Understanding Renters Insurance
Table of Contents
Who, What, and Why
Introduction to Renters Insurance
What Your Landlord Doesn’t Cover…
Liability Coverage
Who Qualifies
Number of Renters
Why Bother?
Homeowners Versus Renters Insurance
What Is Covered
The Basics
Sporting Equipment
Borrowed Items
Clumsiness: Are YOU Covered?
Auto Accidents
Coverage For Medical Costs
Health Insurance
Additional Living Expenses
Floaters/Riders
When You’re Not At Home
Identity Theft
What Is Not Covered
Earthquakes, Floods, and Hurricanes, Oh My!
Hurricane force Winds
Common Disasters
…But Volcanoes Are Covered?
High-Risk, Low-Probability
Man’s Best Friend…?
Unwelcome Visitors
Mold
Illnesses Related to Mold
Other Non-Covered Items
Types of Renters’ Insurance and Policies
Where To Find A Policy
Actual Cash Value and Replacement Cost
Replacement Cost
Homeowners and Renters Insurance Forms
HO-1 and HO-2
HO-3 and HO-5
HO-4
HO-6
Co-ops
HO-7
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Understanding Renters Insurance
HO-8
Special Forms and Endorsements
Cash and Securities
Policy Limits on Individual Items
Special Situations In Renters Insurance
Business Renters Insurance
The Dangers of Not Having Business Renters Insurance
Legal Requirements
Business Basics
Business Personal Property
Saving the Environment and Dealing With Business-Interruption
The Hazy Areas
Business Considerations
Renters Who Don’t Need Renters Insurance
Military
Moving
Pro-rating
Catastrophic Events
Costs
Typical Coverage
Coverage Outside of the Home
Costs To The Insurance Company
Deductibles
Discounts
How Premiums Are Determined
How Much Are You Worth?
Location, Location, Location
Credit Reports and Insurance Scores
CLUE Reports
Beware of Dog
Additional Considerations In Determining Premiums
Rising Prices
The Nuts and Bolts: Actually Paying The Premium
What If It Just Costs Too Much?
Claims and Losses
Safety Measures
To File or Not to File: That Is the Question
Surcharges
How To File
Loss of Use/Additional Costs Coverage
Filing for Business Renters Insurance
Adjusters
Independent Adjusters
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Understanding Renters Insurance
Appraisals
The Importance of a Good Inventory
Proving The Case
Mediation
The Appraisal Clause
Litigation
Reopening A Claim
Once A Claim Is Settled: Show Me The Money
Liability Claims
Policy Changes, Cancellation or Non-Renewal
Policy Changes After Filing A Claim
Differences in Terminology
Reasons For Non-Renewal
So Many Claims, So Little Time
Disputing A Cancelled Or Non-Renewed Policy
If The Renter Decides To Cancel
Conclusion
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Understanding Renters Insurance
Chapter 1: Who, What, and Why
Introduction to Renters Insurance
Most people, at some point in their lives, have rented a living space. Though the
“American Dream” may be the house with a picket fence and a dog, there is a
huge population renting apartments, condos, townhouses or other spaces. Home
buyers or owners, though not required by law in many states to purchase home
insurance, are required by the majority of lending agencies and mortgage
companies to have insurance, which makes home insurance a much more
common consideration for people than is renters insurance. It makes good sense
to protect your home and possessions, and most of us take it for granted that
buying home insurance comes with owning a house. However, renters insurance,
sometimes called tenants insurance, is purchased far less often. The typical
reasons that people cite for not having bought renters insurance are that they
didn’t know about this kind of protection, they thought that the landlord’s property
policy covered the tenants’ belongings, or they assumed that they don’t have
enough possessions to warrant buying insurance.
What Your Landlord Doesn’t Cover…
When a person signs a lease agreement with a rental agency or landlord, he or
she sometimes assume that this agreement covers not only the building in which
he or she lives, but also the furniture and smaller possessions inside the building.
Many renters have been in for a rude surprise when, after an apartment fire,
accident, or the aftermath of an irresponsible roommate, they find that their nowruined possessions are not covered in the least by the association fee or lease
agreement. To cover personal property and possessions, renters of apartments
or condos need to purchase renters insurance, which does protect against the
vast majority of potential hazards a renter could encounter. The lease agreement
or association fee only comes into play in relation to personal possessions if a
renter’s property is damaged due to the landlord’s negligence.
Negligence, in this sense, means care for building property that falls short of
what could be reasonably expected. For instance, if a building manager or
landlord fails to maintain proper locks on the doors, and damage to the lock or
door is not the fault of the renter, the renter may have a case for small claims
court if their property is stolen. Another example might be if the plumbing in an
apartment building is not kept up to date or repaired in a timely fashion, and as a
result of this, a renter’s property is water-damaged. On the other hand, a renter
would be responsible for damage to personal property as the result of an
accident, such as frozen pipe that burst, which is where renters insurance comes
into play. The only type of property inside of a renter’s apartment or condo that a
landlord could potentially be responsible for would be appliances that are build
into the living space: a dishwasher or refrigerator, for instance, might be the
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Understanding Renters Insurance
property of the landlord or property association, and as such any repair or
replacement of those appliances would be the responsibility of the landlord.
Damage to a renter’s property as the result of those appliances could still be
covered under the renter’s insurance policy, or might be paid for by the landlord’s
insurance, depending on the specifications in both policies. If, however, the
renter brought any of those large (or small) appliances into the apartment, he or
she assumes all responsibility for insuring the appliances.
Liability Coverage
The other important part of renters insurance, which will be discussed in more
detail in the second chapter, is the liability coverage it provides. If, as a renter,
you host a party and one of your guests ends up tripping over your living room
rug, breaking his arm when he falls, you’d want to have a way to cover the
medical costs associated with that accident. Because the accident took place in
the rented area, the renter is technically responsible for the medical care,
whether or not they have insurance. Most renters insurance covers accidents
such as the one described in this example, up to a certain monetary limit. Again,
a lease agreement or association fee doesn’t protect against these kind of
occurrences, unless the accident is the result of negligence, and since no one is
perfect, renters insurance is important not only for keeping possessions safe but
for protecting renters against simple human error and clumsiness.
Who Qualifies
Obviously, people renting a living space qualify for renters insurance, but to get a
little more technical, those who rent an apartment, co-op apartment, section of a
house, townhouse, or condo typically are eligible to purchase renters insurance.
Additionally, if a person or family rents a house from the homeowner, they would
be eligible for renters insurance but not for homeowners insurance. Any instance
in which a person is not responsible for the actual structure, but is paying to use
the house, apartment, condo or other living space is an occasion on which the
person should look into renters insurance.
In the case of condo insurance, which is slightly different from renter’s insurance
because of the different contract between the condo association and the person
living in the space, either a condo renter or even a condo owner is eligible for a
certain type of renters insurance. Business renters insurance, which will be
discussed in more detail later, is a specific kind of renters insurance for people
running a business out of a rented space, maybe in an office building or business
complex. Many more people qualify for renters insurance than actually have this
kind of insurance; though statistics vary, almost all surveys show that less than
half of all renters have insurance for their personal property, which means that
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Understanding Renters Insurance
the majority of renters are entirely financially responsible for any loss or damage
to their personal property. For a lot of people, it would be an impossible monetary
burden to replace or restore everything that they own.
Number of Renters
Another important consideration in looking at who qualifies for or needs renters
insurance is that of how many people live in an apartment or other rented space.
Though homeowners insurance for a family will cover the possessions of all
those people living in the house, renters insurance is specific to the person who
purchases the policy; in other words, just because one roommate living in a three
bedroom apartment has renters insurance, it doesn’t mean that the other two
roommates will be eligible for reimbursement in the case of losing any of their
personal possessions. In fact, all three roommates could have very different
rental policies, with separate insurance companies. Though a very few insurance
companies do allow multiple roommates to hold the same rental policy, this is
uncommon, and is definitely something that a renter would need to check into
before signing a policy. Many renters have been surprised to find, after having a
thief loot the apartment or a fire destroy the belongings of several roommates,
that one roommate’s policy did not cover the damage to everyone’s possessions.
Why Bother?
Whether we recognize it not, we all take risks in accumulating and storing
personal possessions; though we can take precautions, such as installing smoke
detectors, burglar alarms, or distancing ourselves from flood areas, accidents
happen. Very few landlords go without a security deposit when leasing an
apartment or condo to a renter; the security deposit is the landlord’s insurance
against the renter, giving them a certain amount of money to repair any damage
that might be done to the building as the result of the renter’s living there. In the
same vein, the renter should have insurance to keep him or her safe from
possible negligence on the part of the landlord or leasing agency, from natural
disasters, and from unforeseen events such as robberies, home accidents,
animal damage, or damage done by roommates and visitors.
Many renters take the attitude that it’s very unlikely that anything is going to
happen to their possessions, and in a sense, this is fairly accurate. A lot of
people who rent an apartment can go for years without losing any possessions to
accidents, natural disasters, or thievery, and they may never encounter a
situation in which the renters insurance “pays off.” Additionally, many renters are
young and may be living alone for the first time, which in and of itself isn’t an
excuse for not getting renters insurance but may be a reason that this type of
insurance isn’t as common: younger people may not have had as much
experience getting insurance, may not want to spend the money on coverage, or
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Understanding Renters Insurance
may simply be overconfident because of not having had any experience losing
possessions to accidents or thievery. In comparing this kind of insurance to auto,
home, or life insurance, however, it’s a similar situation: we buy it “just in case.”
The low cost of renters insurance versus the coverage provided in the case of
the loss of personal property is a compelling case for buying this insurance along
with the other types of insurance that we take for granted as necessities.
Homeowners Versus Renters Insurance
Though homeowners and renters insurance are similar in many ways, it bears
pointing out some of the key similarities and differences. Both cover personal
property and possessions, and both typically come with some liability coverage,
though this can be less common for renters insurance than for homeowners
insurance. The two kinds of insurance also both provide provisions to cover
particularly valuable pieces of property, such as jewelry, computers, expensive
sports equipment, or antiques. A homeowner or rental policy may not, at its
upper limit, cover enough of the cost of those pieces of property to replace them,
so many people opt to customize the policy with a rider that covers those specific
possessions.
The biggest difference is in the protection given to the physical structure in which
the person or family lives; as discussed, renters insurance doesn’t cover the
building in which a renter lives, since maintenance and costs associated with the
structure fall to the rental agency or landlord. Homeowners insurance, on the
other hand, covers the main living structure as well as any unattached buildings,
such as garages or sheds. Special accommodations can be made in renters
insurance to cover unattached structures, but policies differ on how they deal
with that situation, and it’s more common to make this provision in homeowners
insurance. Homeowners insurance can also cover landscaping, such as trees or
bushes, on a person’s property, while this is not typically included in renters
insurance. For a building or space to be eligible for homeowners insurance, it has
to be used for personal, residential purposes, while renters insurance typically
covers residential spaces but is available for businesses renting spaces, as well.
The different variations on homeowners insurance and renters insurance,
including insurance for condo owners and the different levels of protection that
come with various policies, will be explained in more detail in chapter three.
Chapter 2: What Is Covered
The Basics
Though there are numerous insurance agencies that provide renters insurance,
there is a generally agreed-upon list of perils that this type of insurance covers.
“Peril,” in this context, means anything that might threaten the integrity of a
person’s possessions, be it natural disaster, another person, or an accident. The
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Understanding Renters Insurance
number of perils cited on the list of basic coverage varies from about fifteen to
seventeen, but the majority of insurance companies providing renters insurance
cite the following perils as covered: lightening or fire, falling objects, damage due
to vehicle, damage due to aircraft, explosion, damage due to windstorm or hail,
robbery, vandalism, riot, smoke, volcanic eruption, damage from the weight of
snow, sleet, or ice, damage due to the malfunction or overflowing of water or
steam from the plumbing, air conditioning, heating, sprinkler system, or
household appliance, damage due to the freezing of any of the above systems,
damage due to the accidental and/or sudden cracking, burning, breaking, or
bulging of any of those systems, or damage due to electrical surges or the
malfunction of an electrical current. The exact number of things on the list of
basic coverage varies by how each company splits up particular types of
damage– one insurance company, for instance, might cite hail damage and wind
damage as separate perils to be covered, while another will lump those together.
Because of this, it’s important that consumers read each separate policy in order
to ascertain what is and is not covered by different companies’ renters’ insurance
policies. In most cases, all of the above perils will be covered.
Sporting Equipment
While the perils listed above clearly cover the majority of personal possessions,
there are always exceptions and questions about renters’ policies. It may be a
clear cut case if a renter’s couch accidentally catches on fire– the couch is a
personal possession, fire is covered in renters insurance, and so the accident
should be covered by the policy– what happens if a renter’s bike, parked outside
of the house, is damaged by someone else running into it with his or her car?
Sporting equipment, which can be costly to replace and which is often used
outside of the house, is also covered under most renters insurance policies.
Bikes, skis, rollerblades, skateboards and many other types of recreational
equipment can be used outside of the rented space without losing the coverage
associated with the renter’s policy. However, as mentioned, some sporting goods
can be exceptionally costly, and so if a renter has a pair of top-notch skis that he
or she feels represent a significant and difficult-to-replace expense, the policy
may need to be modified in order to accommodate those skis under a separate
part of the policy. Floaters, or riders, will be discussed in a later section of this
chapter, but often apply to sporting equipment such as this in order to protect
renters from damage to one specific piece of personal property.
Borrowed Items
Another concern for renters is whether borrowed items are protected under the
renters insurance. A couch that a renter has bought and paid for is undeniably a
personal possession, but the stack of library books in the living room is a more
difficult question. Technically, those books are the property of the library.
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Similarly, a person who borrows a friend’s expensive laptop may not consider the
laptop to be her possession. However, under renters insurance, any piece of
property that a person assumes responsibility for, even temporarily, as in the
case of borrowed items from friends, a library, or another institution, are covered
under the policy. For expensive items, such as a laptop, coverage will not exceed
the typical limits in order to compensate for the extra costs associated with that
piece of equipment, but it is covered under the regular policy nonetheless.
Clumsiness: Are YOU Covered?
Of course, the list of perils only covers damage to personal possessions. This is
generally the first thing that people think of when discussing and buying renters
insurance; after all, the landlord’s policy covers the structure, and so logically the
first financial burden taken into consideration is that of replacing all, or even a
substantial portion, of one’s possessions in the case of an accident. While this is
a fundamental and important part of renters insurance, another important piece
of this type of insurance is liability coverage. Liability coverage can be split up
into personal liability and medical costs coverage, two areas that are both
typically covered in renters insurance. Personal liability, for the purposes of
renters insurance, can be defined to mean the legal responsibility a renter has
toward anyone who is bodily injured or has his or her possessions damaged on
the renter’s property. Though many people may not initially think of this as an
important part of renters insurance, we’ve all been in the position of stumbling
over a doorstep or tripping on the stairs, and if a visitor to your apartment
happens to injure him or herself by way of this kind of mistake, the ensuing legal
case can be costly.
Auto Accidents
The insurance company is not responsible for any accidents caused by the
renter’s car, since that would fall under the coverage of car insurance, and the
company is also not necessarily responsible for injury caused to people who
come on the premises in order to conduct business: as will be discussed in a
later chapter, if a renter employs people for an in-home business, additional
coverage might be required. However, in most cases, the insurance company
covers the costs that come up when a person makes a claim or files a lawsuit
against a renter or any family members living in the rented space. Personal
liability coverage extends to injuries or accidents caused both to people who are
invited on to the renter’s property, such as neighbors, friends, or extended family,
and, in many cases, to trespassers on the renter’s property. This coverage does
not pay for the medical costs associated with a trespasser’s injuries, should he or
she sustain any, but rather pays the legal costs that would arise should the
trespasser sue the renter. Though this might seem unlikely, if the renter knows
about a trespasser– as they would if a thief made his or her presence known in
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Understanding Renters Insurance
the apartment, or even if a renter noticed that someone had sat down on the front
step– he or she would technically be responsible for any injuries to that person
while on the premises.
