Renters Insurance Answers

Why would I want to buy renters insurance?
If you live in an apartment or a rented house, renters insurance provides important coverage for both you and your possessions. A standard renters policy protects your personal property in many certain cases of theft or damage and may pay for temporary living expenses if your rental is damaged. (including loss of use). It can also shield you from personal liability. Anyone who leases a house or apartment needs should consider this type of coverage.

What are the available limits on a standard renters policy?

[Note: this answer is based on the Insurance Services Office's HO-4 policy.]
A renters policy commonly contains four separate sections, referred to as Coverage C, D, E, and F.

• Coverage C provides protection for your personal property, such as furniture. This coverage limit is chosen by you when you purchase the policy.
• Coverage D provides coverage for loss of use, that is, the additional expenses you incur when your apartment cannot be used because of an insured loss. The limits provided here are usually 20% of your personal property (Coverage C) limit.
• Coverage E covers your personal liability claims and suits for bodily injury or property damage. This coverage limit is chosen by you when you purchase the property.
• Coverage F Medical Payments to Others pays for medical expenses for minor injuries to others even if you were not at fault. The policy normally includes limits of $1000 per person.

How does a renters policy protect my personal property?
A renters policy provides named perils coverage. This means your property is protected from all the perils that are specifically listed on your policy. These usually include:

• Fire or lightning
• Windstorm or hail
• Explosions
• Riots
• Aircraft
• Vehicles
• Smoke
• Vandalism or malicious mischief
• Theft
• Falling objects
• Weight of ice, snow, or sleet
• Accidental discharge or overflow of water or steam
• Sudden and accidental tearing apart, cracking, burning, or bulging
• Freezing
• Sudden and accidental damage from artificially generated electrical current
• Volcanic eruptions (but this doesn't include earthquake or tremors)

Renters coverage applies to your personal property no matter where you are in the world. This means you're covered when you are on vacation as well as at home.

What is the difference between "actual cash value" and "replacement cost" coverage?
These are two different ways of calculating how much the insurance company will pay if you report a loss. Standard renters policies cover personal property on an actual cash value basis. This means payments are based on the replacement cost of the property minus a deduction for physical depreciation and obsolescence. If you choose to add replacement cost coverage (for an additional premium), the insurance company will pay one of the two amounts listed below, whichever is less:

1. the cost to replace the property with property of a similar type and quality without a deduction for depreciation, or
2. the full cost to repair at the time of the loss.

Do renters policies provide coverage for personal property such as jewelry, furs, firearms, or silverware?
A standard renters policy provides limited named perils coverage (see How does a renters policy protect my personal property?) for certain types of personal property. For example, the policy limit is $200 for loss of money, $1000 for loss of securities, and $1000 total for theft of jewelry, watches, and furs. Other types of property with limited coverage amounts include: firearms, watercraft and their trailers, trailers other than those used with watercraft, silverware, business personal property on the residence premises, and business personal property away from the residence premises.

If you own any of these types of items, you can buy a scheduled personal property endorsement. (Endorsements are optional agreements which alter the provisions of your main renters policy.) This particular endorsement allows you to purchase additional coverage for your list of valuable possessions. Each item is specifically described and has a separate limit of insurance. An additional benefit of this endorsement is that it provides coverage for this property on an all risk or open perils basis. This means these listed items are protected from any perils (unless the endorsement specifically prohibits them).

The cost of a personal property endorsement depends on the type of property and the amount of coverage you purchase for each item.

What is personal liability coverage and why do I need it?
A standard renters policy provides personal liability coverage, which applies anywhere in the world. This protects you and your family in case someone brings a claim against you or sues you, alleging that you caused them either bodily injury or property damage.

Personal liability coverage covers claims for bodily injury or property damage caused by an insured as long as it isn't vehicle-related and does not arise from business activities. In addition to the limit of liability, your insurer must pay all legal defense costs if an insured is sued for something that is covered under the policy.

Also, the insurance company will pay up to $500 per occurrence for damage to property of others caused by the insured. For example, if you go to a party at someone's home and damage their property, this coverage will pay the cost to replace the property whether or not you were negligent.

Why do some apartment complexes require tenants to have renters insurance?
The owners of these apartment complexes require their tenants to have renters insurance to ensure that they have personal liability coverage. Owners of apartment complexes carry property insurance to protect themselves in the event that the apartment building is damaged. However, if a negligent tenant causes damage, the owner's insurer will sue the responsible tenant for the amount of damage they caused. The owner wants to make sure that the tenant has insurance coverage that will protect him or her in this event.

What if I share my apartment with a roommate? Do we both need to have renters insurance?
Standard renters policies cover only you and relatives that live with you. If your roommate is not a relative, each of you will need your own renters policy to cover your own property and to provide you liability coverage for your own actions.

Which additional coverages or endorsements should I consider adding to my renters policy?
Endorsements are optional agreements which alter the provisions of your main renters policy. They can add coverage for perils or property not covered by the standard policy. In addition to the optional coverages mentioned above (replacement cost coverage for personal property, scheduled personal property endorsement), you may want to consider the following:

• Earthquake endorsement
  The standard renters policy does not cover losses due to earthquakes. If you live in an earthquake-prone region, you may want to consider this coverage. The mandatory deductible (that is, the portion of the loss that you pay) is 5 percent of your Coverage C limit.
• Personal injury endorsement
  Generally the personal liability portion of a renters policy includes coverage for bodily injury to others which is defined as physical injury, sickness, disease, or death. This endorsement changes the definition of bodily injury to include personal injuries. Personal injuries (such as emotional damage) can arise out of false arrest, libel, slander or defamation, or invasion of privacy. A personal injury endorsement broadens your personal liability coverage to include claims for personal injury or suits arising out of these offenses.
• Special computer endorsement
  This endorsement adds open perils coverage for computers and computer equipment. Open perils coverage covers risks of direct physical damage subject to specific exclusions as compared with named perils coverage, which covers only a list of specified causes of loss.
• Business pursuits endorsement
  This endorsement extends the liability coverages of the policy to certain business-related pursuits listed on the endorsement.

How does an insurance company determine my renters insurance premium?
The following factors will affect your premium rate:

• Territory
  The geographic area where you live will influence your rate because certain regions are more subject to specific perils, such as hailstorms in some areas of Texas.
• Public fire protection class
  The degree of fire protection provided in your area is ranked on a scale of 1 (best) to 10 (worst). Areas with no fire department within 10 miles, or with a very poor water supply, may be classified as protection class 10 .
• Construction
  The construction type of your building (such as frame or masonry) can affect the premium that you pay. If you live in an apartment building, the number of apartments per building is also taken into account.
• Coverage amount
  The limits of liability or dollar amount of coverage you select will affect your premium.
• Additional coverages and endorsements
  Increasing your coverage by selecting additional, optional coverages or endorsements will increase your premium.

Here are some ways that you can reduce your renters insurance premium:

• Deductible amount
  The standard deductible for Coverage C is $250. Choosing a higher deductible (up to $2500) can reduce your premium substantially. But be aware that if you've chosen a higher premium, you may have higher out of pocket costs in the event of a loss.
• Multiple-line discount
  Many insurers will offer discounts if they provide your automobile insurance as well as your renters insurance.
• Alarm systems
  Premium credits are often available for burglar alarms, sprinkler systems, fire alarms and smoke detectors.

These questions and answers are provided for users' general information. Although we make every effort to insure accuracy in the information provided, we cannot make any guarantees as to this accuracy. We urge you to consult your lawyer, accountant or tax advisor for specific legal or tax advice.