Is Renter’s Insurance Worth It?
Many college students move into apartments after a first year typically spent in a dorm room. It’s an exciting time; you get a space that is your own, often a lot bigger than the dorm was. With that comes the opportunity to fill it with more stuff, things you didn’t have room for before. Computers, gaming systems, big TVs, kitchen equipment, and other valuable items are great to have around, but you might be concerned about keeping them safe.
Renter’s insurance exists to ease your mind and cover any losses you might suffer. You may be required to get it by your landlord, but even if not, renter’s insurance is an invaluable asset. It can protect your financial losses from stolen or damaged possessions, cover you in the event of a guest being injured, and even pay for relocation expenses if your apartment is rendered uninhabitable.
What Is Renter’s Insurance?
Renter’s Insurance works much like other types of insurance. You choose a policy with specific coverage amounts; this is the maximum amount you can be reimbursed for in the event of a problem. Then you pay a monthly fee (the premium) for as long as you have the policy. This is usually fairly low at around $15 to $30 per month. That ensures that, if something happens, you can make a claim and be covered.
Most renter’s insurance policies cover the following four areas:
- Personal property damage: This covers your personal possessions, like computers, phones, furniture, special equipment, etc. You might not realize it, but you probably have around $15,000 to $30,000 in personal possessions all combined. Since most policies cover around $30,000 in personal property damage, you could lose everything and still be reimbursed for it all.
- Personal liability coverage: This protects you if you are held personally responsible for damage towards a guest or the property itself. Since this is usually tied up with legal judgments, costs can get high fast, so having coverage to pay it off for you could be a lifesaver. Most policies cover up to $100,000 in personal liability.
- Supplemental living expenses: In the event of your apartment becoming uninhabitable because of some calamity (fire, flooding, storm damage, etc) your policy can cover the costs of relocating to a hotel or a new apartment altogether.
- Medical expenses: This covers the costs of medical expenses for you, or any guests injured on your property, provided you were not at fault.
Deductibles and Making a Claim
Once you’ve chosen a plan and have begun making monthly payments, you won’t need to do anything until an event occurs where you need to file a claim.
The exact method of filing a claim will vary based on the circumstances and your provider’s policies, but in most cases you will need to pay something called a deductible when you file a claim.
A deductible is the amount of money you pay out of pocket before your insurance provider pays for the rest. It’s similar to a down payment, though you will never have to pay your insurer back for their coverage.
As an example, imagine your computer is damaged due to flooding. Your computer is worth $3,000, and your deductible is set at $500. That means when you make a claim and it is approved, you are responsible for providing $500, while your insurer then covers the remaining $2,500. You can then use the full amount to replace your broken computer.
Deductibles can vary from plan to plan, with some at higher levels than others. Generally, the higher the deductible, the lower the monthly rate on your policy. If you think you’ll have a hard time paying an expensive deductible, however, you might want to choose one that’s fairly low.
Why Not Just Pay Out of Pocket?
While it’s tempting to avoid monthly insurance payments and just pay for any events out of your own money, it is unlikely you will ever have enough cash on hand to pay for these kinds of events. The amount of money you would need to save per month just to cover the costs of a minor event would be far greater than what you would have spent each month for insurance. And, if you did pay for insurance, it would cover the bulk of the cost anyway, saving you thousands of dollars.
This can be difficult to understand as most people don’t know the average costs of a claim-worthy event, so here’s some examples.
Burglaries are a common fear for college students. Often, college apartments are located in dense urban areas close to the university, so crime is prevalent much of the time, especially burglary.
Remember that insurance is all about minimizing risk, even for events that seem unlikely. You might think you probably won’t be a victim to burglary, but if it happens even once you could lose many of your possessions. Without insurance, you probably can’t afford to replace everything.
The per capita rate of burglary among students at the University of California, Los Angeles (UCLA) is at 2.4%, meaning that for every 1,000 students at UCLA, about 2-3 are victims of burglary each year. In other words, if you attend UCLA you are essentially at a 2.4% of being burgled each year.
That seems like a small chance, but it carries huge risk with it. For this example, assume several valuable possessions of yours are stolen while you’re away:
- Computer: $3,000
- TV: $500
- Misc electronics (such as gaming systems, sound systems, etc): $2,500
- Jewelry or other accessories: $500
Total Value of Losses: $6,500
Besides the monetary value lost, a few of these are likely very important to your day-to-day life, such as your computer. Part of the value of insurance is its ability to get you covered fast, whereas paying out of pocket could take a long time.
