Your Guide to Renter's Insurance

Most homebuyers have insurance. When they make a big investment in real estate, they want to protect their investment from dangers such as fire or burglary. But if you are a renter, you still have items that need protection but not everyone opts for insurance.

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Think how long it took you to save up for that couch or TV, how many years you spent building your wardrobe, jewelry or DVD collection. Renters insurance will cover you in the event something happens to your belongings or that you are temporarily displaced from the home you are renting. Here's what to consider when deciding whether to get renters insurance.

What Is Renters Insurance?

Much like other insurance policies, renters insurance is a gamble. You are betting that something might happen and the insurance company is betting that it won’t (or that it won’t be terribly expensive).

Not all insurance policies are worth the gamble – you must look at the price of the insurance policy, what it provides and the costs you would incur if you didn’t have it and disaster struck. Renters insurance can protect you from damage caused by weather events like wind, rain, snow or lightning, as well as fire, vandalism or theft.

Some policies also include liability protection. This would be valuable if someone got injured in your home and sued you. Renters insurance tends to be cheap.

For a low (usually annual) payment, you can often get replacement coverage for your belongings and living expenses if you are displaced. This means that you can get money to replace a damaged or stolen item as well as paying for a hotel or alternative rent if you are forced to leave your home because of damage.

Why You May Need It

One common misconception among renters: The landlord's home insurance policy will cover them. The landlord’s policy covers the actual house, but the things inside (your things!) are not covered. In other words, the structure is what’s insured. Think about how much it would cost you to start over again if you were to lose all of your possessions. It could be a real hit to your financial health.

What to Look Out For

If you have a home business or expensive jewelry, you may need to purchase additional protection, known as a rider.

Also, renters insurance policies can have different means of replacing lost items. Some offer replacement coverage, which means the insurance company will pay the full cost of replacing a damaged or stolen item. Others will offer actual cash value.

This means the insurance company determines what your items are worth now, accounting for depreciation. While you may have spent thousands on that couch five or 10 years ago, the insurance company would pay only what it’s worth now. Actual cash value insurance will be cheaper than replacement value, but you likely won’t be able to get the same quality couch with your insurance payout.

If you decide to take the plunge, be sure to research to determine what policy best meets your needs and learn how to file a claim should the need arise.

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