HOME IS WHERE THE HEART IS A Comprehensive Guide to Renters Insurance
Table of Contents» A Guide to Renters Insurance / 02» Glossary of Terms / 04» What is renters insurance? / 06» What is the difference between homeowners and renters insurance? / 07» Am I required to have renters insurance? / 08» What are the types of coverage available? / 09 Personal Property Coverage / 09 Personal Liability Insurance / 09 Temporary Living Expenses / 10» How does Actual Cash Value differ from Replacement Cost coverage? / 11» What types of personal property is covered? / 13» What types of personal property is NOT covered? / 14 Common Limitations and Caps / 14 Acts of Nature and God / 14 Dog Bites / 15» What are riders and how do they work? / 17» How much does renters insurance cost? / 21» Are there tips for reducing insurance premium amounts? / 26» How do I find renters insurance? / 28» In Summary / 29» Appendix A: Inventory Worksheet / 30
A Guide to Renters Insurance Renting your home has its benefits. As a renter, you are able to enjoy your home without the worry of costly repairs and maintenance since the building you live in is the responsibility of another person. You need not worry about how much longer the roof can survive leak free, or if the furnace is on its last legs, or how bad the windows rattled during the last storm. As a renter, you do not need to worry about whether the next ice storm will damage the roof and cause water damage to the ceiling and walls of the home. The damage is not your responsibility to repair. Renting is a worry-free living experience... OR IS IT? 02
What happens if that roof leak not only damages the ceiling, but also your dining room hutch? Or your flat screen television? What would you do if a tree limb crashed down on the garage and destroyed your golf clubs? What many renters fail to realize is that damage to the structure of the home, or failure of a system within the home, can expose their personal possessions to damage. Some people believe that if the damage to their property is due to the landlord s failure to repair and maintain the building, that the landlord is responsible for the damages to their property. This is NOT true. In fact, renters agreements clearly state that the owner of the property is not held responsible or liable for any damages to the tenant s personal possessions due to any known or unknown causes. This is where renters insurance comes in. Renters insurance is your peace of mind against damage or destruction to your personal possessions from fire, wind or water. Renters insurance also protects you as a renter, against vandalism and theft. If you are currently renting you home, whether it is in a condo, apartment, townhouse, or a single family home, you should consider protecting your possessions with the purchase of renters insurance. 03
Glossary of Terms Additional Living Expense (Loss of Use) Agent Claim Coverage Deductible Depreciation Coverage that pays for above normal costs incurred while the policyholder s home is being repaired. These extra costs will include expenses such as food and lodging. This coverage generally does not apply to the costs of children living away from home. A Department of Insurance licensed professional who solicits and services insurance policies. A demand to an insurance company for financial reimbursement to recover a loss. Indicates how much protection the insurance policy provides, either in the form of the dollar amount purchased or the type of loss covered. A fixed amount, specified in the policy, that the policyholder agrees to pay towards the total amount of an insured loss. The decrease in home or property value, because of age or use, since the time it was built or purchased. Exclusion An event or loss that is not covered by an insurance contract. The term can also be used to describe the provision that removes coverage for the event or loss. 04
Independent Insurance Agent Insured A licensed insurance agent who is not associated with a specific insurance carrier, but rather represents multiple insurance carriers. The person or persons covered by the insurance policy. Insurer Inventory Liability The company that is underwriting the insurance contract. List of the insured s possessions and their values. Legally enforceable obligations. Limit (Policy Limit) Peril The maximum amount the insurance company must pay under the contract for a particular loss. The cause of a loss, such as theft or fire. Premium The amount paid by the insured to the insurer in return for insurance coverage. Rider (Floater) Additional coverage for special items such as antiques or costly jewelry. Risk The chance of loss. 05
What is renters insurance? Renters insurance is insurance purchased by persons who are renting their home. They may live in an apartment, condo, townhouse, flat, or a single family dwelling, such as a house. Renters insurance is also available to persons who rent space within a storage facility to store their personal or corporate belongings. Renters insurance protects the insured against damages to their personal belongings in the event of a fire, water damage, vandalism, or theft. 06
What is the difference between homeowners & renters insurance? A primary difference between homeowners insurance and renters insurance has to do with who is responsible for insuring the dwelling itself. Homeowners insurance covers both the physical dwelling and the contents within the dwelling. Renters insurance only covers the possessions owned by the renter that are kept within the dwelling. For example, a family is renting a three-bedroom house. During a heavy snowstorm, the roof develops a leak and causes severe damage to the ceiling and one wall in the living room. In addition, the family s television and stereo system is damaged and rendered inoperable by the water from the ceiling. The family s renters insurance would cover the costs to replace their personal property, which is the television and stereo system. The owner of the home would be solely responsible for the damage caused to the roof, ceiling, and walls. Using this same example, if the family living in the home also owned the home, their homeowners insurance would assist with repairing the damage to the building (roof, ceiling, walls) along with replacing the personal property in the home. 07