Coverage For Medical Costs
Medical care can be even more expensive than paying for lost or damaged
possessions, and sometimes more expensive than paying for the fees associated
with legal battles. For this reason, it makes good sense for a renter to have
coverage that extends to the medical costs incurred if a person is hurt on in the
renter’s apartment or condo. As with the argument that a person doesn’t need
renters insurance because it’s unlikely that anything terrible is really going to
happen to their possessions, it seems unlikely that a visitor will, first, have such a
bad accident that it necessitates costly medical care, and second, that the visitor
will take no responsibility for their own actions and will sue the renter for the cost
of care. In many cases, if a person hurts him or herself while at a friend’s house,
they will assume responsibility for the accident and will pay for any expenses
associated with the event, either out of pocket or through his or her own health
insurance. On the other hand, if a renter has placed his coffee table in such a
way as to make it difficult to get around, or has not taken the time to smooth out
a rug, the visitor or friend might have a legitimate cause to sue for medical
coverage, and if the person does not have health care coverage, they are even
more likely to sue for injury. The important aspect of medical costs coverage is
that the insurance company agrees to pay medical costs whether or not the
renter is legally responsible for the accident. If the renter is legally responsible
and the injured party sues or files a claim, personal liability coverage comes into
play, as well, but if not, the high costs of medical care might still necessitate
support from the insurance company. On the other hand, if the renter causes
injury through an intentional act, the insurance company is not obligated to pay
for medical costs.
Health Insurance
Accidents happen, and it’s best to have some kind of coverage to protect against
those events that we don’t foresee, but which nevertheless can occur. Liability
coverage that comes with renters insurance doesn’t necessarily pay for the entire
cost of medical care– as with personal property coverage, there’s always an
upper limit on how much the insurance company will pay, and medical costs
coverage often has a specific per-person, per-incident cap– but this varies by
insurance company and specific policy, and a policy can always be modified to fit
the needs of a particular renter. Some insurance companies only cover medical
costs for uninsured victims, since the injured party’s health insurance should
cover him or her, but there are always extenuating circumstances, so it’s best to
check with the insurance company on this point. Though the upper limit for
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Understanding Renters Insurance
liability coverage is typically higher than that for personal possessions, since
legal and medical costs can add up very quickly, if the renter doesn’t have much
coverage or is involved in a long or complicated lawsuit, he or she could end up
playing quite a bit of money. For this reason, it’s recommended that renters both
take precautions to make sure that the rented space is safe as well as
purchasing a good amount of liability coverage. The liability coverage that comes
with renters insurance often covers accidents that occur outside of the rented
space but which are linked to the renter or the renter’s property, as well, making
it even more valuable to the renter. However, the connection between a renter
and an accident outside of the home may not always be perfectly clear, and so
some cases may take more evidence to prove or time to dispute between the
renter and the insurance company.
Additional Living Expenses
The third important area of coverage included in most renters insurance is the
additional expense, sometimes called “loss of use” expense, of living somewhere
else for a while if a rented space becomes unlivable. For instance, a fire that
leaves a renter’s apartment without basic amenities and in such a condition that
renovation and repair is needed, the renter is obviously not going to be living in
the apartment for a few months. Living in a hotel, or even with family or friends,
costs more money than it would to live in one’s own apartment; the cost of
shelter, food, and gas can all skyrocket, and these costs in addition to the
expenses associated with repairing an apartment can create a very difficult
situation for any renter. Even things as simple as having to do laundry at the
Laundromat, eat out more often than usual, or pay for parking incur extra
expenses for a renter. In addition, if the renter is not able to work as the result of
an accident in his or her home, the loss of income can make his or her situation
even harder, necessitating financial support. For this reason, most insurance
companies offer assistance paying for those additional expenses, up to a certain
point: again, the company doesn’t cover all costs, but a typical policy will pay for
20 to 40 percent of the total insurance for the renter. There may be stipulations
about the living situation outside of the rented space– an insurance company is
not obligated to pay for several months’ stay at the nicest hotel in town when a
renter has the possibility of staying with her parents on the next block over– but
most companies will pay for housing comparable to that in which the renter lived
before the accident/disaster/burglary. Additionally, most policies will indicate a
time limit on how long they will pay for a person to live outside of his or her home.
Some companies cut off financial assistance after a year, while others state that
they will help pay for additional living expenses for a “reasonable amount of time”
based on the condition of the rented space and what has to be done in order to
make it livable again.
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Insurance agencies and specific policies deal with additional living expenses
differently. Some companies may give a renter a certain amount of money up
front in order to pay for those expenses, while other companies will reimburse the
renter after all is said and done. However, all companies require proof of the
additional costs, so keeping receipts to everything is important in order to show a
person’s financial necessity.
Floaters/Riders
As mentioned earlier in this chapter, some renters may have items that are
extremely expensive and need to be covered separately from the basic renters
insurance policy. Often, these items take the form of jewelry, high-quality sporting
equipment, computers or other electronics, antiques, or very rare or difficult to
replace possessions. When getting renters insurance, a person should assess
their possessions in order to determine particularly expensive items and should
then work with the insurance agency to get the best protection for those pieces of
property. This is where “floaters” or “riders” come into play. This type of additional
security, also know as special items or personal articles insurance, is a common
part of renters insurance. A floater, in relation to renters insurance, means an
added-on part of the insurance package that covers a specific possession. A
diamond engagement ring, for example, mind warrant a floater in addition to
regular renters insurance, given that the ring may have cost several thousand
dollars or could even come close to matching the cost of the rest of a person’s
possessions. Floater policies for jewelry exceeding $25,000 are not uncommon,
and this is actually a growing need in the insurance industry, so it’s important for
renters to look carefully at their possessions before setting up a policy.
The additional coverage provided by floater policies can protect renters against
lost or stolen jewelry. While a floater policy will cover the cost of that jewelry (with
the amount of reimbursement depending on the specific kind of policy and limits
that the renter sets up), a regular renters insurance policy will only cover
somewhere between $1000-2000 of the cost of that jewelry (or other expensive
item). Because these types of possessions, be they computers, jewelry, sporting
equipment, or high-tech electronics, are often not only costly but extremely
important to the owners for both sentimental and work value, looking into the
supplementary coverage provided by a floater policy is worth the relatively small
price it costs to add this to a renter’s insurance package. Typically, the cost to the
renter to add a floater is under five percent of what the item to be insured actually
costs.
When You’re Not At Home
Just as bicycles, skateboards, or skis are covered under a renter’s insurance
policy when they’re used outside of the renter’s actual living space, other
personal possessions are also covered when in transit, when stored in a renter’s
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car, or even on vacation. This differs from policy to policy, but many policies
include some kind of outside-the-home coverage. One of the most common
types of coverage is when a renter’s possessions are stored in the car: if a renter
has CDs, clothes, or an iPod in his or her car and the car is stolen, those
possessions– excluding the car, obviously, which falls under auto insurance
coverage– inside the car may be compensated by the rental insurance agency.
Additionally, renters who go on vacation may be covered for any accidents or
losses they sustain while away from home. This kind of coverage is standard with
some renters insurance and can be added to a policy that does not already cover
out-of-home damage.
Moving from one house or apartment to another can also be a concern for
renters, since auto insurance doesn’t cover those possessions that the person
transports. Driving across the country with all of your personal property in the car
can be a daunting prospect; one car crash, and not only do you have to pay for
the automobile, but there’s a good chance that many of your possessions will be
ruined. In light of this, many rental policies cover possessions while the renter
moves. The policy has to be changed when a person moves to a new place to
take into account regional differences and the structure of the new dwelling, but
during that transit time, the previous policy will suffice.
Identity Theft
Though the personal property coverage described up to this point relates to
tangible items– coverage for skis and computers, books and the sofa– a growing
area in renters and homeowners insurance is protection against identity theft.
Identity theft is defined as using someone else’s identity– including credit cards,
social security number, address, or numerous other attributes associated with a
particular person– in order to obtain goods or services, gain employment, or
otherwise go about the daily business of life. This kind of theft, which can be
more difficult to track or even determine as having happened, is increasing as
both technology and the amount of information shared between different interest
groups increases. There is an astounding amount of information stored digitally
about each person in the United States– though this obviously differs from
person to person, based on job, citizenship status, age, prominence in the
government, individual precautions taken to keep information private, and
agencies to which a person has provided information– and those people who are
inclined to steal personal data have a wealth of resources from which to choose.
Because this type of theft represents a threat possibly even beyond the risk
associated with tangible personal property, many insurance agencies are offering
coverage to renters, despite the fact that the coverage has little to do with the
person’s housing situation.
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Some insurance agencies offer this protection as part of the standard coverage
package, but the majority of companies offer it as an additional endorsement on
the policy. There are several options available: the more modest protection
offered by an insurance agency, often called “resolution assistance,” would
provide the renter with an independent identity theft recovery agency or fraud
assistance agent in order to move that person through the process of recovering
lost information and restoring his or her privacy, while more comprehensive
coverage would provide financial support for all the costs accrued from replacing
credit cards and personal ID, restoring one’s credit report to accuracy, loss of
income, and many additional fees that the renter might have to pay in order to
fully recover his or her personal information.
Chapter 3: What Is Not Covered
Earthquakes, Floods, and Hurricanes, Oh My!
Notably absent from the sixteen or seventeen perils covered by renters insurance
are earthquake and flood insurance. Because the danger associated with these
natural disasters varies by region, and because of the high costs that can accrue
as the result of damage from either occurrence, renters insurance doesn’t cover
these two natural disasters. For a renter to protect his or her possessions from
earthquake or flood, he or she would have to buy specific insurance to cover this,
which costs extra but is typically offered on a renters policy. In Florida, flood
coverage would be much more important than in Montana; likewise, Californian
renters might be more likely to purchase earthquake insurance than those in
Vermont, though it’s important to remember that the vast majority of the country
has the potential to be hit by an earthquake, even those locations far from fault
lines. Researching the location of a rented property, as well as discussing the
perils with an insurance agent, can help renters decide whether earthquake
and/or flood insurance is an important piece to add to his or her policy. However,
water damage is one of the most common types of claims made, and floods have
the potential to strike anywhere in the country, so a renter may want to look into
coverage not matter where he or she lives.
Hurricane force Winds
Though the list of perils does include wind damage, this can be slightly
misleading; most policies include wind damage in the standard list of coverage,
but this does not necessarily extend to hurricane-level damage, which is,
technically, wind damage. Again, coverage depends upon the region in which a
renter lives. If they live in an area that is often affected by hurricanes, the renter’s
policy may be much more specific about what kinds of damage are and are not
covered, and may, as in the case of earthquake and flood damage, require a
separate piece of coverage in order to protect against hurricanes. Any of these
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types of coverage– earthquake, flood, or hurricane– may be offered by the same
insurance company that provides basic renters insurance. The modification to the
policy in order to include this kind of coverage is called an endorsement, and is
fairly easy to add, though often costly. A renter can also find coverage for natural
disasters through separate insurance companies. Especially in areas prone to
these types of natural disasters, a renter can buy coverage specifically from a
company specializing in those types of protection. Costs associated with these
different types of coverage can vary depending on how a renter decides to
purchase his or her insurance, but it’s likely that anyone who lives in a region
with a high likelihood of a natural disaster will have to pay more for renters
insurance.
Common Disasters
Costs to the company, and risk management, come into play with flood and
earthquake insurance, in particular. It might seem strange that renters insurance
covers damage from volcanoes, wind, and hail, but not from earthquakes or
flood. Flood damage is actually one of the most common types of damage
claimed by renters and homeowners, and it is precisely for that reason that it is
left off of basic renters insurance. The potentially devastating nature of a flood–
as with most natural disasters, it has the potential to wipe out all of a person’s
possessions– means that it poses a huge risk to the insurance agency. Unlike
the perils discussed in the next section, floods are not only high-risk but are also
relatively probable in certain areas, and are definitely more likely than perils such
as nuclear hazard, making them a high cost to insurance agencies. The same
can be said for earthquakes, though this is a bit more dependent on region– an
area far from a fault line, while it can still suffer from seismic activity, has a much
lower chance of having a devastating earthquake. Because of this geographic
disparity, earthquakes fall into one of two categories: either they are a very low
risk for the renter, meaning that the renter would not want to automatically pay for
earthquake coverage, or earthquakes are a high-risk, medium-probability threat,
meaning that the insurance agency would have to assume a huge number of
claims for renters in the region if earthquake insurance was included in
everyone’s policy.
…But Volcanoes Are Covered?
Volcanoes, on the other hand, which are covered in the basic perils listed for a
renter’s policy, are less likely than either earthquakes or floods, and also pose a
smaller risk to the insurance company. This may seem counter-intuitive at first
glance, but it all hangs in the definition of damage due to a volcano. Any tremors,
landslides, mudslides, or earthquakes that are the result of a volcanic eruption
and cause damage personal property are not covered, despite the cause-effect
link, and thus the total damage that can come from land movement is not a risk
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that the insurance company assumes. What is covered in renters insurance is
direct damage from a volcanic eruption, such as air blasts, lava, shock waves, or
ash. While possibly devastating, the damage from these effects of volcanic
eruption are not as likely to destroy all of one’s possessions– or even reach all of
one’s possessions, if those items are inside of a closed space– as are
earthquakes or floods. Damage over time to property due to ash is also not
covered under renters insurance; immediate damage can be assessed at the
time, but claimants who look for money years later are unlikely to be awarded
any financial support. As with other natural disasters, the clause in a policy that
relates to volcanoes can change by region: in Hawaii, for instance, renters
insurance may offer more protection against this peril, and insurance companies
are more likely to offer endorsements to further cover renters against damage.
High-Risk, Low-Probability
Just as there’s a list of perils that most insurance companies do cover in renters
insurance, most policies include a list of items and occurrences that are not
covered by renters insurance. One of the most commonly cited items on this list
of non-covered items or events is “acts of God.” While this may seem nebulous
or confusing– and it can be, given that not all insurance agencies define this
phrase the same way–often this refers to events like freak storms or unexpected
natural disasters, some of which overlaps with the events described above. As
renters get more careful, and as insurance agencies begin to change policies in
order to protect people against all contingencies, these “acts of God” are
increasingly things that can be covered by renters insurance, though, again, it
can be costly to protect against catastrophic events. As with endorsements for
hurricanes or floods, a renter can purchase protection against natural disasters in
general, so as to be prepared for potentially disastrous natural occurrences.
However, at the moment, the majority of policies do not initially cover these
events. The other option for renters who want coverage against catastrophes is
to purchase the renter’s policy, without any particular earthquake, flood, or
hurricane damage, and to then purchase an umbrella insurance policy separate
from that renters insurance. Umbrella insurance can provide very high coverage
limits against a huge number of perils, and may give a renter more confidence
that he or she would be covered for all losses and damage in the case of an
unforeseen natural disaster.
Another commonly cited item on the list of non-covered occurrences is nuclear
hazard. The common theme for this list of items is things that are both highly
detrimental and highly unlikely. As is obvious, nuclear hazard could entirely
destroy a renter’s personal property, not to mention the structure, and because of
this and because of the inability to foresee what kind of danger might be posed
by this threat to particular regions or areas, most renters insurance will not cover
this danger. In the same vein, the effects of war in general are not covered by
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renters insurance, again because of the inability to predict its effects, location, or
probability and because of the potentially huge costs associated with repairing
damages due to war.
Man’s Best Friend…?
Pets may be cute, but when it comes to coverage provided by renters insurance,
animals can be a hazy area. Whether or not a renter has a pet can seriously
affect the cost of renters insurance, a topic that will be discussed in more detail in
a later chapter, but just as renters insurance provides personal liability insurance
for a renter whose friend trips down the stairs, renters insurance provides liability
coverage when that friend is bitten by the renter’s dog. Additionally, renters
insurance can cover damage done to other people’s property by a pet. However,
not all pets can be covered by renters insurance, and it may be that a renter who
owns a certain kind of pet will not be granted renters insurance at all. Dogs, in
particular, can be problematic: breeds that have a history of aggression, or
specific dogs that have bitten people in the past, may pose too much of a risk for
an insurance company, leading them to refuse coverage to a renter. Common
breeds that might pose this problem are Rottweilers, Pit Bulls, Shephards, Wolf
hybrids and other large dogs. Smaller dogs can present a problem, as well; Jack
Russell Terriers and Chihuahuas, for instance, have been known to be
aggressive, and depending on the insurance company, may warrant more costly
insurance or a refusal of coverage. Exotic pets can cause renters the same
problems, in that snakes, tarantulas, or certain types of birds may be too much of
a risk to cover.
