More Americans rent their homes than at any point since the mid-60’s. In the wake of recession, wage stagnation and student debt, the number of renters across the country has soared, and at this point more than 43 million households rent. Student debt is a particular factor here given that, like so many economic concerns, this issue is generational. Approximately two-thirds of millennial households rent compared to 21% of their parents.
While a full discussion of this subject will have to wait for another article, let there be no mistake: Millennials are getting hosed. We owe more than $1.5 trillion in high-interest student debt, while our parents could make tuition waiting tables. The average income of a 62 year old has increased by 40% in recent years, while take home pay for those under 40 has dropped by almost a third. And to put the icing on the cake, many of us can’t even afford to get married.
We don’t have much. What little we have gets sucked up by the Department of Education. So it might be smart to protect what’s left. It’s probably time to buy some renters insurance.
How Much Does Renters Insurance Cost on Average?
Approximately $20 per month.
If you pay less than $15 per month, you’re getting a great deal and should probably confirm the quality of coverage. If you pay more than $25 per month, make sure that it offers the substantial protections that should come with a relatively expensive policy.
If you pay more than $35 per month, shop around for something more competitive (or have your agent take a look).
What is Renters Insurance?
Renters insurance is a form of general loss protection that covers people who rent their home in the same way that most homeowner’s policies protect people who own their property. The two are distinct, chiefly, in that homeowners insurance is more expensive because they have more to lose than renters do. A typical renters insurance policy will cover three major areas:
- First and foremost, property loss. For almost everyone who rents, this is the real value of renters insurance. It covers the items inside your home and insures you against their loss in case of events such as fire, theft or other destruction.
Some policies will also protect your insured property outside the home. They might, for example, cover you in case your laptop gets destroyed while on vacation or if your jewelry is stolen from a hotel room.
Basically, renters insurance covers your personal belongings in case something happens. It is a general loss coverage, and this is the most useful feature for the average renter.
- Disruption and dislocation. As noted above, if your rented home becomes uninhabitable for some reason (for example, if the heat breaks down in the middle of winter) a typical renters insurance policy will cover your hotel room and other related costs. While technically you are entitled to collect that money from your landlord, it’s a whole lot easier to leave that fight up to your insurance company’s lawyers.
- Liability. This is the least likely but potentially most valuable aspect of renters insurance. It will include coverage for general liability if someone gets hurt on your property.
Now, this is the least relevant aspect of renters insurance to most people because most personal injury liability attaches to the property owner, so if someone gets hurt while visiting your apartment the odds are that their lawsuit will name the landlord. But there’s always the chance that the injury will actually be your fault, say your dog bites someone, or that they’ll sue you anyway just to drive up the expensive legal fees. In those uncommon cases, general liability coverage is a godsend.
How Useful is Renters Insurance?
As a renter, you’re more vulnerable than you probably realize. Apartment buildings are filled with strangers who, in turn, constantly invite other strangers to wander past your front door. The odds are that you live in a city with the associated higher crime rates. And you have little or no control over the safety features of your home; if your landlord wants to blow off installing new locks or bars on the window, there’s little you can do about it.
And contrary to popular belief, landlords have almost no responsibility to reimburse you if things go wrong. This writer is aware of no jurisdictions that require landlords to generally insure tenants against loss even if they do neglect the building’s security. Your landlord only has to pay you back if they caused your losses.
If a pipe bursts in the building and ruins all of your clothes then, yes, your landlord will owe you compensation. In that case, though, renters insurance can save you a time-consuming and potentially costly fight, because every landlord has a housing lawyer on speed dial and they all fight dirty.
Renters Insurance Cost Breakdown
It’s shockingly little, considering that more than half of renters don’t actually carry renter’s insurance. Most policies run for $15-$25 per month and the average renters insurance policy costs approximately $15 per month, $184 per year according to the National Association of Insurance Commissioners.
However, a lot of factors go into the individual cost of renters insurance, all of which can substantially change the numbers on your own policy. These include:
- Location: Your zip code is the single most important factor in pricing renters insurance. If you live in a city, it will cost more than if you live in the country. If you live in a high-crime area, it will cost more than living someplace more safe.
As we noted above, general loss is the most substantial coverage that renters insurance offers. The odds are, if you’re making a claim it’s because you lost property to either theft or damage. Location is the best way an insurance company has to price this risk.
- Type of Residence: Any kind of a house, such as a single family home, a duplex or even a condo is more prone to theft than an apartment building. (Those first floor windows are a bear.) As a result, they cost more to insure.
- Credit Score: Experian is your ruler now. Just get used to it.
Yes, just like it determines whether you can get a job, own a cell phone and even have a love life, your credit score can determine how much you pay for renters insurance. Buck up, though. If you have lousy credit, you can’t rent an apartment anyway.
- Coverage Amount: Most renters insurance policies are fairly broad. They simply ask you to estimate the value of your belongings, then issue a policy that will cover you up to that amount.
Not unreasonably, the more your coverage, the higher your monthly premiums.
- Dogs: Dog bites, as noted above, are one of the relatively few common liability issues for renters. As a result, owning a dog can raise your rates. In the case of particularly aggressive breeds, your carrier may not offer coverage at all.
- State: Some states have significantly higher average costs of insurance. In Mississippi, for example, the average policyholder pays more than $20 per month. In Louisiana, renters average $21.
The common link is weather. Since renters insurance covers most forms of loss (including often, but not always, water damage), the more likely you are to face severe weather, the more your policy will cost. By contrast, out in North Dakota, without coastal floods or California fires, the average renter pays on $9.50 per month.
Actual vs. Replacement Cost
The last word we’ll leave you with is this: Replacement.
Some insurance companies offer you a choice between what’s called “actual cost” or “actual cash value” and “replacement cost” policies.
Under an actual-cost policy, you receive the current, depreciated value for whatever you lost. This means that if your beat up old sofa goes up in flames, you would receive what it is worth today, not what it was worth when you first bought it seven years ago. So, probably about $50.
Under a replacement-cost policy, you would receive the amount of money it costs to replace the thing you lost, or at least to buy its closest available equivalent. Here, if your beat up old sofa burns to a crisp, you would receive the several hundred dollars it will cost to buy a new piece of furniture.
Replacement-cost policies are more expensive because they tend to pay significantly more. However, if you can fit it in your budget, a replacement-cost policy is magnitudes more useful than actual-cost coverage.
If your sofa burns up, you won’t need $50. You’ll need a new place to sit.
Article By: Eric Reed