Take a look at how exactly the costs break down when it comes to replacing these goods, with insurance vs without.
Personal Property Damage Limit: $30,000
Premium: $20 per month/$240 per year
Age of policy: 2 years
Cost of policy to date: $480
Total Cost of Claim for Renter: $980
Amount Paid to Renter: $6,000
Value of Lost Goods: $6,500
Required Monthly Savings Over 2 years to Cover Loss: $270
Total Financial Loss for Renter: $6,500
This example uses a relatively low-cost event: the theft of $6,500 worth of goods. In the insurance example, this amount is well within the coverage limit, and thus the renter can make a claim. Because the renter has been paying into an insurance policy, their insurance provider pays for the bulk of the loss, essentially providing $6,000 to the renter after the deductible is paid. The renter is thus able to quickly replace everything they lost, at the personal cost of just $980.
Without insurance, the renter is left to cover the cost of replacement alone. Assuming they spent the past two years saving money for emergencies like this, they would have had to have saved $270 per month just to cover this event. The renter would have to spend $6,500 of their savings, an amount well beyond the total savings of most college students or even their parents.
This example was just a burglary, and a relatively inexpensive one at that. Most renter’s insurance claims cover far greater amounts.
The following table describes a few scenarios and shows you how much you would need to pay over a given period of years to equal the amount your insurance plan could reimburse you for.
|Annual Cost of Renter’s Insurance (X)||Hypothetical Scenario||Scenario Cost (Y)||Cost Ratio (Y divided by X) expressed in years|
|$250||A guest is injured.||$25,000||100 years|
|$300||You left the stove on, a fire destroys much of the apartment.||$100,000||334 years|
|$175||Heavy rains cause water damage, you need to relocate temporarily and replace damaged possessions.||$7,000||40 years|
|$150||Several valuable possessions are stolen.||$4,000||26 years|
With all but the least expensive events, most people cannot afford to cover these costs out of pocket. Rather than resort to taking out a loan or asking for money from friends and family, as well as making major negative changes to your quality of life, just seek out an insurance plan to cover you instead. Better to spend a few hundred a year in case you need thousands later on, than be stuck with a bill for $45,000 due immediately.
How Do I Find the Right Renter’s Insurance Policy for Me?
Take a look at a variety of insurance providers; they all have different policy terms and rates as well as rotating deals. Getting quotes is easy; almost any provider should have an online quote system that can provide you a quote in minutes. Take those and compare them to others to see who offers the best rates and terms.
Consider any providers who might be geared toward covering you. This includes providers like USAA, who provide better-than-average policies to certain groups, such as military service members.
Also, consider any bundle offers. These are insurance policies that combine multiple insurance areas, like car insurance and renter’s insurance, into one aggregate policy. These usually save you money on both.
Determine Your Required Property and Personal Liability Coverage, and Your Deductible
Before picking a policy, you need to determine how much you need to be covered for.
First, check what your apartment requires. It is standard for them to ask for at least $100,000 in personal liability coverage. You might need more if you have certain destructive pet breeds or have hobbies that carry a risk of damage.
Next, determine how much you need for personal property damage. To get an exact amount you’ll need to conduct a personal inventory. Go through everything you own and write down its approximate value. You don’t need to remember the exact amount, just an approximation. Your total is the amount you should seek coverage for, plus a little extra to cover any errors.
Finally, determine a workable deductible. Remember, this is what you’ll need to pay out of pocket when making a claim, so it needs to be an amount you can expect to afford at any given time. Also, try to balance how much you can afford with how much the deductible can offset your premium. The more you pay monthly, the lower your deductible, and vice versa.
Renter’s Insurance Gives You Peace of Mind
Renter’s insurance is the difference between financial ruin and stability for many people. Unless you’re lucky, you probably don’t have thousands of dollars to spare for covering an event, so take some stress off your shoulders and find a policy that works for you. Most only cost about $20 a month; not much to pay in exchange for a life-saving safety net.
Sarah Gilbert is a licensed insurance broker, specializing in auto, home and renters insurance products. She reviews insurance content on College Educated for accuracy and has a particular passion for making sure that college students and recent graduates have proper insurance coverage. Her latest passion includes researching all forms of business insurance, to ensure that recent college grads who look to entrepreneurship can have the right protection.