Purchasing a renter’s insurance policy is a good idea, but the options can be confusing. Renter’s insurance provides coverage against financial responsibility and liability in the event of an accident, theft, or natural disaster. Premiums are fairly cheap, and the payoff can be tremendous. If this sounds like something you may want to consider, we have answered all your questions about renters insurance.
Should I choose replacement-cost coverage or actual cash-value coverage?
Replacement-cost coverage will fund the replacement purchase of a damaged or stolen object. This type of coverage will have pricier premiums but is usually worth the extra expense. On the other hand, actual cash-value coverage has lower premiums but offers only the item's cash value at the time of the disaster.
How much coverage do I need?
Each policy will offer coverage to replace your possessions up to a certain limit. It’s best to take out a policy to protect your belongings' full value.
To determine how much coverage you need, inventory your assets. If you’re choosing a replacement-cost plan, note how much it would cost to replace each item. If you’re going with a cash-value plan, note each item’s current worth. Tally up the total and choose a policy that provides sufficient coverage.
Are all disasters covered by the renter's insurance?
Most policies will cover damage caused by various circumstances, including fire, theft, windstorms, etc. However, most policies will not cover damage caused by floods and/or earthquakes. If you live in an area prone to such happenings, consider purchasing a separate flood or earthquake policy.
Should I choose a lower deductible?
Many people choose a policy with a lower deductible, but that is not always the smartest choice. A high-deductible policy will give you a lower monthly premium. The amount you save each month will likely offset the higher deductible cost if you need to file a claim.
Do I need a floater?
A floater (also known as a rider) will provide additional coverage for pricier items if they are lost or stolen. Most policies include a cap for replacing a specific item, including expensive jewelry, furs, collectibles, and sports equipment. If you own such items, you may want to add them to your policy.
What kind of liability coverage does my policy offer?
Your renter’s insurance will protect you against lawsuits for bodily injury or property damage caused by you, your family members, or your pets. This coverage will pay for legal counsel in a court of law and medical coverage for anyone injured on your property.
What is ALE?
Additional living expenses (ALE) refer to any extra expenses you may have, such as hotel bills and food costs, if your home is destroyed or unlivable because of a disaster covered in your policy.
In short, renter's insurance is a great tool to cover your belongings in an emergency. Check out more articles like this on the MoneySmart Tips blog.
Your Turn: Do you have a renter’s insurance policy? Tell us what you love about it in the comments.