On the other hand, a renter might have a dog of a “gentle” breed with no previous
history of aggression or biting, and that dog could still bite a visitor to the
apartment. In this case, insurance companies differ: while the majority of
insurance companies are in states that consider this kind of accident to be one
that renters insurance should cover, since the owner theoretically had no way of
predicting the dog’s aggressive behavior and the insurance company has
provided the renter with liability coverage, a smaller percentage of states have
laws that hold the owner to be entirely responsible for his or her dog’s behavior,
regardless of breed or history. Those states that have a full liability statute hold
the owner liable for any injuries caused by the dog, whether or not the owner
took precautions (such as muzzling, closely observing, or giving the dog training
classes). Other states only hold the owner liable if he or she previously knew that
the dog was aggressive or prone to biting, though this can get complicated in that
the person bitten by the dog would have to prove that the owner had that
knowledge previously. Finally, insurance companies and state laws hold dog
owners liable for negligence with dogs, just as renters are held responsible for
negligence in their apartments or rented spaces: not keeping a dog on a leash or
leaving a dog with a small child, for example, could prove negligence on the part
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of the owner and place him or her in the position of assuming all costs associated
with injuries caused by the animal.
Unwelcome Visitors
In addition to the complications posed by pets, there are some smaller and often
less welcome animals that renters insurance will not cover. Damage to property
caused by termites, ants, mice, rats, cockroaches, or other pests is rarely
covered by renters insurance. Because this kind of damage is considered
avoidable by way of vigilance and cleanliness on the part of the renter, traps, or
an exterminator, it’s considered the renter’s responsibility to be proactive and
keep bugs and rodents from damaging his or her property. As with the regional
differences associated with natural disasters, this policy specification, and the
precautions that renter might need to take, can vary by location and by the
construction material for the dwelling. Though, as mentioned, the landlord is
responsible for care of the physical structure, if the renter neglects to clean up
sticky spills in the kitchen or takes no action upon finding a termite nest, it
becomes his or her responsibility to fix any damage done. On the other hand, if
the landlord agrees to provide an exterminator, after the renter has notified that
landlord of a termite nest, and the problem is never taken care of, the renter has
taken the proper action and the responsibility lies with the landlord. The key to
renters insurance and damage from insidious animals is proactive steps to
prevent damage and prompt reporting of any problems to the correct people,
since renters insurance will not make up for a renter’s entire stock of food being
eaten by mice.
Mold
In addition to coverage for dogs, one of the most controversial topics in renters
and homeowners insurance at the moment is coverage for mold-related damage
and illness. Because damage or illness from mold is not usually immediately
apparent– mold in ceiling tiles, pipes, behind furniture, or in the carpet can be
difficult to locate and specify as a problem– it’s a dangerous area for insurance
companies to cover. Additionally, in the case of renters insurance, the landlord or
property association should cover any structural or building issues, which would
include walls, pipes, ceiling tiles, etc. If the renter determines that mold has
damaged his or her personal property or that he or she is having health side
effects from mold spores in the air, the first course of action would be to contact
the landlord, who is responsible for maintaining a livable environment in the
apartment building or condo. Mold that was in walls or pipes before the renter
moved in, which isn’t always easy to ascertain, would fall to the landlord to clean.
On the other hand, if mold grows in a renter’s apartment or condo as the result of
the renter keeping the apartment especially humidified, unclean, or because it
was visible and simply let to grow unchecked, the renter would be liable for any
damage or illness related to the mold. This issue of figuring out whether the mold
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is the responsibility of the tenant or landlord can be difficult, which makes it a
good idea for the renter to check the apartment thoroughly before moving in,
either on his or her own or by hiring a licensed mold specialist.
Illnesses Related to Mold
Renters insurance does not typically cover damage or illness from mold: because
in many cases, the landlord is supposed to assume the costs for cleaning any
mold, a renter’s policy does not always need to cover this peril. However, an
increasing number of cases of health-related issues in connection with mold have
surfaced recently, forcing insurance companies to consider this peril when
drawing up renters’ insurance policies. Because mold often grows in damp
environments, it can be difficult to draw the line between water damage and mold
damage, and since most renters insurance covers water damage, insurance
companies and renters have to tread carefully in making and assessing claims. A
claim made on a renter’s insurance policy in order to fix water damage would
cover the costs to replace ruined items and dry out any items that needed to be
dried: carpet, walls, and some possessions could be usable if properly cared for
after the water damage. Mold damage, since it can be part of the aftermath of
water damage, might be assumed to be covered in renters insurance, but often is
not: renters are meant to assume responsibility for fully drying out their
possessions, which would theoretically keep mold from growing. In certain
cases, very clear evidence that mold damage was the result of water damage
could result in an approved claim, but the claim is more likely to be turned down.
Insurance companies are increasingly specifying mold as excluded from
coverage for renters, and instead are offering this coverage as an additional
endorsement.
Other Non-Covered Items
Because renters insurance primarily covers accidents– if a person intentionally
sets fire to his or her apartment, clearly they are not entitled to the same
coverage as if they accidentally start a fire while cooking, even though the
renters insurance policy states that “fire” is covered– many of the items that
renters insurance does not cover are items or occurrences that the renter could
avoid, as with the example of bugs and rodents above. General negligence on
the part of the renter to respect building codes and laws, as long as he or she
has been informed in his or her lease agreement or by the landlord of those
codes and laws, is not covered by renters insurance. There is often a clause in
the policy stating that “intentional acts” are not covered; in essence, damage
done to personal property or the building, which then causes damage to personal
property, will not be covered by renters insurance, nor will it be covered by the
lease agreement. Intentional non-action, in the form of neglect, is also the
responsibility of the renter and will not be covered by renters insurance. Power
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failure is also often noted as outside the coverage of most policies, and anything
not specifically listed in the renter’s insurance policy as being covered will not be
paid for by the insurance company in the event that personal property is
damaged or lost. Finally, general wear and tear, the sort that happens to all
possessions and can hardly be avoided, is not covered by a renters insurance
policy; after several years of using a mattress, for example, the insurance agency
isn’t going to cover the replacement cost of that mattress simply because it has
lost some of its spring.
Chapter 4: Types of Renters’ Insurance and Policies
Where To Find A Policy
Despite the fact that renters insurance is less commonly held than home, auto,
health, or life insurance, almost all major insurance agencies offer renters
insurance. Renters insurance is actually a modification, or subset, of home
insurance, and so any agency that has homeowners insurance is likely to also
provide renters insurance. When looking for renters insurance, people have
several options to consider, such as what kind of building they are living in, the
cost of their possessions, whether they’ll need to buy any floaters, and whether
they have any business needs or business equipment at the home that will
require extra coverage. The various options available to those people looking into
renters insurance will be explained in the following sections of this chapter.
Actual Cash Value and Replacement Cost
One of the most important decisions for a renter to make when buying renters
insurance is whether he or she wants the policy to cover the “actual cost value”
of his or her possessions or the “replacement cost” of the possessions. Imagine
an expensive dining room table that, after many years of use, has accrued light
scratches, a nick in one of the legs, and has noticeably worn varnish. As
mentioned in the section that discussed non-covered items, insurance
companies will not cover wear and tear to a person’s possessions, if that wear
and tear isn’t the result of an accident or any of the covered perils in the policy.
However, if the table described above, which may be slightly worn but still in
decent condition, is somehow stolen or damaged, the insurance company would
be in a position to help the renter cover his or her costs, since thievery and
accidental damage of various sorts is covered in the policy. The next question is
to decide how much monetary reimbursement the renter is entitled to in order to
replace that table. This is where the difference between actual cash value and
replacement cost becomes important. If the renter has set up a policy based on
actual cash value, or ACV, he or she is entitled to the cost of an item at the time
it is damaged or lost. So instead of getting reimbursed for the price of the table
when it was new, the renter would receive the market value for the table in its
condition as slightly worn and nicked, which is going to be much less than its
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original value. Basically, ACV is the cost of the item minus depreciation, which is
often far less than the amount a renter will remember paying for his or her
possessions. ACV can be a slightly risky policy in that a renter may not be able to
re-furnish an apartment or buy new clothes, if his or her personal possessions
are stolen or caught in a fire, with the amount of money the insurance company
pays back at the time of the loss. Typically, insurance companies recommend
that renters get a replacement value policy, which will be discussed next, but
ACV is still an option for those that want to pay less for renters insurance, since
it’s a lower cost to the insurance agency to replace items at the depreciated
price.
Replacement Cost
Replacement cost, as opposed to ACV, means the price it would cost to replace
a possession in today’s market. Looking again at the dining room table in the last
paragraph, for example, even if that table was bought ten years before the
accident and had general wear and tear, a policy based on replacement cost
would reimburse the renter for the cost of buying a nice, new dining room table
today. The policy won’t cover a table of much higher quality, but through the
claims process the insurance agency would determine how much it would cost to
purchase furniture of comparable size and quality. As is clear, the amount of
money reimbursed to a renter from a replacement cost policy is much higher than
that reimbursed through an ACV policy, and would provide much better support
for a person who loses a sizable chunk of his or her possessions. Of course, this
type of policy costs more than an ACV policy, again because of the cost to the
insurance agency; typically, a replacement cost policy is about 10% more costly
to the renter than is an ACV policy.
Homeowners and Renters Insurance Forms
Deciding between replacement cost and ACV is one key decision to choosing a
renters insurance policy, but the renter also has several different forms of
homeowners insurance between which to choose. Renters insurance is included
as a subset of homeowners insurance, and as such the renters insurance
policies are included in the policy types for homeowners insurance. ACV or
replacement cost can actually be associated with certain homeowners insurance
forms, complicating the process even more, but the most common types of
homeowners and renters insurance, which are called the “Broad Form” policies,
cover all of the perils listed earlier in chapter two. The following sections are
divided up by type of homeowners insurance form: the first two sections relate to
insurance provided to those people who own homes, the following two sections
relate to rented structures, and two sections after that discuss less common and
special forms that can be chosen or added to a homeowner’s/renter’s insurance
policy. Each separate type of homeowners insurance is designated by “HO-#,”
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which stands for “Home Owner” and is the umbrella term for any kind of
insurance related to a person’s living space, whether owned or rented. The
information on insurance provided to homeowners is included in order to provide
a complete picture of the types of insurance available, and in particular the
differences and similarities between insurance for renters and insurance for
homeowners. Additionally, because there is a lot of overlap in terminology and
policy specifications between renters insurance and basic homeowners
insurance, it is helpful to understand all the variations on this type of insurance.
HO-1 and HO-2
The two types of insurance listed here are specifically meant to insure homes, or,
as defined in insurance terms, a structure or dwelling that is occupied by the
owner and used for residential purposes. Additionally, a “home” cannot have
more than two families living in it, and cannot have more than two additional
people renting rooms, per family, per night. Though this may seem convoluted,
it’s meant to differentiate between a rented structure and a home, even though
that might initially seem self-evident. Forms HO-1 and HO-2 cannot be
purchased as renters insurance, for the simple reason that they cover not only
personal possessions but also the actual building’s structure. HO-1, which
insurance companies rarely sell anymore, and which has actually be
discontinued as a form of home insurance in many states, is a basic form policy:
it provides insurance coverage against eleven, rather than sixteen or seventeen,
perils. Left off of the list of items covered by HO-1 are damage due to snow, ice,
or sleet, falling objects, freezing plumbing pipes or temperature-control systems
in a house, bursting or splitting plumbing pipes or other temperature-control
systems, accidental overflow of any of those systems or pipes, electrical current
malfunction, or collapse of a part of the dwelling.
Many homeowners have an HO-2 policy, which is called “broad form policy” or a
“named perils policy” and covers all of the perils listed above as well as those
included in HO-1. This broad form policy is very similar to the broad form policy
that most renters have, with the distinction that an HO-2 policy covers a building
as well as the contents, or personal possessions, inside of that building. Also
included in not only HO-2, but in almost all forms of homeowners insurance, is
coverage for additional living expenses, liability, and items in transit, all of which
were described as common elements to a renters policy in chapter 2.
HO-3 and HO-5
An HO-3, sometimes called “special forms” or “open peril,” policy goes even
further, and is consequently slightly more expensive, than an HO-2 policy. In
addition to covering all of the perils listed in HO-1 and HO-2, an HO-3 policy
covers all risks to a building except for those specifically listed as “non-covered.”
Those non-covered items include the perils listed in chapter two, including
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earthquake, flood, hurricane, nuclear threat, war, and several others depending
on the specific policy. Personal possession coverage is the same as in an HO-2
policy; possessions are covered only against perils listed, rather than covered
based on the “open peril policy” form. An HO-3 policy offers the most
comprehensive coverage for a home, and is growing in popularity; it is currently
the most commonly purchased type of home insurance. The essential difference
between an HO-2 and HO-3 policy is that an HO-2 policy covers only the perils
named on the policy, while an HO-3 policy only excludes the perils specifically
listed on the policy. In this sense, the HO-3 policy can give homeowners more
confidence that no matter what happens– since it’s hard to imagine all of the
possibilities and prepare for unforeseeable events– they will be covered.
The most comprehensive form of homeowners insurance is an HO-5 policy,
which is also an open peril policy and which covers not only the structure of a
house, as does the HO-3 policy, but also the personal possessions within that
structure. An HO-5 policy is called a “comprehensive form” because of the
overarching nature of the coverage it provides, and is also the most expensive of
the types of homeowners insurance, since it does offer protection for all risks
except those specifically excluded in the policy. This type of coverage is not as
common as HO-3, but may grow in popularity among homeowners, as the HO-3
policy has, as people become more cautious and want more protection for not
only their house but their possessions, as well.
HO-4
The terminology used to differentiate the policies described above can also be
applied to policies that are specific to renters; named peril and open peril are
important distinctions to make when looking for a renters policy, just as it makes
a difference to coverage and cost in a homeowners policy. The most common
kind of renters insurance is HO-4, again known as a “broad form policy.” Like the
HO-2 policy, this renter’s policy provides coverage against named perils– looking
back to chapter 2, specifically against the sixteen or seventeen items listed. This
specific form can also be called a “tenants form” and does not provide coverage
for the structure, but rather for the contents of that structure. The general
attributes of the HO-4 policy are those described earlier in chapter two, included
coverage for personal possessions, liability, additional living costs, and
possessions in transit. It does not provide coverage against either the specific
risks listed on the form, which often include natural disasters or “acts of God” as
well as neglect or intentional acts, and cannot ensure coverage against risks not
specifically listed on the form.
HO-6
The coverage for a person living in a condo, which can also be a rented
structure, is slightly different than the coverage for someone renting an
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apartment. Figuring out the difference between an apartment and a condo may
not always be easy, but there are a few ways to make sure that a renter is getting
the right type of insurance. A person can rent either a condo or an apartment, but
the biggest difference between the two is that an apartment is part of a building
or establishment with one property deed, while each individual condo has its own
property deed. Additionally, a person can own a condo, because of the fact that it
has its own deed, while an apartment can only be rented. Condos typically
require the owner or renter to pay an association fee, as well, in order to maintain
common areas like a pool, grassy areas, sidewalks, or tennis courts, while an
apartment renter does not have to pay an association fee. Technically, a condo
owner or renter is responsible for a piece of land; because they have the deed to
the condo, the space that the condo takes up, be it on the sixteenth floor of the
building or the first, is land. Based on these differences, people who own or rent
condos need something other than the HO-4 policy in order to protect their
belongings. The same can be said for people living in co-op apartments, but the
situation of these people is slightly different than those of condo owners or
renters. A person who owns or rents a co-op apartment has stock shares in the
apartment or housing unit as an entity rather than owning land. The building in
which the apartments are situated is owned by a corporation, and based on the
size and location of each apartment, the owner or renter is allocated a certain
number of shares. The co-op apartment isn’t actually considered to be real
estate, but rather personal property, so the question of a property deed doesn’t
come into play. As with condo associations, a co-op renter or owner often has to
pay association fees to the corporation maintaining the apartment cooperative.
