The key to getting the right type and amount of insurance coverage is education. It is imperative that you learn everything you can and then make your own informed decisions. With the wealth of knowledge available on the Internet today, no one has an excuse not to be informed. Even if you prefer to seek help from a professional, you should at least understand the terminology as well as the basics so that you know that you are getting the right product at the right price.
What Renter's Insurance Covers
In return for your payments, renter's insurance will repair or replace your personal property that is damaged, destroyed or stolen as the result of 17 types of peril, such as fire or lightning, windstorm or hail, explosions, smoke, vandalism, theft, damage by glass, electrical surge damage, and water-related damage from home utilities. If the damage from one of these perils makes your home unlivable, renter's insurance will pay for the associated expenses (temporary residence, meals eaten out, etc.) up to a certain amount, usually about 30 percent of the total value of the policy.
In addition, renter's insurance will cover your liabilities as a renter. If someone is injured in your home, it will pay for that person's injuries. If this person sues you, it will pay for the court costs and pay for any damages that may be awarded as a result of the suit, up to a predetermined amount.
What Renter's Insurance Costs
Your level of coverage depends on both your needs and also what you can afford to pay. Most policies offer at least $4,000 worth of property coverage, with the average being $30,000. In addition to basic types of property, such as furniture, other items may be covered up to certain limits:
- $100 for lost cash
- $2,500 for personal property used for business
- $500 for valuable papers
- $500 for theft of jewelry, watches and furs.
If you have items of particular value, such as artwork, expensive jewelery, etc., you will need to pay an additional amount to purchase a separate rider to cover that item.
The cost of your coverage is your premium. As mentioned earlier, an average premium is about $200 per year. Where you live, your deductible, what your building is made of, the need for additional coverage and a variety of other factors can either raise or lower your premium. You may find that your insurance company offers discounts for protective devices such as burglar alarms and fire extinguishers that will help lower your premium.
How Renter's Insurance Works
Before your insurance will begin to pay, you will be required to meet your deductible -- a specified amount you must pay before the insurance will kick in. The amount of your deductible is tied to the amount you pay for your insurance. The higher your deductible, the less expensive your insurance will be. Remember, though, that you need to be able to afford your deductible if you're counting on the insurance to pay for your remaining losses.
Your policy will reimburse you in one of two ways: "actual cash value" or "replacement cost coverage." Although you will pay about 15 percent more for it, you're usually better off with replacement cost coverage, which pays for what it actually costs to replace the items you lost. Actual cash value, on the other hand, pays only for what your property was worth at the time it was damaged or stolen. The only drawback of replacement cost coverage is that you are often required to pay for the damaged items first, and then submit your receipts for reimbursement.
Step 3 - Determine Your Insurance Needs