“Have you been down in the basement?” Nathan asked his wife,
Erin, as he entered their apartment.
“No, what’s up?” responded Erin.
“It’s flooded because of all that rain we got last weekend!”
he exclaimed.
“Oh no! We have the extra furniture my mom gave us stored
down there. Is everything ruined?” Erin asked.
“The couch and coffee table are in a foot of water; the
loveseat was the only thing that looked OK. Boy, I didn’t realize
the basement of this building wasn’t waterproof. I’m going
to call our landlady to complain.”
As Erin thought about the situation, she remembered that
when they moved in last fall, Kathy, their landlady, had informed
them that her insurance policy covered the building but
not the property belonging to each tenant. Because of this, they
had purchased renter’s insurance. “Nathan, I think our renter’s
insurance will cover the damage. Let me give our agent a call.”
When Erin and Nathan purchased their insurance, they had
to decide whether they wanted to be insured for cash value or
for replacement costs. Replacement was more expensive, but it
meant they would collect enough to go out and buy new household
items at today’s prices. If they had opted for cash value, the
couch Erin’s mother had paid $1,000 for five years ago would
be worth less than $500 today.
Erin made the call and found out their insurance did cover
the furniture in the basement, and at replacement value after
they paid the deductible. The $300 they had invested in renter’s
insurance last year was well worth it!
Not every renter has as much foresight as Erin and Nathan.
Fewer than 4 in 10 renters have renter’s insurance. Some aren’t
even aware they need it. They may assume they are covered by
the landlord’s insurance, but they aren’t. This mistake can be
costly.
Think about how much you have invested in your possessions
and how much it would cost to replace them. Start with
your stereo equipment or the color television and VCR that you
bought last year. Experts suggest that people who rent start
thinking about these things as soon as they move into their first
apartment. Your policy should cover your personal belongings
and provide funds for living expenses if you are dispossessed by
a fire or other disaster.
Questions
Why is it important for people who rent to have insurance?
Does the building owner’s property insurance ever cover the tenant’s personal property?
What is the difference between cash value and replacement value?
When shopping for renter’s insurance, what coverage features should you look for?