Co-ops
Insurance for both condo and co-op apartment renters or owners typically comes
in the form of the HO-6 policy, designed specifically for the nuances of this kind
of living space. The HO-6 policy, like many of the other policies, covers named
perils, liability, additional living costs, and items in transit; HO-6 is the broad form
policy for people living in condos or co-op apartments. It protects the renter or
owner’s possessions as well as any parts of the building structure that that
person owns; this may include walls, ceilings, sidewalks, or windows, depending
on the condo association, and can vary greatly between associations and
regions. The majority of condo associations have basic liability coverage that
protects tenants and/or owners in common spaces; if a condo owner slips on the
side of a pool, for instance, it’s very likely that the condo association would be
liable for medical and court costs associated with that accident. If, however, the
same person slipped over his or her front door stoop, the condo association
would not be liable for medical costs; rather, the renters insurance, in the form of
this HO-6 policy, should help pay for that. The difference between “common
areas” and “personal areas” or “personal property” again varies by condo
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association and should be explained in the policy for that property so as to allow
the renter or owner to better decide on a level of coverage and what
modifications, if any, to add to an HO-6 policy.
HO-7
Just as there are many different types of living arrangements and structures, the
list of types of homeowners’ coverage continues in order to provide specialized
coverage to anyone who needs insurance. An HO-7 policy is meant to insure
people living in mobile homes, and is not as common as the broad form policies
for homeowners and renters, but is important in that it protects the structure and
possessions of a person or family living in manufactured housing. This can be
cheaper than an HO-2 or HO-3 policy, based on the clear differences between a
mobile home and a permanent home, but offers many of the same benefits in
terms of the perils covered and the additional coverage provided, such as loss of
use and liability, as well as protecting any additional structures on the person’s or
family’s property.
HO-8
An HO-8 policy, also known as an actual cash value policy, reaches back to the
notion of ACV versus replacement cost as a type of insurance coverage. This
type of insurance is designed specifically for older homes that have depreciated
in value and would cost a great deal of money to insure for the full replacement
cost. An old Victorian home, for instance, may be rather large and ornate, and
based on real estate prices today could represent an investment beyond that
which the family living in that house could afford to spend on a home, should they
move voluntarily. In insuring that home, choosing a replacement value policy
would cost quite a bit more than an ACV, or HO-8, policy. Though insurance
agencies commonly recommend replacement cost forms, in this case an HO-8
policy would make more sense, since the value of the house to the family may
not actually be that of the cost of an equally sized and modern house.
Additionally, some insurance companies will refuse to sell an HO-2 or HO-3
policy to the owner of an older and hard-to-replace home, based on the notion
that the replacement costs would be so much higher than the market value. If the
family or individual opted to, and were eligible to, buy an HO-2 or HO-3 policy for
the house, they would be paying a much higher premium on the structure than it
really necessitated, and in the case of an accident or loss of the house, the
homeowner would be reimbursed at a much higher rate than that which they
theoretically needed (taking the amenities of the current house into
consideration). Based on this, it often doesn’t make financial sense for either the
homeowner or the insurance company to pay for a replacement cost policy for an
older house.
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Special Forms and Endorsements
In addition to the specific policies outlined above, there are various odds and
ends that can be added on to renters insurance, and which are also classified
through the homeowners insurance system. As mentioned in chapter two,
earthquake, flood, and hurricane insurance can be added to any policy, as can
various floaters to insure specific possessions. To add to these, there is a long
list of endorsements that can be added to a renters or homeowners policy. For
homeowners who want the most protection possible, there is guaranteed
replacement cost coverage, which is slightly more comprehensive than
replacement cost coverage: the former type of endorsement will cover the costs
of restoring a home to its former condition, in the case of extensive damage such
as a fire, beyond the limits of the policy. This is designed to take into account
increasing construction costs or the price of difficult-to-obtain materials. An
inflation guard endorsement takes into account the increasing cost of a home,
and adjusts the policy accordingly; the change in premium is calculated on an
annual basis. Finally, homeowners can add an endorsement to cover a
secondary property, such as a lake cabin, which wouldn’t be covered under the
original homeowners policy. Of these three types of endorsements, only inflation
guard is available to renters, which is key to note in that though a renter can get
replacement cost coverage, this doesn’t mean that the insurance company is
required to pay above and beyond the policy to restore all of a person’s
possessions. The inflation policy is not usually included in a standard renters
insurance policy, just as it isn’t included in a standard homeowners insurance
policy, but it can be important in order to make sure that the renter is
compensated fairly for the market prices of his or her possessions at the time of
the loss. The endorsement for a secondary residence can become important to
any renter who splits his or her time between two locations, but most insurance
companies will not add this kind of endorsement to a renter’s policy. Some
companies will make modifications to incorporate this, but more commonly, the
renter would have to purchase separate policies for the two residences.
Cash and Securities
Similar to riders, a renter can also purchase an endorsement to provide extra
coverage specifically on money and securities such as bank notes, deeds, etc.
Because these things can be very difficult and costly to replace, it may warrant
additional coverage if a renter has a great deal of financial goods and/or
paperwork to his or her name. Similarly, a renter can buy an endorsement to
cover credit card forgery and depositor’s forgery. This endorsement usually does
not have a deductible, and can help protect a renter to an extent beyond the
protection given by the bank. A renter or homeowner can also purchase
additional theft coverage protection: through this endorsement, the renter is
protected to higher limits not only for possessions in the apartment, but against
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theft from a car, watercraft, or trailer without proof of forced entry. Condo owners,
or those under policy HO-6, are not eligible for this endorsement. Finally, a
specific watercraft endorsement can be added to a renter’s policy in order to
ensure that any accidents or medical costs incurred aboard a sailboat or motor
boat are covered; in essence, this type of endorsement extends the liability
coverage in the policy.
Policy Limits on Individual Items
Depending on the policy that renter purchases, and the company from which the
person gets that policy, the basic reimbursement limit for individual items can
vary. For instance, many policies, without a specific rider for a person’s
computer, have a per-category theft limit. Common categories include
computers, jewelry, large electronics, and antiques– precisely those categories
for which it is recommended that renters consider purchasing additional riders for
the rental policy. The policy limit for a computer, for example, is generally
somewhere between $3000-$9000, while the most that many insurance
companies will pay for stolen jewelry is $1000. On the other hand, some renters
insurance only covers up to $1000 of office equipment as a whole, which
wouldn’t be enough to replace a computer, printer, external drive, or whatever
else a renter might have in a home office. Other common categories on which
insurance companies set theft limits are furs, which may or may not be included
in the “jewelry” category limit but are typically limited to $1000; silverware or gold
ware, which is often limited to $2500; any firearms, typically limited to
somewhere between $2000 and $3000; collections, such as those of stamps or
graphic novels, which have typical limits similar to those for firearms; and fine art,
rugs, or tapestries, which will typically only be compensated up to the market
value of the item, since the majority of those items cannot be replaced and are
not intended to serve a “useful” purpose.
In comparison to the policy limits on individual items, when a renter purchases a
rider as part of his or her renters insurance, he or she can typically set the limit
on that rider so that as much or as little of the cost of a particular item is covered.
Obviously, as the amount of coverage rises and the deductible lessens, per what
the renter decides upon with his or her insurance agency, the premium for the
policy goes up, but if a renter owns a $10,000 camera or a $25,000 diamond
ring, he or she will probably want to either get a rider with no limitation or with a
much higher limit than the basic policy, since the few thousand dollars of
coverage in most HO-4 or HO-6 policies will not come anywhere near making up
for an item of that price. The reasons for riders were discussed previously, but
suffice to say that based on the category limits for many common household
items, many rental policies need to be modified to include riders to make up for
what can be somewhat low coverage on high-priced items. Each renter would
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have to decide upon the risk to those items, and whether the per-category limit in
the original rental policy would be enough to provide a satisfactory replacement.
Chapter 5: Special Situations In Renters Insurance
Business Renters Insurance
For those renters who work out of the apartment, condo, or co-op apartment, an
HO-4 or HO-6 policy may not provide enough coverage, and additional businessspecific coverage will be necessary in order to sufficiently protect the renter’s
belongings and to provide liability coverage for the business employees. A renter
who has a business in his or her home typically has more possessions– whether
electronics, files, office equipment, or business products– than a regular renter or
homeowner, as well as more liability risks, and there are several options
available to business owners in order to insure themselves against loss, damage,
or injury. Depending on the size and scope of the business, the business owner
can opt for an “incidental business endorsement,” which will be added on to the
existing renters policy and covers equipment and structures connected to the
business. This would be appropriate for a smaller business or one that did not
need extensive coverage, and each insurance agency has different regulations
as to what businesses do and do not qualify for coverage through this
endorsement.
If the business does not qualify for this endorsement, or if the owner does not
feel that the coverage provided is sufficient, he or she can get one of several
package policies. One of the most common options for a renter looking for
business insurance is a package deal that provides liability, property, and
equipment coverage, elements of business renters insurance that will be
explained in more detail in following sections. This is a policy separate from a
regular renters policy and offers relatively comprehensive coverage to the
business owner. Some insurance agencies offer package deals that combine
renters insurance and business insurance, which ensures that the renter and
business owner doesn’t pay for overlapping coverage but is fully covered in the
event of damage, robbery, or injury.
The Dangers of Not Having Business Renters Insurance
Many in-home business owners, just like many renters, do not immediately
consider getting insurance. The business may be small, or not have many
employees, and the renter and business-owner may not consider the assets and
equipment associated with the business to represent a significant enough cost to
need insurance. However, when considering the fact that any business, no
matter how friendly or small, can be sued for misrepresentation, defective
products, copyright infringement, or breach of contract, it makes sense to have
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some kind of coverage. Additionally, as mentioned, medical costs for employees
can be an important consideration, as can the loss of income that a renter and
business owner would have to sustain if his or her apartment, and subsequently,
business, were damaged or robbed. A renter with an in-home business, in the
case of a devastating robbery or disaster, would not only accrue the extra cost of
living outside of his or her home for a period of time, but would also earn far less
income during that time because of the loss of business equipment and space,
making it especially dangerous for in-home business owners to go without any
kind of insurance. Finally, in some renters insurance policies, the coverage
provided in the policy will be void if the renter has not told the insurance company
that he or she is using the rented space as a business; losses may be
considered business losses rather than personal property losses, and since a
renters insurance policy covers personal possessions, even those items that the
renter could use both for personal activities and business, such as a computer,
desk, or rug, would be exempt from coverage, leaving the renter with all of the
replacement costs. This can even extend to all costs in some renters insurance
policies, which essentially voids the entire policy simply because the renter did
not initially modify the policy to include some kind of business insurance.
Insurance agencies differ on how they deal with this issue, but anyone running a
business from home should make sure to know the specifics of his or her policy.
Legal Requirements
Though business insurance is important for any homeowner, it’s actually legally
required for renters. Because a renter who runs a business out of his or her
apartment does not actually own the property on which the business is operating,
he or she is required by state and federal laws to purchase business renters
insurance. Liability insurance for employees is another key piece to this: for both
renters and homeowners, a home business owner who employs four or more
people has to purchase a minimum of liability insurance to cover any injuries or
diseases that an employee contracts while on the job. As in the case of
possessions that are not covered by renters insurance because of their use in
connection with a business, if an employee of the business owner injures him or
herself in the renter’s apartment, the liability coverage that comes with most
renters’ insurance policies will not cover the costs for medical attention. Again,
this may extend to any injuries sustained in the rented space; because it doubles
as a business, an insurance agency could consider any liability issue to be
associated with the business, so if a renter did not have business renters
insurance, he or she would have to foot the bills.
Business Basics
There are three general sections of coverage that business renters insurance
can cover: liability, which was discussed in the previous section, building and
property, and equipment and assets insurance. Because a renter is not
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technically responsible for the building structure, this can sometimes be a tricky
area, but the idea behind getting building and property business insurance is to
cover additional costs that would not be covered by the landlord or property
association. An accident that damaged the building property due to business
activities could cost a significant amount, and because the coverage provided by
the property association might or might not cover much of the cost of fixing that
damage, the renter could be stuck with a serious expense. Anyone who owns a
home business knows that he or she spends much more time at home than the
average person, and with that increased time spent in the building comes
increased risk of an accident, so it’s beneficial to the renter and business owner
to have some kind of coverage. Finding out the limits to structural damage in the
property insurance provided by the landlord or property association is key to
determining how much building and property insurance to add to a policy.
Additionally, the business owner should determine the coverage provided by the
landlord in relation to the boiler for the building, and should purchase additional
coverage for any accidents or outages connected to that.
Business Personal Property
Coverage for assets and equipment covers, as it indicates, the personal property
associated with the business. This is more along the lines of what a regular
renter’s insurance policy might cover: all of those items that the renter, and here
business owner, owns and keeps in his or her rented space should be covered.
Business renters insurance can, and often does, include riders similar to those
associated with regular renters insurance; though the business renters policy
may have higher limits on certain items, such as electronics or computers, many
business owners need additional coverage for specialized equipment or simply a
large amount of electronics, paperwork, or other important items to the home
business. These policies vary from person to person, just as home businesses
vary, so in finding a good business renters policy, it often behooves business
owners to shop around, since insurance agencies offer differing limits on certain
categories of items as well as different coverage policies with regard to what is
and is not covered by basic renters insurance when the renter is a business
owner. Often, a business renters insurance policy comes as a package of the
three types of insurance important to business owners: just as most renters
insurance policies include liability, property damage, and additional living costs,
many business renters policies come with liability, building and property
protection, and equipment and asset protection.
Saving the Environment and Dealing With Business-Interruption
More specific elements to consider when looking at a business renters insurance
policy are those pertaining to environmental hazards posed by in-home
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businesses, as well as the additional costs that a business owner would accrue if
his or her home and business were damaged or robbed. As mentioned in the
introduction to business renters insurance, this latter situation could prove
devastating: having an in-home business is like putting all of your eggs in one
basket, and for that reason the business-interruption coverage that a business
renters policy can provide may be worth the slight additional cost. Some policies
include this in the initial package, but often business-interruption is an additional
endorsement on the policy, much like the endorsements described earlier in
relation to regular renters insurance. Business-interruption coverage is similar to
the “additional living costs” or “loss of use” coverage in renters’ policies, except
that instead of making up for food, shelter, gas, or Laundromat expenses, the
business-interruption endorsement compensates the business owner for part of
his or her income, since it can often be difficult for that person to continue his or
her regular business activities without an office and any important equipment that
was damaged or stolen.
Another key endorsement that can be added to business renters insurance is
environmental hazards coverage. Any business that deals with chemicals or
other potentially environmentally harmful items would do well to look into this
endorsement, since any spill, release of fumes, or other damage caused to
property could be expensive to clean up properly or fix. This isn’t something that
most renters would have included in their regular policies, since it’s not a
common risk in most homes, and might not be something that a business owner
would immediately consider as a risk, either, but depending on the type of toxin
used by the business, following the legal procedures for environmentally safe
clean up and disposal of those toxins might be beyond the financial means of the
business owner.
The Hazy Areas
While an established home business with numerous employees is easy to peg as
needing business renters insurance, there are many situations in which the
definition of “business” is not so clear, which raises questions for renters about
whether or not they need additional coverage. Is employing the next-door
neighbor as a babysitter considered running a business from home? What about
doing part time work from home as a technical writer? Though policies differ by
insurance company and state, many insurance agencies do not consider “casual
employees,” such as a babysitter or house cleaner, to qualify the renter as
running a business. If a person or family regularly employs ‘casual employees’
such as a babysitter, it may make sense to get a rider on the renters insurance
policy in order to provide workers compensation in the case of an accident, rather
than purchasing a business renters policy, but again, it varies from policy to
policy as to whether casual employees are covered under the liability insurance
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that comes with the rental policy or whether that coverage is void because of the
person being employed by the renter.