Am I required to have renters insurance? Renters insurance is not legally required. However, landlords may require tenants to acquire rental insurance as a condition of the rental agreement. 08
What are the types of coverages available? Basic renters insurance includes coverage for personal property along with liability and temporary housing coverage. 1 2 Personal Property Coverage The most commonly known component of renters insurance includes a personal property coverage plan. Personal property coverage either pays you the current value of your personal belongings or pays to replace them, depending on the amount of coverage you purchase. This coverage kicks in if your personal belongings such as clothing, furniture, electronics, or hobby/sports equipment (to name a few), are damaged, destroyed, or stolen. Personal Liability Insurance Personal liability insurance is included as a standard component within renters insurance. It is also included in homeowners and vehicular insurance policies. 09
Personal liability insurance covers against unintentional injury caused to others (while on or off your property) or damage to their personal property caused by either you (the insured) or a member of your family. 3 Temporary Living Expenses In the event the rental home you are living in is damaged or becomes unlivable, renters insurance will provide monetary assistance for you to find temporary living arrangements while the rental home is being repaired. This may include a daily, weekly, or monthly per diem to offset hotel costs, including meals and other daily expenses. 10
How does Actual Cash Value differ from Replacement Cost coverage? Personal property coverage is either Actual Cash Value or replacement cost. The type of coverage determines how much you will be reimbursed when you file a claim for personal property damage. Actual Cash Value Actual Cash Value, often referred to as ACV, is the basic form of renters insurance, and the cheapest to purchase. Let s imagine that your three-year old laptop computer was stolen. Three years ago, the laptop computer cost $1,500 to purchase. When determining the insurance value today, the insurance company will calculate the current value of your laptop using basic accounting principles that account for use and wear and tear. The insurance company will then provide you with a check for the depreciated value. This amount may or may not be enough money to replace your laptop with a comparable model. 11
$ $ $ Replacement Cost Replacement cost coverage is just that it replaces your personal property with comparable products and technology in the current economy. Using our ACV example, if your three-year old laptop was stolen, you would receive a check in the amount necessary to replace your laptop with a similar laptop in today s economy. For example, if a comparable laptop in today s market cost $800, you would receive $800 to purchase a new, comparable laptop. However, if a comparable laptop cost $1,700 in today s market, you would receive $1,7000, the full amount necessary to replace your laptop. Because replacement cost does not take into account any depreciation and is expected to replace your personal property in full, this insurance coverage usually costs more than ACV coverage. 12
What types of personal property is covered? Personal property includes the entire scope of the personal property you own, even if you purchased it on a credit card or store loan and still owe money on the item. Here are some examples of personal property that you may own that is covered by renters insurance:» Clothing» Furniture» Electronics» Kitchenware: pots, pans, dishes, bake ware, china, crystal» Sporting goods equipment & accessories: golf, hockey, scuba, bicycles» Knick knacks & household decorations» Appliances that belong to the renter» Musical instruments» Luggage» Jewelry» Guns & firearms» Antiques, art, & stamp collections 13
What types of personal property is NOT covered? When purchasing renters insurance, like any other form of insurance, your should inquire about any exclusions, limitations, caps, and disclaimers of the insurance policy. Unfortunately, many insureds don t find out these limitations and disclaimers until they file a claim for a loss. Be sure to read all of the fine print very closely and have your professional insurance agent clearly explain any limitations of your policy before you agree to the purchase. Here are some common exclusions, limitations, caps, and disclaimers within the insurance industry. Keep in mind that this list varies from state to state and also between the various insurance carriers. 14
Common Limitations and Caps While all of your personal property will be covered by renters insurance, the amount provided to you for replacement may have certain monetary limitations and caps. Most commonly, renters will find that their fine jewelry, guns, and fine art will be capped if they exceed a certain value. Thus, if the cap on fine jewelry is set at $1000, even if your jewelry is worth $5000, you will only receive a maximum of $1000 under the policy. One way to overcome this loss is to take out insurance riders or options to cover the full value of the items. Acts of Nature and God Renters insurance will normally cover damage to your belongings caused by fire, wind, and flood. However, depending on the region you live in, certain forms of fire, wind, and flood damage may be excluded. Normally, all policies have an Acts of Nature or Acts of God clause excluding these forms of damage. The most common exclusions include:» If you live in a known or categorized flood zone, flood damage caused by nearby rivers, lakes, and streams may not be covered.» If you live in a region susceptible to forest fires, fire and smoke damage caused by forest fires may be excluded from coverage.» If you live in a region considered a hurricane path, flood and wind damage due to hurricanes may not be covered. Before purchasing renters insurance, verify with your professional insurance agent if the home you are renting resides in a natural flood, fire, or hurricane zone. If it does, you may want 15
