step is to figure out the value of everything you own — not what it’s worth today, but what it would cost to replace it, says Eric M. Goldberg, associate general counsel for the American Insurance Association. Obviously, you’re going to do a bit of estimating, but if you have receipts from major purchases, be sure to hang on to them. There are programs available to help you track everything — the Insurance Information Institute has great, free software available at www.knowyourstuff.org — but you can also just walk around with a video camera, says Danise. If you do that, be sure to open up drawers and closets, so you get everything.
Shop around. It’s the first step to buying any kind of insurance policy. Start with the company that provides your auto insurance (you may get a discount for bundling) then compare rate quotes with two or three other providers. Look at not only the premium, but also coverage limits and the deductible. When you’ve identified the lowest-priced policy, check to see if your state insurance department has consumer complaint rankings on its Web site. You want to make sure that the lowest rate isn’t coming from an insurance company with the highest number of complaints in your state, explains Danise. After all, if the time comes to make a claim and you’re denied, that lower premium is just money down the drain.
Know what you’re looking for. You want a replacement-cost policy, which will pay the real cost of replacing your belongings, despite the fact that they may have depreciated over the years. The other option, actual cash value, is less expensive, but it only pays the value of your items as they stand at the time they were stolen or destroyed. This is really a financial blow to some people. If your television has depreciated, you only get paid what it’s worth — not very much if you want to replace it with a new version, says Danise. In other words, you may have a television that cost you $1,000 three years ago, but the insurance company will only give you $200 for it now.
Understand what isn’t covered. Certain high-value items, like expensive jewelry, musical instruments, fine art and furs aren’t typically covered under a standard renters-insurance policy, says Goldberg. You should still include them in your home inventory, but talk to your agent about purchasing additional coverage for these kinds of items.
Note: There are companies that specifically insure these items — jewelry insurance companies, for instance. You’ll likely find the best deal by simply purchasing a rider from your renters insurance company, but it never hurts to shop around and get a few quotes.
Know what brings your premium up, and what will knock it down. For starters, if you have a dog, particularly a breed considered dangerous, or one that has a history of biting, it’s going to cost you. That’s not to say you have to get rid of Sparky, but you need to be even more diligent about comparing quotes, says Danise. The list of dangerous breeds can vary by insurer, so if one rejects you, you shouldn’t assume they all will. She adds that if you have a previous claim from a dog attack, don’t try to cover it up — it will appear in your claim history, and the insurer will find out one way or another. It’s better to be upfront.
As far as saving: Simple things like raising your deductible from $500 to $1,000 could save you 10 percent or more, and having updated smoke, fire and burglar alarms could net you a discount (ask your landlord). In general, you should always ask about discounts — you never know what’s available.
With reporting by Arielle McGowen
Jean Chatzky is the financial editor for NBC’s Today, a contributing editor for More magazine, and a contributor to The Oprah Winfrey Show.
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