Business Considerations
For those people who do part time work at home, or who run a one-person
business with no employees in the home, a full business renters policy may also
not be appropriate. Some people may not qualify as running a business if they
make below a certain amount of money: some insurance agencies put a cap on
the amount that a person can earn at home before they are classified as a
business owner, and those agencies will cover property and liability under the
regular renters insurance policy for those people who make under that cap. A
person running a full-time business from home, who would make above that cap,
might do better to purchase the incidental business endorsement as an add-on to
his or her regular renters insurance policy, rather than getting a package deal for
business insurance; because that business owner does not have the same
liability issues as an owner who has employees working in his or her rented
space, it would be a waste of money to pay for extra liability coverage. On the
other hand, if the renter’s liability insurance, through the regular renters
insurance, is voided on the premise that the living space is also a business, then
the renter would need to purchase that additional business liability insurance.
The specifics of how to adequately provide for liability coverage would be
something a renter would need to discuss with his or her insurance company,
since, as stated, this varies from company to company.
Renters Who Don’t Need Renters Insurance
As with almost everything in life, there is an exception to the notion that all
renters need renters insurance. College students, or any students living in a
dorm, are technically renting a space; they do not own the dorm room in which
they reside, and some universities and colleges ask for a security deposit on the
room, just as a landlord would. However, many of these students are covered
under their parents’ or guardians’ homeowners insurance. Almost all policies
cover students who are under the age of 18, and so even though the student’s
possessions may be halfway across the country, loss or damage to that personal
property would be covered under the provisions in the homeowner’s policy. A
high percentage of homeowners insurance policies also cover students over the
age of 18 who are still dependents; because dorm-style housing is so common
for students who leave home for college, many insurance agencies include
coverage for this kind of situation in the homeowner’s policy. However, it’s
important to check with the insurance company, since this coverage isn’t always
included in homeowners insurance. An endorsement can often be added to cover
a student’s possessions while he or she is away at college, and usually costs
very little. Colleges and universities, just like landlords, are responsible for the
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dormitory structure, so the real concern is protecting a student’s possessions,
which can be easily stolen in a building full of students who may or may not lock
their doors.
In the case that a student needs renters insurance– which may occur if the
student is legally independent, if the homeowners policy doesn’t cover dormliving, or if the parent and/or student wants a small policy with a lower deductible
specifically for the student’s possessions– special dorm insurance, separate from
the homeowner’s policy, is also provided by some insurance agencies, and is a
modified version of renter’s insurance. Usually, because many college students
live in single or double rooms without a kitchen or bathroom, dorm insurance is
very cheap: there is less risk associated with plumbing or kitchen accidents,
though policies will still provide some coverage against fire or water-damage.
Students who live in Greek housing on campus may need renters insurance that
exceeds simple dorm insurance, and students who live off campus would need
regular renter’s insurance in the form of an HO-4 policy, just as anyone renting a
room would need.
Military
Though it might seem odd, given the dangers that many enlisted men and
women face on a daily basis, because enlisted members of the military are often
in the position of renting their housing from the government, they too face the risk
of loss of personal property. An enlisted member of the military who lives in
government housing, whether that takes the form of a subsidized apartment,
barracks, or privatized family housing, will be provided with some coverage by
the government, but the coverage isn’t necessarily enough to cover the cost of all
the service member’s personal property. As with a typical renter, the little things
add up: a military member may have an expensive computer, mp3 player, DVDS,
jewelry, or clothing that he or she would be at a loss to replace were that item
stolen or damaged. Even small possessions add up in cost, and for that reason,
many military members could benefit from renters insurance. Some, of course,
would have adequate coverage under the government insurance policy provided
to service members, but this insurance isn’t designed to provide the more
comprehensive coverage that renters insurance provides, and does not include
coverage against the number of perils included in a regular policy. Renters
insurance for military members is similar to renters insurance for those people
living in ‘regular’ apartments: it typically comes with coverage for possessions as
well as liability coverage, and personnel can purchase additional riders or
endorsements for specific items that need more coverage. Additionally, additional
living expenses may be covered in the case that a rented space becomes
unlivable, though this will vary based on the government housing provided to the
service member and the coverage provided by the government. Maybe ironically,
one of the exclusions listed in most rental policies is damage due to war, so
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military personnel who sustain losses or damage in the course of service are not
eligible for personal property reimbursement either through a renters insurance
policy or through the government property coverage.
Because military personnel often move more frequently than the average renter,
having a policy that allows for changes in location can be very important: as will
be discussed in more detail in the next section, some policies are very flexible in
terms of allowing a person to carry the policy from place to place without
significant changes in coverage, while other insurance agencies require a great
deal of information in order to transfer a policy from one place to another. Finding
a policy that doesn’t have limits in terms of the locations in which it can be used
is important for military personnel, who don’t always have control over exactly
where they are stationed. On the other hand, living arrangements and
involvement in the military varies significantly by branch and position, and many
service members would not need a rental policy: a service member who owns a
house and has homeowners insurance, for instance, would most likely be
covered under that policy and would not need renters insurance.
Moving
Whether the renter is a student in the dorms, military personnel, or a person
living in an average apartment or condo, typically those people who look into
renters insurance are prone to moving more than a person who gets or needs
homeowners insurance. A typical renter may live in a different location from year
or year, or even change locations several times within a year, and a student who
is not covered by his or her parents’ insurance may be moving every semester or
trimester. In light of this, it’s important to know the insurance agency’s policy on
carrying renters insurance from place to place. Most insurance agencies will
prolong the insurance provided for 30 days after a renter moves to a new location
before requiring the renter to terminate or re-apply for a policy, but a few require
that the renter update his or her renters insurance policy before moving into the
new rented space in order to be covered. The variance is a result of the vast
difference that location, building material, and safety equipment can make to a
policy. If a person moves from a rural apartment in Vermont to a high-rise
apartment in New York, the price of coverage and the specifications about
amenities and the building material are likely to change. On the other hand,
renters insurance does primarily cover belongings, and so in comparison to
changing other types of insurance policies, it’s relatively easy to carry a renters
insurance policy from place to place and to update it as needed.
For those renters who move a great deal, it may make more sense to buy a
policy that doesn’t take into account the location, but rather covers only the
person’s possessions: some insurance agencies will insure personal property
regardless of location (while still requiring a valid mailing address). This can be
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pricier than a regular renters insurance policy, since the insurance agency has to
compensate for any number of location-related risks, and not all insurance
companies offer this kind of renters insurance; it’s more common for a company
to require specifics about the location in order to draw up a policy.
Pro-rating
Because of the fact that so many renters change location over a relatively short
amount of time, and consequently need to change or update their renters
insurance, it’s important to understand the means of transferring and paying for
that policy. Specific costs will be discussed in detail in the next chapter, but in a
general sense, most insurance companies will pro-rate renters insurance to take
into account the few months that a renter might use the policy. If a renter pays
the entire policy up front– which is not always necessary, and is discussed
further in the next chapter– the insurance agency will typically send a
reimbursement check back to the renter when the policy is terminated. If,
however, the renter moves to another location in which he or she is renting
space, and therefore would still need renters insurance, the new or updated
policy would be pro-rated to take into account any increases or decreases in the
cost of the policy, and the renter would either need to send the additional amount
of money or would receive a reimbursement check from the insurance company
for the difference between the policies. As should be clear, renters insurance is
generally flexible and can meet the needs of a very diverse group of people.
Catastrophic Events
Many renters question what would happen if a large-scale flood, earthquake, or
hurricane devastated their area, and consequently, personal property.
Theoretically, all of the coverage provided by renters insurance, including
personal possessions, additional living expenses, and liability, if that somehow
played a role in the natural disaster, would cover the renter’s costs. However,
when a natural disaster strikes an area, insurance companies face a huge
number of claims for a variety of situations and price ranges, and many
insurance companies outline specific procedures and coverage that would be
provided in the case of a natural disaster that affected a large number of
homeowners and renters. Because each homeowner and renter might have a
different insurance company, sorting out who owes who what, and what services
are provided for which policyholders, can become a complicated matter very
quickly. Additionally, because many renters won’t have flood, earthquake, or
hurricane coverage, many people will be left out in the cold when it comes to
recovering their losses.
For those renters who do have some kind of coverage against natural disasters,
the response from the insurance agency in the event of a disaster will be slightly
different than that which the renter would get for an individual claim. Most
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insurance agencies, to meet the needs of both homeowners and renters, will
send agents to the location of the natural disaster in order to assess the damage.
These groups of agents are often called “catastrophe teams” and are specially
trained to meet the needs of homeowners and renters facing huge losses.
Obviously, because of the larger scale of the damage and the higher number of
people who would need to have their homes or apartments considered for
reimbursement, the assessment process would be handled differently: in addition
to looking at each policyholder’s specific residence, the adjusters would consider
typical damage to residences in the area in order to better inform renters of what
kind of reimbursement they might be eligible to receive. Especially if the area is
not accessible, filing a claim and reimbursing policyholders can take longer than
it might usually, but renters would still need to file a claim as quickly as possible.
Some insurance companies set up a hotline specifically in connection to a
particular natural disaster, and the agents on the catastrophe team usually set up
appointments on the spot with policyholders. Additionally, in these instances,
insurance companies may work with independent adjusters in order to better
serve the needs of all policyholders; even a large catastrophe team will have a
hard time getting to all of its clients in a timely manner. Finally, a few insurance
companies actually provide snacks or meals to their clients as a way of beginning
to make up for the losses that people have sustained by way of the disaster.
Chapter 6: Costs
Typical Coverage
As should be clear from the previous sections that outline the variations possible
in renters insurance, the costs to buy this kind of insurance can range quite a bit,
depending on the amount of coverage a certain person wants, how many, if any,
riders he or she needs, whether he or she is running a business from home, etc.
Shopping around with several insurance companies, just as a person would in
order to get the best insurance rate for his or her car or home, is important in
order to find a company that can best accommodate the particular needs of a
renter.
The state in which a renter lives can greatly affect how much he or she pays for
renters insurance, but as an average, a basic policy, without additional riders or
endorsements, only costs the renter between $100-$300 annually. Dorm
insurance, discussed in the previous section, costs near the low end of this scale,
or even, in some cases, below $100. That few hundred dollars is the average
cost for a policy that includes coverage for personal property, liability, and
additional expenses/loss of use costs. In general, the price of a renter’s
insurance policy is about 1% of the personal property coverage provided by the
policy; so a policy that costs $200 per year usually gives the renter a personal
property limit of $20,000. Standard policies range from as little as $10,000 to
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$40,000, and can usually be raised in order to accommodate a renter. Many
companies have a minimum limit on the policy– $10,000 of coverage, for
instance– that the renter has to purchase, even if he or she does not believe that
the cost of his or her possessions adds up to that minimum. The liability limits
associated with a policy covering up to $20,000 might be something closer to
$80,000, in a typical policy, but the limits for liability can be adjusted separately
from the limits for personal property, and average liability coverage ranges up to
$120,000. Again, most companies set a minimum for the amount of liability
coverage that a renter has to purchase, with that minimum somewhere in the
area of $25,000. In general, the renters’ insurance policy is flexible, and the
renter can add or subtract coverage for those areas that he or she believes carry
the most risk. However, an insurance company should recommend something in
the neighborhood of the figures quoted above as an initial policy.
Coverage Outside of the Home
The coverage limits that are applicable inside the renter’s apartment, condo, or
other rented space are generally significantly higher than the coverage limits
outside of the home. As mentioned earlier, many insurance companies offer
coverage for personal property, such as sports equipment, that is used outside of
the home, and for personal property in transit. However, because the insurance
company doesn’t have control over the areas in which a renter might use his or
her property, there’s a higher risk of damage to the property, and for that reason
it would be much more expensive for the insurance company to provide equal
coverage outside of the home. A typical renters insurance policy will cover 10%
of the amount of coverage provided inside the home for personal property that is
lost or damaged outside the home. However, this only applies if the personal
property is lost or damaged as a result of covered perils. For instance, because a
regular renters policy covers damage to personal property due to falling objects,
if a renter who takes his or her laptop to the library ends up incurring damage to
the computer by way of someone dropping a heavy book on top of it, the rental
policy would typically cover part of the cost of replacement. If the renter had a
regular policy limit of $30,000, he or she would be entitled to up to $3000 of
coverage for that damaged laptop.
Liability coverage outside the home varies from policy to policy, as well as
depending on the type of liability coverage that the landlord or property
association has. If the landlord carries liability insurance for the sidewalks leading
up to a person’s apartment, for instance, the landlord would be responsible for
taking care of any accidents that happen in that space. However, many lease
agreements specify the area in front of the apartment, such as the sidewalk,
stoop, and possibly a grassy area, as the responsibility of the tenant. In that
case, the renter would need to check with his or her insurance agency to make
sure that the liability coverage associated with the renter’s insurance policy would
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cover any accidents immediately outside of the home. Most liability coverage
does extend to those areas, but on occasion the renter would need to specify
that in his or her policy.
Costs To The Insurance Company
The major consideration in determining the cost of a renter’s insurance premium,
as described, is how much risk the insurance company is assuming for theft,
disaster, dog bite, and multiple other possibilities. Paying to replace all of a
person’s possessions is extraordinarily costly, which is, of course, why a person
would get renters insurance in the first place. And despite the fact that renters’
insurance policies are relatively inexpensive, an insurance company is a
business, and they need to make money through the transaction. Typically, a
renter won’t have to use his or her insurance policy: most renters won’t
experience a devastating fire, huge robbery, or natural disaster that destroys
everything in the apartment, meaning that the insurance company comes out
financially on top. To keep the company in the black, an insurance agency also
has to adjust for inflation, competition, and the changing costs of running the
business, which means that a renter’s premium can vary depending on the
economic status of the region or country: though the factors listed previously that
influence the price of renters insurance will affect that policy no matter the
economic situation, the premium as a whole may go up or down depending on
the current costs to the insurance company.
An additional consideration is the risk to the insurance company of insuring a
person who has historically made a high number of claims. Though the CLUE
Report and credit scores, as elements important to determining the price of a
policy, will be discussed in the next chapter, it’s important to mention here the
lower price and lower risk that the insurance company assumes by insuring
people with few or no claims made in recent years. Some companies go so far as
to give “discounts” to renters who have never filed a claim: these discounts may
be called the ‘claim free’ or ‘no claims’ discount, and actually function as a
mechanism by which the insurance company is allowed to raise the price of
coverage once the renter has filed a claim. Claims, too, will be discussed in more
detail in a later chapter, but suffice to say that insurance agencies have to
carefully manage the risk posed by each person who applies for coverage.
Deductibles
Another factor in the cost of renters insurance is the deductible upon which a
renter decides. The deductible is defined as the amount of money that the renter
would pay out of pocket before the insurance company provided financial
support. A higher deductible means that the insurance company has less
likelihood of having to pay the renter anything; if the renter’s policy has a $500
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deductible on personal possessions, and the renter’s $500 TV is stolen, the
insurance company is not responsible for any part of that cost. On the other
hand, if a fire wipes out the renter’s entire apartment, the $500 that the renter
pays will pale in comparison to the coverage provided by the insurance company.
Of course, the upper limit on personal property coverage will determine whether
or not the renter has to pay not only the deductible but also the extra costs for
replacing possessions when expenses exceed the policy limit, but that’s
something that should be taken into consideration when deciding upon a policy
limit.
A typical deductible for renters insurance can be as low as $250 and usually isn’t
much higher than $1000. Most renters choose a deductible of $250 or $500.
Because the renter needs to have the monetary amount of the deductible
available at all times, it’s not a good idea to set the deductible too high, especially
if the renter doesn’t have a huge number of possessions to insure or much extra
income. Because renters insurance in general is fairly inexpensive, setting a
higher deductible, though it will decrease the renter’s premium, doesn’t always
make a big enough different to make it worth the additional cost the renter would
have to pay if he or she were robbed or the victim of a natural disaster. Some
insurance companies, however, set separate deductibles for natural disaster
protection: while a renter’s overall deductible might be $250, his or her
‘earthquake deductible’ could be set at a much higher rate in order to keep the
cost of that portion of the insurance lower. Often, insurance companies set these
deductibles as a percentage of the total cost of replacing a renter’s possessions,
so if total coverage for the renter were $100,000 and the earthquake deductible
were set at 4%, the renter would be responsible for paying the first $4000 of
replacement costs, while the insurance company would pay the rest (up to the
policy limit). The same kind of percentage deductible may be applied to floods
and hurricanes, depending on how the insurance company incorporates these
kinds of perils into its renters insurance policies.
