Tenant protection insurance – rip-off or salary?

An often considered but seldom considered remedy that may or may not be a good idea – Renters Insurance is certainly a phenomenon once voiced in your presence. All too often it is assumed to apply to all or none, with no middle ground. “renters insurance is a good idea”…or “renters insurance is a rip off”; heard both? I thought so. Oh how generalities plague market demand. Anyway, I’ll take one unusual Approach to showing how to tell if renters insurance is a good or bad idea for YOU….specifically.

A quick overview: What is it?

Tenant’s insurance exists to protect the property of residents who do not own the apartments in which they live. It also shifts the financial liability risks to the insurance company, ie if an accident occurs at your rental property for which you are legally liable, the financial damage will be borne by the insurer (the company). Examples of this include, but are not limited to, someone tripping over your carpet and breaking an arm, running a bathtub and destroying the property of those in an apartment below you, or even setting off firecrackers indoors and burning down your entire building, including all belongings of your neighbors (anyone?).

Returning to losing private property, here are the 17 types of hazards that result in damage to your property that are covered by renters insurance:

  • Overvoltage damage
  • Ice, snow and sleet damage
  • Water damage from utilities
  • fire and lightning
  • falling objects
  • volcanic eruption
  • Losses through glass or any glazing material considered part of the building
  • Theft
  • smoke
  • vandalism and mischief
  • revolt
  • hail and wind
  • airplane
  • explosion
  • vehicles

Nationwide, theft and fire are the most commonly considered prospects of property loss for renters. Depending on your area and where you live, flooding can also be an issue; However, flood insurance is not included in a standard policy, so an additional driver must be included. Regardless, for our purposes today we will focus on theft, fire, and liability. There are two types of policies: actual cash value coverage and replacement cost coverage. The first (ACV coverage) only covers the depreciated value of your items, not the cost of actually replacing your items; This requires an RC cover. We’ll get into recommendations between the two shortly.

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Here’s the rough calculation process we suggest to help you decide if renters insurance is a worthwhile purchase. Keep in mind that most insurance policies carry an annual cost of between $150 and $300 with some kind of deductible.

Step 1.) Analyze your liability risk

  • Those who live on the second floor or higher have a higher likelihood of being held liable to neighbors for property damage considering there are people directly below. Waterbeds can ruin your life; When it bangs, be ready to cover the damage to those living below you.
  • Do you have a dog? In this case, renter’s insurance provides protection in the event that the animal leaks its testosterone to your neighbors or visitors. Be especially careful if small children live nearby.
  • Those with frequent visitors are more likely to have a non-resident sustain some type of injury in the dwelling in question. Careful…never knows when a buddy on your butt will get in a fight.

Determining your home as high-risk is an automatic trigger to start buying insurance. If not, dig deeper and let us analyze your property’s value and potential loss.

Step 2.) Appraise the value of all your possessions and separate the “stealable” possessions

  • ‘Theft’ possessions are items that are likely and available in the event of a burglary: televisions, DVD players, computers, jewelry or even cash, among other things usually kept on hand. This is to assess the potential damage if you are the victim of a burglary as it is uncommon for all possessions to be lost.
  • Total belongings: Everything is included here, from shoes to a hair dryer. Like I said, estimates are estimates. Just imagine losing everything and consider the cost of getting it all back. This is necessary to estimate your loss in the event of a disaster such as a fire where everything is lost.
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Step 3.) Assess your risk of loss

  • There are 105 million homes in the US, and there are around 350,000 fires that require firefighters to put out the flames. So, based on history, there is almost a 0.3% chance of a catastrophic fire in your home. While not all of these fires will destroy everything, it’s worth keeping the probability of complete destruction at 0.3% as this will help contain obscure risks like falling objects or vehicle damage.
  • For burglary, check out Neighborhoodscout to look up crime rates in your state and even your specific area. We will take the state of Georgia as an example, where there are 46 burglaries per 1000 people per year (4.6%).

Step 4.) Put everything together

I now know that my total loss risk is around 3% and my burglary risk is 4.6%. If all my belongings are worth $25,000 and I’ve estimated my “stealable” stuff at $5,000, then here’s how I can calculate what the risk of annual loss is worth to me.

(0.003 * $15,000) + (0.046 + $5,000) = $275

– Essentially, this takes 3% of your $15,000 items and adds that to the 4.6% of your $5,000 items that can be stolen which is worth to you on an annual basis. If you consider your home to be “risky” in terms of liability, an insurance company quote of $275 a year isn’t bad.

Next, let’s clarify who should do this definitely Take a look at home insurance:

  • Families with children (this is a must)
  • Those who run businesses from their homes – everything they worked for could be lost.
  • dog owner
  • And, my favorite, the ones with waterbeds on the second (or higher) floor
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Remember, even if you live in a friends house, a negligent act on your behalf that results in a roommate’s loss of assets leaves your checkbook on the hook. To backtrack a little when deciding between ACV (Actual Cash Value) coverage vs RC (Replacement cost) coverage, you really need to consider what it would cost to replace your items. ACV simply takes the depreciated value of your items and gives you whatever your items are worth. However, it may actually cost you more to replace these items as you will have trouble finding similar items for the money received. As your stuff ages, you get replacement cost coverage (a little more expensive, but worth it). If your stuff is relatively new, you can probably slip with the less expensive ACV cover since your stuff hasn’t had much time to depreciate.

In conclusion, it’s important to understand exactly why you’re getting renters insurance and what items you’re actually protecting. That way you really understand if it’s worth your time and money to sign up. The monthly costs can be reduced by increasing the deductible or simply by taking precautionary measures (fire extinguishers, bolt locks, etc.). If you have a few bucks extra to spare and Senor Insurance Broker’s offer seems like a good deal then go for it, but if it just doesn’t add up… don’t be embarrassed to turn the other cheek to insurance. It’s your world, protect it as you see fit. Bada bing, bada BOOM…….. Salloum. Until next time.

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