to consider purchasing additional insurance that will protect you in the event of a natural disaster. Dog Bites Another common exclusion is injury caused to others by the renter s pet, most commonly a dog. Although renters insurance covers personal liability, which is injury caused to another person or damage to another person s property, it generally does not include injury to another person caused by the insured s dog. To protect yourself from civil action, as a renter, you should consider purchasing a pet insurance rider. This will protect you for injury caused by your dog to another person. Additionally, a pet insurance rider will also protect you against excessive damage caused by your pet to the rental property where you reside. Some insurance companies will not cover certain breeds of dog that have been designated vicious or are banned by the city, county or township where the renter resides. In fact, if you own such a breed, your insurance premiums may be higher than normal as a reflection of the pet. *CAUTION: Do not confuse a pet insurance rider with medical pet insurance for your pet. A pet insurance rider does not provide assistance for the care or maintenance of your pet, but rather protects you against any monetarily obligations resulting from the actions of your pet. 16
What are riders and how do they work? As mentioned in the previous section, many insurance companies will limit, cap, or exclude certain personal property, such as fine jewelry or may not cover your loss in the event of a natural disaster, such as a tornado. That is where a rider comes in. Riders are additional forms of insurance coverage that you can purchase. A rider will further insure specific possessions or specifically protect you against a specific action. The best way to determine if you need any optional riders, is to speak to your professional insurance agent about the type of dwelling you are renting, the location of the dwelling, and also your work and lifestyle habits. 17
Following are some typical insurance riders that are available: 1 Scheduled personal property endorsement (personal property floater) A scheduled personal property endorsement is the rider used to further protect your possessions of high value. This includes jewelry, guns, art collections, and other forms of personal property that have a value in excess of the stipulated coverage on your particular policy. 2 3 4 Special computer insurance Some insurance companies limit or cap the value of computer and other electronic related items. If you have computer servers or high end equipment, such as a high-definition large screen television, you may need a rider to protect your investment. Theft coverage protection endorsement While theft is normally a covered form of protection, it may have limitations. Speak with your professional insurance agent to determine if your policy will have any limitations or caps to the amount covered by theft. Home business, business merchandise coverage, and incidental business liability More and more people are working from home offices or running businesses out of their homes. However, not all insurance policies will cover losses to home business equipment or liability from injury occurring from a home business. If you work from your rental home, you may need insurance riders to protect you 18
against loss to your business equipment or any injury liability to others. *CAUTION: Read your rental agreement carefully and verify that you are not prohibited from running a business out of your rental home. Should loss occur, and a conflict exists between your rental agreement and your insurance policy, you may not be able to file a claim for the loss. 5 Watercraft and recreational vehicle endorsement A watercraft and recreational vehicle endorsement protects your boat, jet ski, or camper from loss while it is parked or stored at the rental property. It does not cover the operation of boats or jet skis, which require their own licensure and insurance. TIP: Verify with your automobile insurance carrier if storage of your watercraft or recreational equipment is covered on your auto insurance. You may not need a rider on your rental insurance policy if it is. *CAUTION: Read your rental agreement carefully and verify that you are not prohibited from storing watercraft or recreational vehicles on the rental property. Should loss occur, and a conflict exists between your rental agreement and your insurance policy, you may not be able to file a claim for the loss. 6 Sewer and drains back-up Like flood, tornado, and hurricane disasters, damage from sewer and drains backing up may be excluded on your standard rental insurance agreement. This is especially true if you live in a zone where sewage backups are common. Speak with your professional 19
insurance agent to determine if you will need this form of coverage to protect your personal belongings. 7 Workers Compensation Workers compensation is required by law by all businesses with a minimum amount of employees. However, with more and more families opting to hire full time (and live-in) help, it is becoming a necessity for these families to consider purchasing workers compensation. If you hire a person to live in your home and perform a service on a full-time basis, you may be required to provide workers compensation for the individual. Common services include:» baby sitters» au pairs» nannies» housekeepers» assisted living care givers Speak with your professional insurance agent to determine if you should provide workers compensation for your baby sitter, housekeeper, or assisted living care giver. 20
