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Dear Asking for a Friend,
I'm moving into my first place, and I'm not sure what kind of renters insurance I need, if any. What do I need to know to get the right plan for myself?
Dear First-Time Renter,
Like most first-time renters, I didn't give insurance a second thought. I was too caught up with the cost of forking over a security deposit, plus first month's rent and a broker's fee.
Besides, why would I need insurance when I didn't own the property and all I had to my name was a four-year-old computer, a few Walmart brand pots and pans, a cheap couch and a bed?
To this day I joke that my design aesthetic was "recently robbed chic." For years that apartment was so sparsely decorated that it looked like someone had come in that day and robbed me of my belongings. Naturally, I didn't think renters insurance was necessary for me. It took someone asking an important question to change my mind.
What happens if a fire hits your home and you lose everything? All your clothes, shoes, cookware, dishes, electronics, books, jewelry, furniture, decorations — everything was gone.
Even if you owned a capsule wardrobe and thrifted most of your belongings, it still wouldn't be cheap to replace it all, especially all at once. And especially if, like most Americans, you don't have an emergency fund.
Renters insurance is considered "personal property damage coverage" and it is sometimes called "personal belongings coverage." You want to ensure you're covered in case of fire, theft, wind damage, or even something as simple as a burst pipe. (Floods and earthquakes are typically excluded events, meaning you would need to buy separate coverage.) My policy also includes situations such as freezing, hail, building collapse, falling objects, and more.
When determining how much coverage you need, think critically how much it would cost to replace your wardrobe, cookware, electronics, etc. You should start an inventory of your belongings to get a really good guesstimate.
Around $25,000 is probably enough coverage for many first-time renters starting off their lives, and you can always get more. There may also be limits on your coverage, such as a $1,500 limit on jewelry in the case of theft, unless otherwise additionally covered by a rider or a separate policy.
There are no state laws that require renters to have an insurance policy, but every state does require renters to follow the terms of their leases. It's common for a landlord or property management company to mandate you have a policy, which would be stipulated in your lease.
Another perk of having renters insurance is liability coverage if someone gets hurt in your home or accidentally causes property damage. This part of the policy would help cover an injured guest's medical bills, and also provide coverage against the costs you incur defending claims or a lawsuit. Liability is often the reason a landlord or property management company would require you to have renters insurance in the first place.
Liability isn't something to skimp on and it's recommended you take out enough to protect the total value of your personal assets (even if that doesn't feel like much now) as well as current — and even future — earnings. If you're still unsure, check the lease. A landlord may require a minimum amount, such as $100,000.
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As with auto or health insurance, your renters insurance will have a deductible. A deductible is the amount you have to spend out of pocket before your insurance kicks in. It's smart to aim for a fairly low deductible, such as $250 to $500.
Should something happen to your apartment that prevents you from living there for a period of time, you'd want your policy to cover, or at least heavily subsidize, the cost of having to stay in a hotel or temporarily renting another place.
If you live in an area where natural disasters are a serious threat, check to see what events are covered and consider adding a loss-of-use option if it is not already included.
The first time I got a renters insurance policy, I was unmarried with fairly cheap possessions, and the size of my policy reflected that reality. Last year, my husband and I moved apartments, which prompted me to update our policy. I hadn't taken a look at my coverage in a couple of years and I realized that it didn't have enough coverage anymore, especially after finally upgrading those Walmart pots and pans to some fancy cookware.
It's a good practice to assess your renters insurance policy annually or at least when a life event happens like moving in with a partner, getting married, moving homes, or having a child.
Get a few quotes to determine which policy best covers your needs and fits into your budget. A modest policy will probably cost you between $15 to $25 per month, which may be a pain to add to your budget right now, but it's a helpful security blanket if ever needed.
Erin Lowry is the bestselling author of "Broke Millennial: Stop Scraping By and Get Your Financial Life Together″ and "Broke Millennial Takes on Investing: A Beginner's Guide to Leveling Up Your Money.″ You can follow her on Instagram @BrokeMillennialBlog or Twitter @BrokeMillennial.
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