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Renter’s Insurance: Separating Facts from Fiction

More renters exist in the United States than at any time in the past 18 years. However, only 35 percent of them have renter’s insurance to cover their personal property in the case of damage, disaster or theft. That might be because it’s more difficult than ever to figure out how much coverage that you should have and how to get the best protection.

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Martina Schramm lives in Weston, Fla., with her husband, mother and two teenage sons. After years of owning a house in a turbulent real-estate market, she’s content to rent a different 3,000-square-foot house.

The Schramms contribute to the current housing scenario that finds just 65 percent of U.S. residents own their homes—the lowest percentage since 1995, according to U.S. Census Bureau. Furthermore, 38 percent of today’s renters are, like Schramm, at least 45 years old. We couldn’t find a comparable statistic from a previous year, but seven industry analysts whom we interviewed for this article tell us that today’s renters are older than ever before.

“The demographics of renters have changed,” says Jeanne Salvatore, who is a spokesperson for Insurance Information Institute (III), which is an industry group.

Consequently, Salvatore tells us, today’s renters have more belongings than ever before. No independent study supports her claim, but insurance-industry experts estimated for the past decade that the average renter typically owns $20,000 worth of possessions. Salvatore and our other experts believe that the number now is higher.

Given these details, it’s reasonable to conclude that more consumers would own renter’s insurance, which protects the renter in the case of a disaster, theft or a third-party lawsuit. Schramm does; most renters don’t, however. Just 35 percent of today’s renters have a renter’s insurance policy, according to III—a percentage that hardly has varied over the past decade.

Why such a low percentage? Salvatore believes that consumers overlook renter’s insurance for a few reasons. First, they don’t know how it works (See “Common Misconceptions: Am I Protected?”). Second, it isn’t required by law, like automobile insurance is, or by mortgage lenders, like homeowner’s insurance typically is. That well might be, but we also believe that it’s more difficult than ever before for consumers to figure out how much coverage that they should have when they rent and how they can get the most protection. The result, according to Salvatore and the other experts whom we interviewed, is that consumers don’t bother to buy renter’s insurance at all.

Common Misconceptions: Am I Protected?

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EXTRA COSTS. National Association of Insurance Commissioners, which is an organization of insurance regulators, tells us that a basic renter’s insurance policy costs an average of $185 per year and provides $20,000 in personal-property coverage and $100,000 in liability coverage. That sounds like a good deal, right? (Renter’s insurance might be charged monthly or annually, depending on your policy and your insurer.)

You should keep in mind that a basic renter’s insurance policy typically provides actual cash value (ACV) protection for your property, which takes into account that you’ve owned an item for a few years and that it has depreciated in value. You might have paid $2,000 for a cutting-edge notebook computer 4 years ago, but when you consider how fast that consumer electronics evolve, you’ll find that your notebook computer is worth a lot less today. III tells us that you probably will get $700 or less for that computer, which definitely isn’t enough to buy a corresponding state-of-the-art model. The amount that you’d receive depends on how much wear and tear that your item accumulated and on your insurer’s method for determining the ACV.

Replacement cost value (RCV) protection pays you the full cost of replacing an item. An RCV policy typically costs 15 percent to 25 percent more than an ACV policy does. The exact amount depends on the insurance company, what you insure and the actuarial stats for your neighborhood. Determining the RCV also can be confusing, says Janet Portman, who is an attorney who specializes in landlord/tenant law. For example, if you bought a notebook computer 4 years ago, that model might not be sold anymore, or the latest corresponding version might be more expensive. You likely will have to figure out a compromise with your insurance adjuster on the amount that you’ll receive, Portman says.

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