$ How much does renters insurance cost? Renters insurance is very affordable and is paid by the insured on either a monthly, quarterly, or annual basis. Many factors affect the cost of renter s insurance. For example:» The dollar amount of coverage» The deductible amount» If the coverage is ACV or Replacement Cost» If there are additional riders on the policy» The region where you reside» The number of previous claims submitted» The insurance carrier s risk and actuarial formulas The dollar amount of coverage: The dollar amount of coverage is one of the leading factors in determining the cost of a renter s insurance policy. The dollar amount of coverage is the total fixed-price amount representing the entire value of the renter s personal property. The easiest way to determine the entire value of your possessions is to create an inventory of all of your tangible possessions and determine the replacement cost for each item, at the time of the 21
$ inventory. You may use the worksheet provided in Appendix A to help you create a comprehensive inventory. $ $ TIPS:» Keep the physical receipt of all large-item purchases you make, such as furniture, jewelry, and electronics together in a folder labeled, Possession Inventory. You should keep this folder or a copy of it in a safety deposit box or somewhere other than in your home. In the event damage or theft occurs, you will be able to provide the actual receipt of the item to your claims adjustor.» Be sure your inventory list and/or the item s receipt includes any serial numbers necessary. This will also assist the police in the event of theft.» Photograph any items where you do not have original receipts, as proof of the item s existence and/or condition. You may use the Internet to download and print copies of spec sheets or photographic images of your possessions.» Photograph any items of greater monetary value, especially firearms, jewelry, and artwork.» When buying electronics, such as computers or printers, print a copy of the specification sheet that identifies the make and model, including the size of the hard drive, RAM, processor, and components (DVD R/RW, stereo sound, video graphics card). This will assist the claims adjuster in determining the correct replacement costs for a comparable unit. 22
The deductible amount: The amount of the deductible you are willing to pay will determine the cost of your insurance premiums. The deductible is the amount of money the renter is willing to pay out-ofpocket before a claim is paid by the insurance carrier. For example, you submit a claim to replace your water-damaged sofa. The insurance adjustment process identifies that the replacement cost of your couch in today s market is $1,200. If you have a $500 deductible, the insurance company will deduct the $500 amount and provide you with a check for $700.00. On the other hand, had your deductible been $250, you would have received a check for $950. Deductibles are standardized across the industry at $100, $250, $500, and $1,000. Some insurance carriers may offer amounts in excess of $1,000. Generally, the higher the deductible, the lower the premium. However, the higher the deductible, the greater the out-of-pocket risk to the insured. If the coverage is ACV or Replacement Cost: The type of coverage you have will also determine your premium amount. Actual Cost Value (ACV) generally costs less because the insurance company is paying you the depreciated amount for your damaged or stolen property. The depreciated amount paid out by the insurance carrier will typically always be less than the cost to fully replacement an item in today s market. Be aware that some items, such as electronics, will depreciate faster than other items. 23
If there are additional riders on the policy: Your insurance premium will also be affected by the type and number of additional riders you have, such as optional pet insurance or a rider to cover a higher value of fine jewelry. The affect these riders will have on the premium amount varies between states and insurance carriers. The specifics of where you reside: Details about where you reside will also affect your premium. Insurance premiums are based on a series of calculated risks and future assumptions based on historical data. Thus the region where your possessions will be located plays a part in determining the risk calculations. Insureds that are living in areas with a higher crime level will experience higher premium amounts than similar families living in areas where crime is less frequent. Factors such as whether you are living in a single family dwelling or a multi-family dwelling and what floor you live on will also affect the premium. Furthermore, even though your renters insurance doesn t cover the building itself, how the building is constructed can affect the cost of insurance. Building construction plays a role in determining how safe your belongings are. For example, if the apartment next to yours was to catch fire, would your apartment suffer residual damage from smoke and water? Buildings that have greater wall thicknesses and infrastructures are considered less of a risk than those that do not. 24