Discounts
Despite the relatively minor cost of this type of insurance in comparison with
regular homeowners insurance or car insurance, putting together all of the costs
associated with purchasing renters insurance can nevertheless be a daunting
task. Trying to add up all of one’s possessions, shopping around for insurance
companies, and making sure to get all of the extra coverage for personal
property that’s necessary to properly protect oneself may be overwhelming for a
renter, so it’s important to also look at the potential discounts that a renter could
get on his or her insurance. If a renter who also owns a car or other vehicle buys
renters insurance through his or her car insurance company, the company is
likely to provide a small discount on the auto policy, called a multi-line discount.
For instance, if a car owner then gets a rental policy, his or her car insurance
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premium might go down by 10%. Other companies go the other direction, and
offer discounted renters insurance when a customer has a car policy; in that
case, the renters insurance might get somewhere in the neighborhood of a 20%
discount, since the total policy premium is likely to be much less than that for the
car. Having life insurance with the same company may also provide a discount
on renters insurance, though this is less common.
In addition to multi-line discounts, some insurance companies will provide senior
discounts to renters over the age of 55 and organization discounts to members of
certain groups. Organization affiliation discounts vary from company to company,
but membership in Greek organizations, credit unions, alumni status at certain
colleges or universities, ownership of particular credit cards, and other affiliations
are all potential ways to get a discounted rental policy. Finally, a few insurance
companies, as they become more environmentally friendly and do more business
without paper, provide a discount to those renters who choose to conduct their
business online and provide banking information to allow the insurance company
to deduct the premium directly, rather than sending out paper statements each
month.
Chapter 7: How Premiums Are Determined
How Much Are You Worth?
While the insurance company will determine how much it costs to insure a certain
renter, before the company can give a person an accurate amount of coverage
and quote a certain premium, the person has to have some idea of how much it
would cost to replace all of his or her personal property. Many renters
underestimate this: looking at all one’s possessions, it’s easy to overlook small
items or to envision how much it might cost to replace each and every kitchen
spoon, bathroom curtain, or book on the shelf. Clothing and literature are often
overlooked: people assume that it wouldn’t cost that much money to replace
pants and shirts, or they look at books individually and don’t assess the price of
replacing the collection as a whole, but taking the time to add up the prices of all
of those items can surprise a renter. Most renters, after taking inventory of their
belongings, need at least $10,000 of coverage, with the typical renter owning
around $20,000 worth of items.
This is where careful preparation comes into play: before setting up a rental
policy, a renter should take an inventory of all of his or her possessions. An
inventory, in the realm of insurance, means a list of all of the personal
possessions a renter has, along with the prices paid for those items. Taking
pictures can also be a good idea: a few snapshots of each room can not only jog
a person’s memory as to what they actually had, in the case of needing to file a
claim for items lost in a fire, but can provide solid proof to the insurance company
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as to what the renter is owed. The inventory, though potentially tedious and timeconsuming, should contain certain information in order to help a renter and
insurance company determine the cost of replacing the renter’s possessions.
Including on the inventory not only the name of an item but a description, the
date purchase or obtained, and the price paid or the market value of the item can
be useful if the renter needs to make a claim. Some items, such as antiques, fine
art, or possessions for which the renter has no proof of ownership or receipt,
should be appraised over the course of creating the inventory so that the renter
has proof of the value of the item. After all, it’s much harder to determine how
much that antique vase was worth after it’s gone. Receipts can also help a renter
figure out just how much his or her possessions are worth, as well as making it
easier to claim money in the event of an accident or robbery. Many insurance
companies offer home inventory checklists or even computer software that can
be used to compile that list when getting renters insurance.
Location, Location, Location
Past sections have alluded to the large number of factors that go into determining
the price of a renter’s insurance policy, but it’s important to know exactly how the
insurance company calculates the rate that they provide to the renter. Location
makes a difference to the rates in that some areas are considered higher risk
than others: certain states, for example, have higher starting rates for renters
insurance than others, and certain areas within a state will carry higher rates. For
instance, an apartment in inner-city Philadelphia might represent more of a risk
for theft than would a rented house in rural New Hampshire, meaning that the
premium for that inner-city apartment would be higher. On the other hand, if the
inner-city apartment had good security protection, such as a burglar alarm,
smoke detectors, and a fire department within five miles, the risk due to damage
and theft would be lower. If the rented house did not have those types of security,
it could potentially represent more of a risk for the insurance company, even
though the probability of theft would still be lower than the probability for the
inner-city apartment. As this small example shows, insurance companies have to
weigh various factors in order to create a rate that is affordable for the company
and also offers sufficient protection for the renter.
Credit Reports and Insurance Scores
Another key factor in determining the price of renters insurance to a particular
person is his or her insurance score, which is determined from that person’s
credit report. Though some insurance companies weigh this more heavily than
others in calculating how much to charge a renter for insurance, many
companies are moving in the direction of more reliance on this score, since it will
tell them the likelihood not only of the person paying his or her insurance
premium on time, but, more importantly to the insurance company, since the
price of renters insurance isn’t very high to start, the likelihood that a person will
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file a claim, which can cost the company quite a bit of money. A person’s credit
report includes personal information, a description of payment history– how
satisfactorily a person has paid his or her obligations to other insurance
companies, banks, mortgage agencies, retailers, etc– public records related to
that person, such as court summons’, foreclosures, or bankruptcies, and a list of
other companies or individuals who have requested a copy of the person’s credit
report in the last few years.
Certain elements in the credit report are used to determine the person’s
insurance score: debt, the length of a person’s credit history, timeliness of
payments, the number of different types of credit and the amount of credit a
person has available are all common factors that play into determining an
insurance score. The insurance company compiles this information and does a
statistical analysis to compare the potential client with other people who have
similar profiles, and in that way they can obtain the ‘insurance score’ that tells
them the likelihood of a renter filing of a claim. Not all insurance companies use
the same calculations to determine an insurance score, so the renter would do
well to consider several insurance agencies, since a certain credit profile might
earn the renter a lower premium with one company than with another. However,
a renter with bad credit will most likely also earn a poor insurance score, while a
renter with stellar credit is likely to get lower premiums, on average, with
whatever insurance company he or she chooses to use. Clearly, insurance
companies assume more risk with those renters who are likely to file a claim, so
an insurance score can make a substantial difference to the price of the
premium. If a renter maintains the same renters insurance policy for an extended
length of time, and believes that his or her credit has improved over that period, it
might make sense to renegotiate with the insurance company– the company will
not incorporate new credit information into a policy as it becomes available, but
would rather have to order a new credit report, meaning that the renter might
have to actually buy a new policy based on that new information. Despite the
hassle, this might be worth it to a person who is charged more based on bad
credit.
CLUE Reports
Also in the realm of background data used by insurance agencies to determine
the price a person will pay for renters insurance is the Comprehensive Loss
Underwriting Exchange, or CLUE Report. Though the CLUE Report, which is
associated with a large property claims database used by insurance companies,
is the most common type of report, an A-PLUS Report is the same kind of
information, simply provided by a separate company. These reports give
insurance companies a picture of a renter’s risk profile, which sounds similar to
the insurance score but is actually larger than that; the CLUE database is a
national bank of information exchanged between many insurance companies,
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and as such the CLUE Report on a particular person will contain not only that
person’s insurance score but a plethora of other facts. Much of the data revolves
around claims made on homeowners or car insurance, and so a person’s renters
insurance premium might change based on whether that person had made any
claims on his or her auto insurance in the last few years, since that could indicate
a higher likelihood of making a rental claim. Even inquiries or questions about
coverage can be submitted to the CLUE database, though this varies by state:
some states ban the use of information about inquiries. However, in general the
insured party, whether for auto or home, is not told when information is passed
back and forth between insurance companies.
Similar to the credit report, a CLUE Report contains some personal data about
the renter, as well as a history of losses and the money paid by insurance
agencies to cover those losses. Again, questions put to the insurance company
about damage, even if the renter does not officially file a claim, can end up on the
Report and could potentially result in a higher premium simply because of the
risk that the renter poses to the insurance company. The report looks at the
previous five years of loss history, so activity before that point should not affect a
person’s CLUE Report. The benefit of the CLUE Report is that it provides solid
information about a renter, or any potential client to an insurance company,
rather than the insurance company having to rely solely on what that client tells
them about his or her history. The statistical analysis done through using the
CLUE Report and a person’s credit score allows the insurance company to
standardize the process of creating policies and to minimize risk. However, the
risks to the renter are that information may be used against him or her without
knowing about it, that information on the CLUE Report might be inaccurate and
thus a premium would be unfairly calculated, and that loss information due to
natural disasters, such as a tree falling on a person’s apartment, might negatively
affect the report, despite the fact that the renter could do little to prevent that
accident and would have a legitimate reason to file a claim. Some states are
taking this latter issue into consideration by making laws about the specific types
of losses that can be used in the CLUE database and disallowing natural
disasters claims to negatively affect the Report, but it is nevertheless a good idea
for the renter to be informed about his or her CLUE Report since it can be a
significant piece of how an insurance company calculates a policy premium.
Beware of Dog
The difficulties associated with pets was mentioned in chapter 2, but the subject
merits a little bit more explanation in terms of the difference a dog can make to a
renters insurance policy. Though it might seem like a minor issue, dog bites are
actually one of the fastest growing areas in which renters are filing claims with
insurance companies, and as such it represents a significant risk to the insurance
agencies. The medical costs associated with a dog bite can be relatively high, so
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the liability coverage provided in a renter’s insurance policy needs to also be
fairly high in order to compensate for that, which will consequently raise the
premium price. A renter who has a dog will likely have to answer detailed
questions about the dog in order for the insurance company to determine the
increased rate. The breed, as mentioned earlier, is important in determining
whether the dog is typically aggressive, as is the dog’s age and its history. If the
dog has displayed aggression in the past, or if it has ever bitten anyone,
information about the circumstances of the incident, including the level of medical
attention needed to treat the wound. If the owner is taking precautions to ensure
that the dog does not bite or attack anyone again– classes or training programs
for the dog, fenced areas outside, and keeping the dog on a leash, for instance–
that may benefit the renter and keep the premium to a lower rate, but a dog with
a long history of bites or attacks will likely pose too much of a risk for the
insurance company. In this case, a renter may not be granted a renters
insurance policy. Additionally, if the dog has been previously trained as a guard
dog, the insurance company may raise the premium price or refuse to provide a
policy.
The higher premium that a renter with a dog would have to pay for his or her
policy does not mean that the policy necessarily carries extra coverage: dog bites
fall under the liability coverage in a renters insurance policy, which is, on the
average, about $100,000. In place of simply a higher general premium, some
insurance companies will require that the dog owner purchase an endorsement
that provides extra liability coverage specifically for injuries from the dog.
Additionally, some policies, based on state laws, simply do not include dog bites
in the liability coverage, so a dog owner would need to check with his or her
insurance company to find out if there were a way to add that coverage to the
liability portion of the policy. In lieu of coverage through the renters insurance, a
dog owner could purchase an umbrella policy, or could look into very specific
“canine liability coverage,” a separate insurance policy that is offered by only a
few companies at this point.
Additional Considerations In Determining Premiums
In addition to differences in renters’ insurance premiums due to location and
security, a category that also takes into account fire sprinklers, the proximity of a
fire hydrant to the rented space, and the number of smoke detectors in the
space, insurance companies also take into account the material used to build the
structure, as well as when the building, apartment, or condo was built. As
building techniques and materials advance, risks associated with fire, plumbing,
and heating and cooling systems decrease. An older house may not have
plumbing that is as reliable as a new apartment building, and a brick building may
be less of a fire risk than a wooden building, even if both were built around the
same time. Whether or not the doors have deadbolts can also alter the cost of
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the policy: though some insurance agencies won’t get this specific, others
change the policy premium incrementally based on whether the doors are well
protected. In the realm of fire risk, a renter’s premium can also depend on any
independent heating sources: having a woodstove or fireplace in the apartment
or condo, in addition to central heating, poses an additional risk, and so the
insurance company is likely to charge more for the policy. With some insurance
companies, having a smoker or smokers in the house will also raise the
premium, since this raises the risk of accidental fire.
An underground storage tank or a pool is an additional risk for water damage, so
a renter whose rented house or apartment includes either of these things may
incur additional costs. However, since for many apartments or condo
associations, the pool is considered a common area, the landlord’s insurance
often covers liability issues in relation to this. Personal property would still fall
under the renter’s insurance policy if damaged in that common area. Finally, the
number of people living in the space makes a difference to the insurance rate:
the more people that live in the space, the more likely it becomes that the renter’s
personal property could be stolen or damaged, so although the premium is not
likely to change significantly based on a one person difference either way, it may
raise a little bit when there are more occupants.
Rising Prices
The insurance company from which the renter initially buys insurance is under no
obligation to maintain the premium first quoted to the renter. Of course, the renter
will have a legal contract designating the set period of time for which he or she is
insured, and payment is fixed for that time period, but there are numerous
instances that can void that contract and change the price of insurance. The
most obvious and most common occurrence that changes a renter’s premium is
making a claim, though different claims will affect the premium differently. As
discussed, dog bites are a serious issue for insurance companies, and if a renter
has to file a claim to pay for the medical and court costs associated with that dog,
the premium price is almost certain to change.
The Nuts and Bolts: Actually Paying The Premium
Like many insurance policies or large investments, the premium for renters
insurance doesn’t have to be paid all at once. The majority of insurance
companies offer installment plans, and so even a “small” policy, such as one
covering $10,000 worth of possessions and costing the renter $120 annually, can
be paid over a period of time. For smaller premiums, the insurance company may
set up a six-month payment plan, while larger policies may be paid over the
course of the year. Many companies do not charge interest or require any
additional kind of payment in order to pay the policy in installments, as opposed
to in one chunk, and this can be a useful tool for those renters who cannot
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manage the full cost of renters insurance immediately upon moving in to a new
apartment or condo.
What If It Just Costs Too Much?
There are several reasons why a person might choose not to purchase renters
insurance. Some people simply don’t know about it; others think their
possessions are not worth enough to insure; but still others cannot afford the
additional costs, especially if they are already barely making ends meet.
Discounts were discussed earlier, and any renter who feels that he or she cannot
pay for the premium quoted by the insurance company should first look into
lowering that premium through discounts. After that, there are a couple scenarios
that might lower the premium. A renter who has a high premium because of a
dog or exotic pet may have to make a decision about whether that pet is worth
the potential risk that he or she would be assuming by not purchasing renters
insurance; since some dog owners are refused renters insurance altogether, it
might not be worth the possibility of having to pay for the replacement of all
possessions in order to keep that dog. If a renter who has relatively good
‘credentials’ in terms of getting a low premium– no pets, a high credit score,
security/protective devices, few possessions– still cannot afford the cost of
renters insurance, that renter could potentially opt out of the liability coverage
and additional costs coverage offered through the insurance agency, choosing
only to protect his or her belongings, which would lesson the overall cost of the
renters insurance. Despite the fact that this isn’t recommended, it’s better than
having no insurance at all, and because rental policies are divided up into those
sections, theoretically a renter could choose only a part of the coverage.
Unfortunately, beyond this there are few options for renters who cannot afford
renters insurance. Though it is possible to look into single item insurance, to
cover one or two very valuable items in lieu of covering all possessions, the
companies offering that kind of insurance are few and far between, and the
coverage, depending on the value of the item or items, might not be much less
than the cost of renters insurance.
