Buying Your First Renter’s Insurance Policy

Introduction to Renter’s Insurance

So you don’t own a home – that doesn’t mean you don’t need insurance to protect your belongings in the event of a fire, flood or other major disaster. What you need is a renter’s insurance policy.

What is a Renter’s Insurance Policy?

Renter’s insurance is a specific type of financial policy designed to help you replace your belongings, should a covered event occur. Most policies cover 16 major types of events, including fire, theft, vandalism and many other hazardous situations. Floods and earthquakes typically aren’t covered, so you may need to purchase additional coverage if you live in areas that are prone to these events.

The major distinction between renter’s insurance and homeowner’s insurance policies is that renter’s policies don’t cover the actual building you live in – just your possessions. But as you don’t own the home, this isn’t a concern – the owner of your building carries a policy that will cover the cost of these repairs.

What Should You Look for in a Policy?

A renter’s insurance policy typically covers the replacement of your belongings up to a certain dollar amount that you specify – typically between $20,000 and $40,000, depending on the size of your home and the quality of the items in it.

However, there are two types of replacement policies and this is an important distinction that you need to be aware of – the difference between replacement cost policies and actual cash value (ACV) replacement policies. An ACV policy will cover you for the value of your positions at the time of the qualified event, while a replacement cost policy will reimburse you the full cost of replacing the items you’ve lost.

To make that distinction clearer, let’s look at an example:

Suppose you purchased a stereo system that was worth $1,000 four years ago, but is only worth $250 today, even though it would cost you much more than that to replace it. An ACV policy would only pay out the $250 value of the stereo, while a replacement cost policy would pay enough to buy a comparable system in today’s market.

In addition to choosing between an ACV policy and a replacement cost policy, you’ll want to look for the same things you’d want to find from other insurance policies – a reputable provider, an affordable premium and extra coverage to match your unique situation.

Getting Started with Your Renter’s Insurance Policy

Shopping for a renter’s insurance policy is a simple process – just request quotes from several different providers, review their policies and select the one that best suits your needs. Completing the paperwork shouldn’t take more than a few minutes and can usually be done over the internet or on the phone.

Once your policy is in effect, there’s still one final step in getting started with your renter’s insurance policy. You’ll want to take a photo inventory of all of your most important possessions to help back up your claims in the event of a disaster. While you don’t need to catalog every plate in your kitchen or every shirt in your closet, be sure to take pictures of your most expensive items and estimate the total value of the items in each room of your home.

Finally, be sure to store a copy of this inventory outside of your home and update it periodically. Although you buy renter’s insurance hoping that you’ll never have to make a claim, having your paperwork in order will make the process much easier should disaster strike your home.

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