The number of previous claims submitted: Your personal insurance claim history will also be used to calculate your insurance premium. Insureds that have submitted claims in the past generally experience slightly higher premiums than insureds that have not made any claims. However, most insurance carriers will allow one claim per every three years before they include claim history in the rate calculations. The insurance carrier s risk & actuarial formulas: Insurance is all about risk. And the cost of insurance is directly related to the perceived risk taken on by the insurance company. The risk for the insurance company in providing insurance is equal to the likelihood that an insured will need to file a claim. Insurance companies calculate this risk by using special formulas. An important thing to remember when purchasing any form of insurance, whether it is auto, home, life, health, or renters insurance, is that the insurance carrier is allowed to create its own risk formulas. And, some insurance carriers are more conservative than others. The more conservative an insurance carrier is, the more expensive the insurance coverage is likely to be. 25
Are there tips for reducing insurance premium amounts? The best method for paying lower premiums is to shop around and evaluate comparable policies to find the best premium available for the greatest amount of coverage. If you already own a renters insurance policy, getting a policy check-up may result in lower premiums. As time goes by, your insurance risk may adjust to a lower rate, especially if you have not filed any claims. However, very few insurance companies will monitor and adjust your premium based on history, unless you contact them for a policy review. Unfortunately, insurance for many people is left as is for years upon years. You could be saving hundreds of dollars by doing an insurance checkup with your current insurer or, even better, shopping around for a new carrier. A good rule of thumb is to do a policy checkup on your insurance needs every two to three years and compare their rates against other carriers in your market. 26
Other tips to reduce your insurance premium amount include:» Choose ACV coverage instead of full replacement cost value coverage. If you have a limited amount of possessions you may find the ACV coverage, which is generally less expensive, is sufficient for your needs.» Assume more risk through a higher deductible amount.» Be sure to notify your insurance agent of any security measures in your rental home, such as gated community entrances and buildings. Other items include: > smoke detectors > fire extinguishers (in apartment & communal hallways) > deadbolts > monitored security systems, such as ADT or Brinks > sprinkler systems (in apartment & communal hallways)» Purchase renters insurance through your automobile/motor cycle insurance carrier. Many carriers offer multiple product discounts, such as combined renter s and auto insurance. 27
How do i find renters insurance? Almost every homeowner and automobile insurance carrier will also provide renters insurance. The best way to find renters insurance is to work with an independent insurance agent. Independent insurance agents generally sell multiple insurance products through a variety of insurance carriers. An independent insurance agent can provide you with several policies to review based on your insurance needs and quote to you the best price available. To locate an independent insurance agent in your area, do an internet search for Independent Insurance Agents city state where city and state represent your actual city and state. 28
In summary...» Renters insurance is a comprehensive insurance plan that will: > Insure your personal belongings against damage, destruction, and theft; > Protect you against civil lawsuit; and > Provide temporary living expenses aid if your rental home should become unusable.» Your personal property can be insured through Actual Cash Value (ACV) or Replacement Cost coverage. Replacement cost is more expensive but does not take depreciation into account when determining a claim.» Some policies may have exclusions, limitations, caps, and disclaimers. Be sure your insurance agent provides you with a comprehensive description of any limitations or exclusions before you finalize the policy.» You may purchase riders to supplement your basic policy.» Many factors affect your renters insurance premium, including the insurance carrier s own formulas. Always shop around and find the best insurance for your needs and budget.» Use an independent insurance agent who can provide multiple quotes for your review and consideration.» Perform an insurance checkup every 2 3 years by shopping the market and comparing coverage and rates. 29
Appendix A: Inventory Worksheet
INVENTORY WORKSHEET LIVING ROOM PURCHASE PRICE DATE PURCHASED Furniture Paintings, art objects Draperies, rugs Lighting, ceiling fan Electronics Other DINING ROOM Furniture PURCHASE PRICE DATE PURCHASED Paintings, art objects Draperies, rugs Lighting, ceiling fan China, crystal Silver, pewter Other 01
INVENTORY WORKSHEET KITCHEN/UTILITY ROOM PURCHASE PRICE DATE PURCHASED Furniture Curtains, rugs Dishes, glassware, silverware Lighting, ceiling fan Appliances Other OFFICE Furniture PURCHASE PRICE DATE PURCHASED Draperies, rugs Lighting, ceiling fan Computer equipment Books Other 02
INVENTORY WORKSHEET MASTER BEDROOM PURCHASE PRICE DATE PURCHASED Furniture Paintings, art objects Draperies, bedding, rugs Lighting, ceiling fan Electronics Clothing Jewelry Other BEDROOM TWO Furniture PURCHASE PRICE DATE PURCHASED Draperies, bedding, rugs Lighting, ceiling fan Electronics Clothing Other 03
INVENTORY WORKSHEET BEDROOM THREE PURCHASE PRICE DATE PURCHASED Furniture Draperies, bedding, rugs Lighting, ceiling fan Electronics Clothing Other BATHROOMS PURCHASE PRICE DATE PURCHASED Towels Curtains, rugs Electrical appliances Other LAWN AND GARDEN PURCHASE PRICE DATE PURCHASED Furniture Lawn mower Edger, blower Other 04
INVENTORY WORKSHEET MISCELLANEOUS PURCHASE PRICE DATE PURCHASED Luggage Musical instruments Cameras, video equipment Exercise, sports equipment Hunting, fishing equipment Bicycles, toys Tools Other 05