Chapter 8: Claims and Losses
Safety Measures
Most renters will not have to go through the process of filing a claim, but when a
renter has a legitimate reason to use his or her insurance policy as a way of
repairing or replacing possessions or covering medical expenses, there are
numerous aspects to filing a claim and being paid through the insurance
company. The saying goes that “the best defense is a good offense,” which,
when applied to renters insurance, means taking proactive steps to ensure that
one’s possessions are not damaged or stolen in the first place, but that if and
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Understanding Renters Insurance
when those possessions are damaged or a person is injured in the renter’s
apartment or condo, the policy will cover the costs. Before even getting renters
insurance, a renter can research insurance companies in order to determine
which might be the most reliable in the case of filing a claim. Several
independent agencies rate insurance companies in terms of services offered,
cost effectiveness, efficiency in processing claims, and typical monetary rewards
in the case of various types of claims.
The importance for a renter of carefully reading a policy cannot be overrated; the
corollary to that is that insurance companies should spell out their rental policies
in detail so as not to get involved in lengthy claims disputes. Especially in the
case of controversial issues, such as coverage for dog bites or mold, both the
insurance company and the renter gain from a carefully designed and clear
policy and can save themselves time and money later on. Claims can become
very complicated very fast, especially if there’s a question of whether the landlord
has any responsibility; while a rental claim made on a stolen TV may be clear
cut, a case in which the renter files a claim to replace all kitchenware due to
contamination from mold, as the result of water damage, will not be as easy to
resolve.
To File or Not to File: That Is the Question
Though having renters insurance is important in order to protect the renter from
catastrophic events or the loss of an expensive piece of property, not every loss
or repair should be directed to the insurance company. The costs to the
insurance company go up as the renter files more claims, and many companies
will raise the renter’s premium as he or she continues to claim money, even if the
claims are all legitimate. The renter has to consider the effect on his or her CLUE
Report and credit score, both of which go into calculating the renter’s insurance
premium, and it may not be worth it to file a claim for the loss of property that the
renter could actually replace out of pocket. Clearly, the renter has to pay his or
her deductible out of pocket regardless of the claim, so if the deductible were
close to the cost of replacing the item or paying for any medical costs, it wouldn’t
make sense for the renter to file with the insurance company.
Before contacting the insurance company, the renter would benefit from checking
with his or her landlord as to whether any part of the damage or loss is covered
under the lease agreement. Because any inquiry to an insurance company might
result in information being added to the renter’s CLUE Report and the insurance
company subsequently calculating a higher premium in order to protect the
company, it’s best to know whether the claim is even the fault of the renter.
Looking carefully at the least agreement and the renter’s insurance policy can
help both parties determine who has financial responsibility, or whether the
damage is covered under either policy; if the renter sustains damage to his or her
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possessions by way of a peril that’s clearly not included in the policy, there’s little
reason to contact the insurance company, unless there’s any question about
whether a part of the damage is covered.
Surcharges
Another consideration when dealing with renters insurance claims is the question
of whether the company charges the renter a fee for making a claim. The
surcharges range dramatically in price, and some companies don’t add a
surcharge to claims over a certain amount, but those that do usually charge a
percentage of the premium as a whole. For example, a renter might have a policy
for which he or she pays $150 annually. If that renter files a claim for $1000, and
his or her deductible is $250, he or she would be responsible for not only the
$250, but also a percentage of the $150, and with surcharges ranging from only
10% up to almost the entire cost of the premium, that might be a significant cost.
The possible surcharge is something that the insurance company and renter
should discuss when setting up a deductible for the policy. Though it makes
sense for a renter to choose a deductible small enough to be manageable should
he or she have to pay out of pocket for repairs or replacement of an item, the
temptation to set a low deductible should be balanced with the likelihood that the
renter would file a claim for something only slightly over the $250 or $500 he or
she chooses. Setting a higher deductible can almost work as a psychological
device to keep renters from filing small claims and consequently incurring the
surcharge associated with those claims. Additionally, a higher deductible saves
both the renter money on his or her premium as well as saving the insurance
company money in case of a claim, since the company would not be responsible
for as much of the repair or replacement cost.
How To File
If a renter does decide to file a claim, there is an order of events that benefit both
the renter and insurance company. The type of claim that the renter intends to
file is important: if he or she has lost property or sustained damage to property as
the result of a theft, the first agency to contact is the police, rather than the
insurance agency. The police would conduct an inspection of the apartment or
condo for the purposes of a legal investigation before the insurance company got
involved. However, for the purposes of both the police report and investigation as
well as the insurance claim, the renter should not attempt to repair any damage
to the apartment or his or her possessions; to report an accurate claim and be
reimbursed the correct amount of money by the insurance agency, it’s important
that the adjuster from the company be able to see the extent of the damage. On
the other hand, if the damage makes the apartment unsafe– if a burst or broken
pipe were in danger of further breaking and falling, for instance, or if a
malfunctioning stove were likely to cause further fire damage– the renter should
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“stabilize” the situation to ensure that no one got hurt and that no more damage
was done to possessions or the building structure. In the case that a renter had
to move or clean up part of the damage before the adjuster came to see the
apartment, a video or pictures of the damage would be useful in filing a claim, if a
camera were available at the time.
While it’s important for the renter to first ensure that he or she has a legitimate
claim and does really want to file the claim, if it’s for something relatively small,
as well as making sure that the fault is not on the part of the landlord, once the
decision is made to file a claim, the renter should contact the insurance agency
as soon as possible. If the claim is for personal property but is not the result of a
theft, the insurance agency should be the first organization that the renter calls
(as opposed to the police). Many insurance agencies have a statute of limitations
on how long they will accept a claim after the actual event; some companies cite
30 days as the length of time for which they will consider a renter’s claim. Once
the claim is filed, the length of time it takes for the insurance company to process
the renter’s file can vary depending on the type of claim: small claims, since they
may be easier to deal with, can take less time– maybe a few weeks– to process.
On the other hand, the more catastrophic claims, or those which require liability
coverage or additional living expenses coverage, may take the insurance
company’s attention before simple claims, since it is in their interest to finish any
legal battles quickly or to get a renter back into his or her apartment or condo and
not have to pay the costs associated with living somewhere else. It depends on
the insurance company as to how they prioritize claims, and depending on the
complexity of the situation and any legal battles involved, the claim can be
cleared up within a week or may take months or even a year to resolve.
Loss of Use/Additional Costs Coverage
When filing a claim for losses or damage, a renter may also claim money to
cover additional living expenses if his or her apartment or condo is rendered
unlivable due to the accident or theft. In this case, it’s extremely important that
the renter keep any and all receipts for expenses, from the costs of gas to
Laundromat charges to the price of eating out or even paying for additional
groceries. Even in the case that a renter has no inventory of his or her
possessions, and thus has a difficult time claiming any money to replace those
possessions, he or she still has the chance, after the loss, to claim some money
for the costs incurred as the result of that event. In order to be reimbursed for all
costs, the renter should check with the insurance company so as to determine
what levels of costs the company will cover; if the renter decides to go to a ritzy
hotel and eat out at expensive restaurants every night, the insurance company
won’t cover all costs, even if the renter has good documentation of the prices
associated with living outside of his or her place of residence. The insurance
company usually has figures that they consider comparable to the standard of
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living the renter had before the accident, and will reimburse the renter up to those
standards. This may be outlined specifically in the renter’s policy, or the section
on additional living expenses might simply say that the renter will be reimbursed
at “comparable” levels, so it benefits the renter to find out how the insurance
company defines that term and can help the insurance company avoid messy
claims disputes later if the renter knows what the stated limits are for additional
costs coverage.
Filing for Business Renters Insurance
Though there are several important differences between regular renters
insurance and business renters insurance, the claims process for both types is
similar. An in-home business owner who has a loss to report should make sure
that he or she has an inventory to show the insurance company, as well as
records of how the items lost related to the business in particular. This can be
slightly difficult if many of the items lost could be considered both personal
property as well as business property, and in order to determine which items
should be claimed under business renters insurance, the renter should look at
how his or her policy was initially crafted: for those insurance companies that
consider any possession used for business to fall under that type of insurance, all
damaged items should be claimed under that policy. For those insurance
companies who cover any item that is used for non-business pursuits as
personal property, that part of the renter’s insurance would carry more of the
coverage.
However the policy is structured, one of the potential differences between an inhome business owner’s claim and a regular renter’s claim is the loss of income
that an in-home business owner will probably have due to the damage or loss.
This isn’t always the case, and of course depends on the extent of the damage,
but if the business owner believes that he or she will be halted from working for a
certain amount of time, or will not be able to work as efficiently because of having
lost important documents or equipment, he or she would need to prove that loss
of income to the insurance company so as to be reimbursed. Again, good
documentation comes into play here: the business owner would need to provide
evidence of typical income made and the way in which the damage or loss would
hinder his or her ability to work.
Adjusters
When a renter makes that call to the insurance agency to file a claim, the next
step is for the insurance company to send an adjuster to the place of residence in
order to assess damage or loss. Occasionally, for very clear-cut claims, the
adjuster may not need to go to the apartment or condo; if the renter has solid
proof of ownership of something that was stolen, for instance, the renter can fill
out a “proof of loss” form and any other paperwork needed by the company, and
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there doesn’t need to be a face-to-face meeting. However, for many claims, it’s
important for the insurance company to send an adjuster to the renter’s home in
order to correctly calculate the amount of money the renter is due. In the case of
a liability claim, the adjuster also attempts to negotiate a settlement with the
injured party, though this can become more complicated if that person sues or
the adjuster cannot reach a settlement that is both possible on the part of the
insurance agency and satisfactory to the victim. The insurance adjuster is meant
to “control loss severity,” meaning to make sure that the settlement amount does
not exceed what is absolutely necessary, an important consideration in keeping
costs to the insurance company down, while a renter may not see the settlement
in that light and will obviously be fighting for the most money that he or she can
get.
In order to determine the amount of financial loss sustained by the renter, the
adjuster may consult experts in other fields, such as contracting, construction,
engineering, or accounting. The issue of this tension that arises from the nearly
unavoidable conflict between finding the amount that the renter is really owed for
the lost or damaged possessions or liability costs, according to his or her policy,
and the goal of the insurance company to maintain a profitable business, is what
can occasionally make claims a hard business. Because claims adjusters work
for the insurance company, this can be a difficult situation for both the renter and
the company. While cynics or those people who may have had a bad experience
with a certain insurance company will say that the insurance company tries to cut
corners and ‘scam’ the policy holder by coming up with a reimbursement below
what the repair or replacement will actually cost the renter, the difficulty of
calculating the exact dollar amount needed to cover a person’s lost is hard to
overstate. Most adjusters go through extensive training and continuing education
courses, and are trained to help policyholders rather than just making money for
the insurance company, but there is never a guarantee that a figure quoted by
one adjuster will be the same as that quoted by another adjuster. The adjuster
faces the same problem that many renters initially face in trying to determine how
much their possessions are really worth: going through and finding the market
value for every little thing can be extraordinarily hard to do.
Independent Adjusters
Though many insurance companies discourage renters from going to an
independent contractor or independent adjuster, others encourage the renter to
get several opinions, though ultimately the amount that the renter is given will
depend on the specifics in his or her policy. In light of the difficulty of determining
an accurate amount of reimbursement, many renters opt to hire an outside
adjuster, one who isn’t affiliated with the insurance company. Even with good
faith in an insurance company, this can be a good thing to do in order to assure
oneself that the reimbursement price will be sufficient to replace or restore all of
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Understanding Renters Insurance
one’s property or will cover medical and court costs. There are numerous
independent adjusters who work with homeowners and renters in the event of a
claim, though there is, of course, a fee associated with hiring one of these
independent, or public, adjusters. The benefit to hiring an independent adjuster is
that he or she is being paid directly by the renter, and therefore has a vested
interest in serving the client. Conversely, the insurance adjuster is paid by the
insurance company, again reaching back to that tension between the renter and
his or her insurance agency. In the case of a court case or legal battle, the renter
may need to hire a claims attorney, who will often work with a public adjuster in
hopes of getting a higher reimbursement from the insurance company.
Appraisals
An appraisal is the assessment, by an expert in the field, of the market value of a
particular item or damaged property. As briefly mentioned earlier, it can benefit a
renter to get some of his or her possessions appraised before getting renters
insurance so as to be able to purchase appropriate coverage or riders to cover
particularly expensive items. Having that appraisal first can be helpful when
trying to make a claim and get the correct amount of reimbursement, but if a
renter loses some of his or her possessions and does not agree with the amount
calculated by the insurance adjuster as to how much a particular item was worth,
an appraisal can still be useful. The insurance agency is typically supposed to
provide an appraisal in the case of a dispute with the renter, though this differs by
insurance company and is never certain. Because an appraisal will be more
specific to a particular type of damage or item than the overall adjustment
calculated, it can provide good expert information to add to that calculation. If a
renter finds that his or her fur coats have been damaged by a burst pipe, for
instance, the adjuster will come up with a reimbursement amount that takes
those coats into account, but with an extra appraisal, the total amount might
change. An appraiser who works specifically in jewelry and furs may have more
knowledge on the subject and market values of those types of possessions than
the adjuster does, which will likely give the renter more confidence in the quoted
price.
If a renter loses an item, making it impossible to actually look at and appraise, he
or she can still get an appraisal if there is sufficient evidence of the condition and
value of the item to form an opinion about a reimbursement price. The renter may
have pictures, receipts, or warranties on certain expensive items, all of which
would help an adjuster and appraiser to decide upon the worth of that item.
However, if the renter does not have any of this type of evidence to prove the
value of his or her possessions, and had not had an appraisal done before losing
the item, the renter may not have a lot of say in determining how much he or she
is reimbursed for that particular item.
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The Importance of a Good Inventory
When making a claim, the basis for assessing the value of what has been lost or
damaged is often the renter’s inventory of his or her possessions. Obviously, in a
liability claim, explaining the situation and injury would be more important, but for
claims made on personal property, it’s hard for a renter to claim the amount of
money he or she feels is deserved unless there’s a solid way of proving the
monetary value of what has been lost. As was mentioned briefly earlier, the
inventory should be structured in such a way as to give the insurance adjuster,
and company, factual evidence about possessions. In making an inventory, there
are certain steps that a renter should take, and which an insurance company
might want to recommend to its renters in order to facilitate the processing of any
claims made. A good inventory will have not only a list and pictures, but a video,
as well. This can actually be easier than making a list: the renter can take a video
camera and go from room to room, making sure to sweep around the entire
space and look in drawers and closets as well as in open spaces. Having an
additional list or photos of smaller items can be helpful, as well, if the video ends
up giving the renter just a broader view of his or her possessions. The important
step is to somehow make sure to cover all possessions in the inventory.
For pricier items, the renter would want to have not only receipts and the date of
purchase, but also the market value given through an appraisal. When moving
into a new space, getting those appraisals for a few items can pay off in making a
claim. It’s important for the renter to keep the name and location of the appraiser,
in the case of a dispute later on, and to keep any paperwork associated with that
appraisal. In addition to that paperwork, keeping warranties, serial numbers for
any appliances, original packaging for expensive items, and even product
manuals can help in filing a claim and deciding upon the amount of money to be
paid. Items that the renter might want to focus on are those that are theft prone:
electronics such as the TV or DVD player, personal music players, computers
and cell phones, kitchen appliances, jewelry and furs, high-priced sporting
equipment, and antiques. Any paperwork associated with those items should be
included in the inventory, as should a good visual record as well as specifics
about model number or type. Once the renter has made his or her inventory, one
of the most important, and often forgotten, steps in the process of preparing for
the worst is to store that inventory outside of the home. An inventory that burns
along with the rest of a renter’s possessions in the case of a home fire won’t do
that renter any good in proving the value of his or her possessions. Having two
copies of the inventory is a good idea, as is storing it in a safety deposit box or
other secure location.
