To most people, homeowners insurance makes sense. A house is a big-ticket asset, and most people couldn't afford to rebuild a destroyed home (e.g., due to fire) without some help from an insurance company.
But why should someone get renters insurance? After all, if the apartment building burns down, a renter can just go find another apartment, right?
That is indeed correct. But unless you have renters insurance, you won't have anything to put in that new apartment. That's because, as with homeowners insurance, renters insurance offers a lot of protection that has nothing to do with the roof above your head.
Renters insurance protects your stuff against theft, fire, internal explosion, vandalism, malicious mischief, riots and aircraft -- among other things. That's right, if a 747 should happen to plunge through your roof and rain chaos down about your head -- relax! Your laptop is covered. Similarly, when the baseball bat-wielding, wild-eyed hordes are lofting Molotov cocktails up through your window and screaming the latest slogans -- relax! Your stereo is covered!
What the insurance people will tell you is that you're basically buying peace of mind. How much is this peace of mind going to cost you? Well, something on the order of $150 a year for the minimum amount, which is generally $25,000 in coverage.
Ah, but there's more -- it doesn't just stop at your door. Included in the price is usually $100,000 of personal injury liability coverage. Say you go to a bar, get into a fight and you break someone's jaw, and they hold you liable. That's covered, up to $100,000.
Say you go traveling and you lose your luggage. You guessed it -- you're covered, for personal items that are either on- or off-premises. You fill out a police report and let the insurance company know about your loss. Careful, though: You may just be covered for the depreciated amount. If you have a Fool ballcap for which you paid $12.50 in that lost suitcase, you might only get $3 back for it.
Unless, of course, you made sure that your policy covers the replacement cost. In that case you'll get the full $12.50 back. The replacement cost feature will set you back about an extra $20 for the policy, but it may be worth it. (Keep in mind that these policies usually come with a $500 deductible. This means that you'll have to pay the first $500 of your loss; they'll cover the rest. You can get a lower deductible if you're willing to pay more for the policy.)
If you have a roommate, you can't just split the cost of renters insurance and consider yourselves both insured. Each of you (technically) has to have his or her own policy, unless you're living together as domestic partners. Likewise, before those of you with impure thoughts begin scheming of ways to pretend to lose your luggage, remember that insurance fraud is a felony. Shame on you!
So now we're ready to answer the question of whether you need it. If you have expensive equipment lying around your room, if you're a type A personality and tend to get in lots of violent fights, and/or if you travel a lot and are disorganized with personal possessions, then get the insurance. You're bound to need it one way or another. If not, simply consider the value of your stuff vs. the price you'd pay out each year in premiums.
For more on the exciting (not really) and necessary (really!) world of risk management, visit our Insurance Center.
