What New Graduates Should Know About Renters Insurance

The policies cover more than you may think, and they're worth having, since the landlord's own policy won't cover you or your personal property.

Jun 29, 2014 at 7:30AM

As they venture into the real world, many new grads will look for new housing -- and most will be renting. According to census reports in 2013, the rental share of all U.S. households has been on the rise, and millennials are not immune to the trend. Surprisingly, though, a mere 35% of renters nationwide have renters insurance. If they follow this unfortunate trend of not being insured, new grads can face daunting expenses if their property is not protected. Here's what to know about renters insurance as a new grad.

The basics
While your landlord has insurance on the property itself, that policy does not protect you or your property. This is where renters insurance comes in handy. Here's a breakdown of what renters insurance covers:

  1. Personal property: It covers your possessions, simply put. This includes damages to your stuff that can happen when you're at home, such as from cooking fires, and when you're away, including theft, smoke damage, fire, or storm-related damages. Your possessions are also covered wherever they are -- whether your bike is stolen at a train station, your laptop at a cafe in Paris, or even items from your car. While you might think you don't have much to your name as a new grad, your electronics, clothes, and furniture can be expensive to replace.
  2. Liability for your guests: If a guest at your apartment party gets injured and sues, this insurance can cover the legal fees associated with your defense, as well as the victim's medical bills. Lots of new graduates get pets, but few realize that if your animal bites someone, you could be facing legal fees upwards of $26,000.
  3. Temporary living expenses: If you are unable to stay at home because of the damages, renters insurance covers hotel costs or other accommodations up to a certain point.

What is not covered
As great as renters insurance can be, there are several things it doesn't cover. These include:

  • Damages to the rental property itself.
  • Damages caused by natural disasters such as hurricanes, floods, or earthquakes.
  • Injuries that you or your roommates suffer.

Types of policies
Personal property insurance can reimburse you in one of two ways: "actual cash value" or "replacement cost." If your four-year-old MacBook were stolen, actual cash value would reimburse you for only a few hundred dollars, which wouldn't buy you the equivalent.

With replacement cost, on the other hand, insurance would pay for a brand-new MacBook.

Replacement cost ensures that you receive all of your belongings back, but premiums for this type of property replacement tend to be more expensive.

What should I look for in a policy?
According to census data, the national average for renters insurance premiums was $176 in 2008, and it hasn't changed much since then. This comes to roughly $14 per month, which is a considerable deal considering how much it covers. Most policies differ in certain respects, though, so here are a few things to consider when shopping for a policy:

  • Agreeing to a higher deductible in the case of damages will warrant lower annual premiums. Make sure if you agree to a higher deductible that you can afford it in the case of a loss.
  • Keep in mind that the average renter has roughly $20,000 in property. Policies vary depending on how much your possessions are worth. If you don't have much, you may consider a lower coverage amount.
  • "Riders" can protect special items, such as your grandmother's diamond ring or an art collection. A rider can add a few extra dollars to your monthly cost, but it would be worthwhile in the event of a robbery.
  • Since renters insurance doesn't cover damages caused by floods or earthquakes, if you live in an area with those risks, consider getting additional insurance to protect your belongings.
  • Ask your insurance provider about discounts on your annual premium for precautions such as home alarm systems, fire distinguishers, and smoke detectors.

One last tip
It's a good idea to get renters insurance separate from your roommates. After all, this coverage is intended for singles, married couples, or families who co-own their stuff. Besides being an option unavailable in some states, sharing this insurance with buddies can lead to complications when it comes to filing a claim.

Ultimately, renters insurance is a great deal, considering all of the coverage you receive. You don't want to be without it when the unexpected happens.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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