There are many types of insurance that have obvious value, such as health insurance to cover medical care, auto insurance to pay for road accidents, and homeowners insurance to take care of accidents, burglaries, and other unfortunate events. In contrast, not everyone sees the value in renters insurance, which is designed to cover your belongings if you are renting your home. So, should you purchase renters insurance?
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The decision to purchase a home or continue renting is one of the most significant personal finance-related decisions you can make. One of the reasons to continue renting is to save on costs, including maintenance responsibilities and homeowners insurance. While some landlords require their tenants to purchase renters insurance, for others, the policy is optional.
What Is Renters Insurance?
Renters insurance is a type of policy coverage that is relevant for those who are renting their place of residence. It is a relatively cheap policy to purchase and generally covers the following items:
(1) Your personal items: Though you might not own the physical structure of your home, you still have items of value. Clothes, furniture, electronic accessories, and, in some cases, even appliances. Renters insurance can pay to have these replaced due to specific events, such as fire, wind, or theft. These can vary by policy, which might also cover incidents that happen away from your home (i.e., if your laptop is stolen from your car).
(2) Liability insurance: Some form of liability insurance is required in almost every state of the union when driving a car. The reason is pretty straightforward: you can face severe monetary penalties if you are at fault for an auto accident. Renters insurance follows the same formula and is designed to cover claims against you if someone is injured while on your premises.
(3) Additional Living Expenses (ALE): Also known as ALE, additional living expense coverage will cover your costs of moving to an alternative residence if your current home is made inhabitable due to a fire or other unforeseen event.
What Are the Reasons to Purchase Renters Insurance?
(1) Replacing your things: Chances are, you have accumulated more belongings than you realize. While most of these items are replaceable, they will cost you. Purchasing a whole new set of clothes, buying new furniture, or having to fork over money for new electronics (smartphones are expensive!) can certainly add up.
(2) Legal costs: If someone is hurt while at your house, they could try to hold you liable for damages. Having liability insurance in place could protect you from this possibility.
(3) Finding a new place to live: In addition to destroying your things, a fire can make your home uninhabitable. ALE will cover costs related to temporary housing.
(4) Other reasons: Depending on your insurance, renters insurance might cover incidents that happen outside of your home. For instance, if your cell phone is lost when you are outside, you might be able to have a new one paid for by your insurance company.
How to Decide if Renters Insurance Is Right for You
According to a recent report, 55% of Americans who are renting have renters insurance. That means that almost half of all renters do not see value in holding this policy.
Here is how you can think about the finances behind this insurance product in order to understand if it makes sense for you:
(1) Itemize your belongings: Take some time to consider how much your belongings are worth. This mostly consists of clothing, electronics, and furniture but could also include books, jewelry, and any other items of monetary value. You may find that you own a decent amount of things that add up in value.
(2) Your tendency to worry: If you are concerned about losing your things, you can think of this monthly payment as a way to reduce your stress levels by knowing that your belongings are covered.
(3) See how much it costs: The average renters insurance costs between $15-$30 a month. While you do not want to be spending your money on frivolous purchases, this is a fairly minimal sum that would likely not dent your pocketbook in a serious way.
Conclusion: A Cost-Benefit Analysis
The odds of needing renters insurance are probably pretty low. Thankfully, fires and burglaries are not everyday occurrences for most, but they do happen.
The costs of replacing your earthly belongings, however, are not trivial. Like any personal finance decision, conducting a cost-benefit analysis is essential to help you understand if renters insurance is right for you.
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