An often pondered, if rarely considered, device that may or may not be a good idea: renters insurance is certainly a phenomenon once upon a time in its presence. Too often, it is seen as applying to all or none, with no middle ground. “Renters insurance is a good idea”… or “Renters insurance is a scam”; Did you hear any? Thought so. Oh how generalities plague the market demand. Anyway, I’ll take one unusual approach, showing you how to determine if renters insurance is a good or bad idea for YOU…specifically.

A brief description: What is it?

Renter’s insurance exists to protect the belongings of residents who do not own the homes in which they reside. In addition, it diverts the financial risks of liability to the insurance company, which means that if an accident occurs at your rental property for which you are legally responsible, the insurer (the company) will incur the financial damage. Examples here include, but are not limited to, someone tripping on your carpet and breaking their arm, leaving a bathtub open and destroying the property of those in an apartment below you, or even setting off fireworks inside and burning down your entire building, including all of your neighbors’ possessions (anyone?).

Getting back to personal property loss: Here are the 17 types of perils that result in the loss of your property that will be covered by renters insurance:

• Damage from electrical surges
• Ice, snow and sleet damage
• Water damage from utilities
• fire and lightning
• falling objects
• volcanic eruption
• Loss resulting from glass or any glazing material that is considered part of the building
• Heist
• Smoke
• Vandalism and mischief
• riot
• hail and wind
• Aircraft
• Burst
• vehicles

Nationwide, the most considered property loss prospects for renters are Burglary and Fire. Depending on your area and the location of your home, flooding can also be a problem; however, flood insurance is not included in a standard policy, which requires a rider to be included. Regardless, for our purposes today, we will focus on theft, fire, and liability. There are two types of policies: actual cash value coverage and replacement cost coverage. The first (ACV coverage) covers only the depreciated value of your items, not the actual cost of replacing your items; RC coverage is required for this. We’ll get into recommendations between the two in a bit.

This is our suggested rough calculation process to help you decide if renters insurance is a worthwhile purchase. Keep in mind that most insurance policies have annual costs between $150 and $300 with some type of deductible.

Step 1.) Analyze your liability risk for damages

• Those who live on the second or higher floors are more likely to be responsible for property damage to neighbors, considering that people are directly below. Waterbeds can ruin your life; if it blows up, be ready to cover the damage from those living below you.
• You have a dog? If so, renters insurance will provide protection in case the animal releases its testosterone on your neighbors or visitors. Take special care if there are small children living nearby.
• Those with frequent visitors are more likely to have a non-resident suffer some type of injury at the residence in question. Be careful… you never know when a friend will start a dispute with you.

If you consider your home to be high risk, it’s an automatic trigger to start shopping for insurance. If not, dig in and let’s discuss your property’s value and potential loss.

Step 2.) Assess the value of your total possessions, separate out “stealable” possessions

• ““Stolen” possessions are items that can and are available to be stolen in the event of theft: televisions, DVD players, computers, jewelry, or even cash that is normally kept on hand, among other things. This is to assess the potential damage in the event that you are a victim of theft, as it is unusual for all possessions to be lost.
• Total Possessions: Include everything here, from your shoes to your hair dryer. The estimates are exactly as stated, estimates. Just imagine losing it all and consider the costs of getting it all back. This is necessary to assess your loss in the event of a catastrophe such as an all-loss fire.

Step 3.) Calculate your risk of loss

• There are 105 million homes in the US, and there are about 350,000 fires for which a Fire Department. it is needed to stop the flames, so based on history, there is almost a 3% chance of a catastrophic fire occurring in your home. While not all of these fires will destroy everything, it’s worth keeping the chance of complete destruction to 3%, as it helps to accommodate for dark hazards, such as falling objects or vehicle damage.
• For burglaries, check out Neighborhoodscout to look up crime rates in your state and even in your specific area. Let’s use the state of Georgia as an example where there are 46 robberies per 1,000 people per year (4.6%).

Stage 4.) put it all together

–I now know that my risk of total loss is around 3% and my risk of theft is 4.6%. If my total possessions are worth $25,000 and I figured my “stealable” stuff is worth $5,000, here’s how to calculate the annual risk of loss for me.

(.003 * $15,000) + (.046 + $5,000) = $275

– Essentially, this takes 3% of your $15,000 in total items and adds it to 4.6% of your $5,000 in “stealable” items… add them up and you get the annual value to cover the risk of potential property loss. Also, if your address is, by your estimate, considered “risky” in terms of liability, then an insurance company quote of $275 per year isn’t bad.

Next, let’s be clear about who should definitely look under renters insurance:

• Families with children (essential)
• Those who run businesses from their homes: everything they worked for could be lost.
• dog owners
• And, my favourites, the ones with waterbeds on the second (or top) floor.

Keep in mind that even if you live at a friends house, a negligent act on your behalf resulting in the loss of a roommate’s property leaves your checkbook on the hook. To step back a bit, when deciding between ACV (actual cash value) coverage and CR (replacement cost), you really need to consider how much it would cost to replace your items. ACV will simply take the depreciated value of your items and give you what it’s worth. However, it may actually cost you more to replace such items, as you’ll have trouble finding similar items for the money you received. If your stuff is getting old, get replacement cost coverage (a little more expensive, but worth it). If your stuff is relatively new, you can probably slip in with the least expensive ACV coverage, since your stuff hasn’t had much time to depreciate.

Finally, it’s important to know exactly why you’re buying renters insurance and what items you’re actually protecting. This way, you will really understand whether or not it is worth your time and money to sign up. Monthly costs can be lowered by increasing your deductible or simply taking precautionary measures to prevent a catastrophe (fire extinguishers, deadbolts, etc.). If you have a few extra bucks to spare, and the insurance broker’s quote Sir seems like a good deal, then go for it, but if it just doesn’t add up… you shouldn’t be ashamed to turn the other cheek to insurance. It’s your world, protect it as you see fit. Bad bing, bada BOOM…….. Salloum. Until next time.