Renters don’t often think about insurance on their personal property in the same way that homeowners do regardless of where they live- Minnesota, Mississippi, Missouri, Montana, Nebraska, etc. This can be evidenced by the fact that the renter’s policy is even a subset of a homeowner’s policy known as the “HO-4” form. As a result, renters are often uninsured when a loss takes place and can be easily devastated by the lack of insurance protection. With the recent disasters such as superstorm Sandy in the news, it’s a good time to revisit the renter’s need for proper insurance coverage.
When you compare the difference between a renter’s policy and a homeowner’s policy, you’ll find that the only difference is the lack of dwelling coverage on the renter’s policy. As the renter is not responsible for the loss of the building (which is the responsibility of the landlord), this coverage section is excluded. However, the remaining coverages are essentially the same: personal property, personal liability, and additional living expenses. If you were to ask homeowners if they would be willing to forgo all the above coverages, they would likely tell you no. Therefore, it certainly would not make sense for you, as a renter, to forgo the same coverages.
It can be argued that a renter may have even greater need for insurance than a homeowner. Because homeowners often have equity built up in their homes, they have more resources in the event of unexpected hardships. A renter, on the other hand, may not have the same resources. Consider the possibility of a fire destroying your rented home. If all your worldly possessions were in your rented apartment or house and everything were destroyed, would you have the ability to replace those items?
In addition to dealing with the loss of your possessions, you would also need to find alternate living arrangements. In most cases, you will need to figure out what your ongoing obligations are with respect to your current lease. Some leases allow you to terminate the agreement if your space is not inhabitable. However, if that is not the case, you may have to continue paying rent while looking for another place to live. That will come with its own issues such as deposits and upfront costs. A recent New York Times article illustrated the problems that many renters faced in the aftermath of superstorm Sandy.
As you can see, it’s very important to have sufficient insurance for both your possessions and the potential expense of finding alternative living arrangements. One benefit of a renter’s policy is if you elect replacement cost coverage. This means that you will be covered for the current cost to replace all your damaged or destroyed property. While you may not find a lot of value in your used clothes and furniture, it will cost you quite a bit to replace them with new items. Replacement cost insurance provides you with coverage to purchase new items, which is really what you need in such situations.
Before you take the risk of being uninsured, think about the benefits of a renter’s policy and how small the premium really is relative to the protection offered.