Renter Insurance

You may not be a homeowner, but you still need insurance

One of the reasons people rent rather than buying their homes is that they don't like the risk. They don't want the risk inherent in spending all their savings on one possession, they don't like the risk of committing themselves to a mortgage payments for a decade or more, and above all they don't like the risk that everything they own could go up in flames.

These are all good reasons to rent rather than buying - but they don't mean that renters are totally free from risk. If your home burns down you're going to face some serious problems and expenses, whether or not you are the homeowner, and you will need all the help you can get in dealing with them. That's where renters insurance comes in, and I would advise almost every renter to consider investing in it.

Isn't my landlord responsible for insurance?

Probably not - or at least, they may have insured the building, but that doesn't mean you are insured. In particular, it is very rare for a landlord to arrange contents insurance for their tenants. The only common exception to this is if you are a lodger living in a room of somebody's house, in which case you might be covered by your host's standard insurance policy - but don't count on it!

The golden rule of clarity

The problem with insurance is always knowing where one person's liability begins and the other person's liability ends. With renters insurance this problem is doubled, because you have to think not just about things your insurer should pay for, but also about things your landlord should pay for.

Ask any astronomer about the 'three body problem', and she'll tell you about how difficult it is to predict what will happen when three planets or stars interact with each other. Exactly the same is true with rental insurance! So be clear, be secure, get everything down on paper, and don't be afraid to demand that your insurer and your landlord keep their side of the deal.

The elements of renters insurance

Once you've decided to buy renters insurance (easy decision, wasn't it?), you'll need to become as clear as possible about exactly what you would like to see covered. The standard items to think about are contents insurance, liability insurance, and relocation costs insurance.

Contents insurance

The most obvious element of renters insurance is cover for the possessions within your home. This is much the same as for a homeowner, except that it becomes separate from the massive cost of insuring a home, and is therefore cheaper.

You'll need to be careful about exactly which contents are covered, just as you would ifyou were buying standard home insurance. Are your possessions covered if you take them out of the house? Don't assume they will be, but if you have portable valuables such as a notebook computer, it is often worth specifically including them within your renters insurance.

Be cautious about falling into the gap between 'replacement cost' cover and 'actual cash value' cover. The former will cover the cost of replacing your possessions, while the latter only pays you the market value of them - i.e. it applies depreciation. Actual cash value insurance is cheaper, but you might be unpleasantly surprised by how little cover it provides.

Liability insurance

Renters insurance policies can sometimes include an element of liability insurance - that is, cover for if your home somehow harms somebody else. This might include damage to a nearby property (leaking water is a good example), and injury to people while they are in your home. Naturally, most of the usual limitations apply, so you shouldn't expect cover for anything caused by your own malice or carelessness.

If you can't live in your home

An important - but often overlooked - element of renters insurance is the part of a policy that will help you if your home is damaged to the point at which you cannot live in it. If you were the homeowner, you might generally expect your home insurance policy to help you in this situation. Since you aren't a homeowner, you need to find a renters insurance policy to carry out the same function. Renters insurance cover might pay your costs in relocating somewhere else. The general system is that the insurer will pay not your entire living costs, but the increase in your living costs due to the destruction of your home.

Remember that there are traps in this kind of policy - not through malice, but simply because insurers need to protect themselves against fraud and unfounded greed. So if you are forced out of your home, be sure to keep receipts for all your bills, and be ready to justify them. This fits in with the general rule that the more records you keep, the more secure you'll be.