Proving The Case
While the inventory is the major piece of information used in claims disputes,
having those copies of any police report and estimates for repair outside of the
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estimate given by the insurance adjuster can also make it easier to come to an
agreement about the amount of money to be paid to the renter. There is a statute
of limitations on how long the renter can take to prove his or her losses: for most
insurance companies, the renter has 30 days to compile information describing
the monetary amount that he or she feels is deserved, which means pulling
together all of that information that pertains to the values of the renter’s personal
possessions. Though the insurance company has an obligation to settle claims
quickly and fairly, the renter has an obligation to report his or her losses in a
timely manner, so it’s important for both the insurance company and renter to be
clear on the time period in which that process needs to take place. Once the
renter has reported a loss, if there’s a disagreement with the insurance company,
there’s another set amount of time in which the renter needs to prove his or her
case through legal arrangements: most insurance companies cap the amount of
time at a year, which should be sufficient in order to go through even the most
extensive process of litigation in settling a dispute.
Mediation
As should be clear, filing a claim and reimbursing a renter for his or her losses
can be a complicated process, and it’s often the case that the renter and
insurance company have to negotiate the settlement value. The first step that
most insurance companies take in resolving these disagreements is to have what
is often called a “mediation.” To request a mediation, the renter usually needs to
fill out an official form or at least provide the request in writing. Just like it sounds,
a mediation in terms of an insurance claim is meant to mediate the varied
interests in the claim in order to come to a satisfactory agreement. Typically, the
renter, a representative from the insurance company, and a third party– the
mediator, agreed upon by the insurance company and the renter or the renter’s
legal representative– come together in a legal meeting in order to present their
perspectives. A mediation is less formal and costly than a post-loss appraisal,
which will be described next, but is still a legal meeting, and as such the renter
should come prepared with solid evidence to support his or her argument about
the amount of money that should be paid for the losses. Through the mediation,
the renter and insurance company might come to an agreement on several parts
of the claim or the claim as a whole, in which case the process is resolved and
the resulting payment should not take long to process. If, however, the renter and
insurance company cannot agree on all parts of the claim, or if the entire thing is
still up in the air at the end of the mediation, the two parties would need to move
on to the next step in the claims process.
The Appraisal Clause
Though the majority of claims do not get to the stage of a post-loss appraisal, in
some cases the insurance adjuster, renter, and independent adjuster cannot
come to the same conclusion about how much money is deserved in a particular
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Understanding Renters Insurance
settlement through the mediation. In that case, the renter and insurance
company can turn to the appraisal clause in the renter’s policy. In a typical policy,
the settlement process involves the insurance adjuster, an independent adjuster
hired by the renter, and a third adjuster, sometimes called the “umpire,” to be
agreed upon by the two adjusters. If the adjusters cannot agree upon an umpire,
the state court will usually be responsible for appointing that third person. In
terms of payment, the renter would pay for his or her independent adjuster, and
the cost of hiring the third person would be split between insurance company and
renter. The three adjusters would negotiate a settlement by way of presenting the
costs as each of them saw it, and then discussing the claim until two of three
adjusters agreed on a settlement price. That price, while typically higher than the
initial cost quoted by the insurance adjuster, will not necessarily be the original
value quoted by the independent adjuster, and could still fail to satisfy a renter.
However, if the renter has agreed to this process through the appraisal clause, at
the end of the negotiation the insurance company is only obligated to pay the
amount decided upon by the three adjusters. This does not necessarily mean the
end of the claims process, because if a renter re-opens the case or continues the
dispute and attempts to take the insurance company to court, the process can be
extended, but in most policies an agreement reached through the post-appraisal
process is the final monetary amount owed to the renter.
The benefit to the appraisal clause, for the renter, is the possibility of getting a
higher settlement and being fairly reimbursed for his or her losses. The benefit to
the insurance company is that the post-loss appraisal process is much less costly
than going to court, which can occur if the renter disagrees with the cost quoted
through the appraisal process. Paying for litigation will be costly to both the
insurance company and the renter, as well as taking much more time than the
negotiation between the adjusters. Not all insurance companies include appraisal
clauses in renters’ insurance policies, however; some use “arbitration,” which is
similar to the post-loss appraisal but employs the umpire as a kind of judge who
listens to both sides and then sets down a binding decision. Whatever the
process might be for settling disputes, it’s important to know what the steps are in
the case of a claims disagreement, because people who make claims will be
looking to get the maximum amount of money possible.
Litigation
If the adjusters in the post-appraisal process fail to come to an agreement– which
is uncommon, since only two of the three need to agree upon an amount, and it’s
in everyone’s benefit to settle the dispute out of court– the final step in settling a
claims dispute would be to take the issue to court. In this case, both the
insurance company and the renter would incur much higher costs in terms of
needing to hire attorneys, and the length and complexity of the case could make
it an unreasonable cost for the renter to assume. Typically, renters’ claims
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disputes do not make it to court– a homeowner who had lost his or her entire
house might have a good reason to continue the dispute, but a renter who is not
responsible for paying for any structure or building would need to think long and
hard about whether the amount of money involved in his or her claim would merit
the legal fees. An attorney might take up to a third of the final settlement amount,
making the process exceptionally costly. Additionally, the renter’s attorney would
need substantial and solid evidence to present in a court case against the
insurance company, which would mean a good deal of information such as that
described in the section on a home inventory: receipts, appraisals, video and
pictures, and any other data that would suggest a high value for the lost items
would be necessary to make a case. Because insurance law is a relatively large
and established branch of litigation, renters can and probably should search for
an attorney specializing in insurance claims or even homeowners insurance so
as to get the best settlement from the court case. Almost all insurance
companies have experienced attorneys associated with the company who will be
looking out for the insurance agency’s bottom line. Whether or not the renter and
insurance company have had a good relationship up to this point, when a claims
case goes to court, it can make for a difficult and trying experience for both sides.
Reopening A Claim
Beyond the three steps that a renter can take to address disputes over his or her
claim, if the renter settles and then later decides that he or she deserved more
money, there is always the possibility to reopen a claim. Again, this would need
to be considered in light of the additional costs associated with litigation, hiring
adjusters, appraisers, or attorneys and the amount of money that a renter could
potentially earn from reopening the claim. In some situations, this course of
action is warranted, but it would only be in those cases in which a renter had lost
a substantial amount of money. Most insurance companies have a statute of
limitations on how long after the initial claim a renter is entitled to reopen the
claim; while some companies will honor the claim for five years, others close the
window of opportunity at one year.
Common reasons for reopening a claim are if the renter has forgotten to include
an item or items in his or her claim– maybe no one noticed, at the time, that the
sporting equipment in the back of the closet was gone– if he or she got an
amount of money that didn’t seem to be sufficient or fair to cover the costs of
replacement or repair, or if the renter was completely denied for a claim and still
felt that there was a case to be made. It might be that the renter agreed upon the
first settlement amount quoted by the insurance adjuster, and once the renter
actually went about replacing and repairing his or her possessions, he or she
discovered that it cost much more than the amount provided. In that case, the
renter might have a reason to reopen the claim and present the insurance
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Understanding Renters Insurance
company with evidence of that additional cost: receipts and examples of
comparable replacement products would be key to making a compelling case.
Once A Claim Is Settled: Show Me The Money
Despite the numerous claims procedures that may be included in a renter’s
policy and in the standard practice for the insurance company, eventually a claim
will be settled, whether through the immediate and simple conversation with the
insurance company or, conversely, after months of legal battles. For legitimate
claims, renters should eventually be reimbursed. Once the claim is settled,
payment options differ by insurance company. Many companies will require the
renter to actually replace or repair his or her possessions and present the
company with receipts for purchase so as to ensure that the renter isn’t just
taking the settlement money and pocketing it to use for other pursuits. On the
other hand, the reason that the renter filed a claim in the first place was because
he or she didn’t have enough money to replace the stolen or damaged goods, so
an insurance company may provide a certain amount of money “up front” and
then require receipts of purchase for all goods and services. The amounts of
money differ based on company and the extent of the claim; often, if an
insurance agency splits its payments, the first payment is a percentage of the
entire amount due to the renter. Some companies will pay the renter the entire
cost agreed upon, up front, after the settlement is decided, and if that type of
payment is standard procedure for the company, the renter is entitled to the
amount of the settlement within a set period of time that should be in the renter’s
policy– five to ten days is the typical window in which an insurance company is
required to provide any up front costs to the renter.
Liability Claims
Up to this point, the claims that have been discussed pertain to personal
property. However, liability, in that it is a standard part of renters insurance and a
growing area in which court cases are being made, can be just as important of a
consideration in looking at the claims made through renters insurance. A liability
claim may be made by the renter in order to cover the costs incurred through a
lawsuit or to cover medical costs for a person who was injured in the renter’s
living space or by way of interaction with the renter. If a the victim, whether
friend, colleague, or even trespasser, files a claim against the renter or serves
the renter with papers for a lawsuit, the renter needs to make sure that the
insurance agency gets copies of all paperwork– without the official complaint or
court summons, the insurance company is not obligated to pay any part of the
liability costs. As with personal property claims, the liability claim needs to be
made relatively soon after the renter finds that they are responsible for either
court or medical costs. The insurance company, in most cases, is required
through the renter’s insurance policy to provide legal representation for the
renter. This works to the renter’s advantage in that they have an attorney
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Understanding Renters Insurance
immediately at hand, but can also be seen as problematic for the renter in that he
or she has little say in who is chosen to represent the case in court. If the renter
is unhappy with the legal counsel chosen to defend him or her, there may be no
other recourse other than paying for the costs out of pocket, depending on the
specifics of the policy.
In an earlier chapter, the difference between personal liability and coverage for
medical costs was outlined. As suggested there, the insurance company covers
injuries done to other people by way of negligence on the part of the renter–
forgetting to turn off the oven, for example, might result in a fire that injured a
friend staying at the apartment– or as a result of unforeseeable accidents, such
as a visitor falling down the stairs. Medical expenses can be covered by the
insurance company whether or not they are the legal responsibility of the renter,
and are often covered, to an extent, if the renter injures another person outside of
his or her living space. The case in which a liability claim made to an insurance
company would not be covered would be if the renter had done anything
intentional that resulted in the bodily injury of another person or damage to his or
her possessions. Setting up a trip wire in the hall as a joke, for instance, would
be an intentional act, and if a friend then tripped and broke his or her arm, the
insurance company would not be responsible for the legal or medical costs
associated with that event. Additionally, a liability claim made for an injury
sustained by the policyholder will not be covered; the policyholder should look to
his or her health insurance to cover that cost. The insurance company, in
reviewing the claim or through the course of a legal battle, might decide that the
injury was the combined result of negligence and of an intentional act, which
could lead them to pay for the costs of legal representation but not medical costs.
In that case, the insurance company would send a “Reservation of Rights” letter
to the renter in order to inform him or her of the liability areas covered in that
particular claim.
Chapter 9: Policy Changes, Cancellation or Non-Renewal
Policy Changes After Filing A Claim
In addition to the actual payment of the renter’s settlement, another important
aspect to the post-claims process is to re-establish renters insurance for the
renter who has filed the claim. Clearly, since the insurance company was able to
help the renter with an accident or robbery, the renter will be inclined to set up
another policy. Depending on how the claim was settled, the renter might opt to
look into another insurance company, or might try to renew his or her policy with
the existing agency. Regardless of the company from which he or she decides to
buy a policy, there are likely to be changes to the renter’s profile as well as
possible changes in how the renter decides to structure the policy, any and all of
which would change the premium. If the renter decides to renew or restructure
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Understanding Renters Insurance
renters insurance with the current insurance company, the claim might affect how
much the renter is charged; while a claim based on a natural disaster shouldn’t
affect the renter’s rate, a second claim made for theft would most likely cause the
insurance agency to change its opinion of the renter based on how that claim
would affect the renter’s insurance score and CLUE Report.
The renter, in turn, might want to make changes to his or her policy, depending
on the nature of the claim. Lowering the deductible, adding coverage in particular
areas, or getting additional riders to cover costly items are all common choices
made by renters who are the victims of an accident or theft. Looking carefully at
the policy and what did and did not aid the renter when making the claim will help
to determine what areas of the policy might need modification, or, conversely,
whether the renter is paying for coverage that is above what he or she really
needs. This latter situation isn’t very common, but unfortunately one of the best
ways of determining how well a policy ‘fits’ a renter is to make use of it, and
through having to file a claim and replace or repair possessions, a renter will
discover how well or how poorly the policy fits his or her needs.
Differences in Terminology
Before further discussing the issues related to non-renewal and cancellation of
renters insurance, it’s important to understand the difference between these two
terms. A policy may only be cancelled by the insurance company for a few
reasons: if the renter has not paid his or her premium on time (or has failed to
pay two installments of a premium on time), if the insurance company has found
that the renter committed fraud in setting up the policy in the first place, if the
renter has willfully or negligently added to the hazards in his or her living space,
or if the renter is convicted of a crime that would relate to his or her profile as a
policyholder, the insurance company may choose to cancel the policy. Some
insurance companies will set a certain amount of time after which the policy can
only be cancelled for the above reasons, while before that point they may cancel
the policy for any reason.
Non-renewal, on the other hand, indicates an insurance company allowing a
policy to expire, rather than terminating the policy in the middle of its course.
Except in cases where the renter’s policy has a length of less than 30 days, the
insurance company is required to give a renter a 30-day notice, in writing, if they
are planning on not renewing the policy at the end of the year. Because a sizable
number of renters do not hold renters insurance for a year, the insurance
company would be required to inform the renter of non-renewal 30 days before
the end of the stated period for which a renter had purchased the policy.
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Reasons For Non-Renewal
An insurance company may make the decision not to renew a certain
policyholder’s rental insurance for any number of reasons, which need to be
stated to the renter in order to fulfill the insurance company’s obligations to that
client. The dropped policy is not always the renter’s fault; an insurance company
might decide not to renew a number of policies in an area that it feels has
become more of a risk than they are willing to assume, because the company
has restructured its renters insurance and homeowners policies in such a way
that it can no longer accommodate a particular renter’s policy, or because of
tightening finances that don’t allow the company to provide insurance to renters
whose profiles make them a certain risk level. On the other hand, there are
numerous things that the renter might do that would result in a dropped policy.
Filing a claim, which will be discussed in more detail in the next section, is one of
the most common factors that can change the company’s willingness to assume
the risk posed by a particular renter. A renter’s profile might have changed in
another way, maybe in terms of credit or claims made to another insurance
company, and in reviewing the renter’s profile the insurance company might
choose to non-renew.
Most insurance companies are bound by state law to exclude claims made as a
result of natural disasters. If a renter’s apartment and possessions are destroyed
by a hurricane, for instance, though this clearly costs the insurance company
quite a bit of money, in looking at renewing the policy, the company is not
allowed to consider the fact that the renter made a claim as a mark against that
renter. The reason for this is that the renter poses no more of a risk than he or
she did at the initiation of the policy; if the insurance company had considered
the renter to live in an area at risk for hurricanes, it would be the company’s
prerogative to increase the premium rate, refuse coverage for that particular peril,
or deny coverage at the beginning of the relationship with that renter. Once the
policy is set in place, the company assumes the risks that are outlined in the
policy, and the renter is not at fault if a hurricane sweeps away all of his or her
belongings. On the other hand, the insurance agency can change the policy,
after the claim is made, if it feels that the region or neighborhood has become
more risky. That decision would need to be made based on data other than the
simple fact that the renter made a claim; numerous claims, meteorological data,
and statistical analysis might need to be involved in making that change to
renters insurance at the company.
So Many Claims, So Little Time
The number of claims that a renter makes can greatly affect his or her policy, as
stated, but knowing exactly how claims affect the policy can be helpful to the
renter and can give the insurance agency some security as to being able to
standardize and explain its actions to existing or potential clients. Many
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Understanding Renters Insurance
insurance companies, based on statistical analyses of risk such as those in the
CLUE Report, set a certain number of claims that a renter can make in a fixed
amount of time before that the company allows the policy to expire without
renewing it. After filing one claim, the insurance agency could possibly put the
client in a higher risk category, depending on the nature of the claim; after the
renter files two claims, especially within a few years, he or she will almost
certainly be put in that higher risk category and will be charged more for renters
insurance. If a renter files more than two claims in three years, many insurance
companies will choose to non-renew the policy, since the potential for the renter
to continue filing claims at that rate would represent a high cost to the company.
As has been pointed out, this doesn’t, or shouldn’t, apply to claims made as a
result of natural disasters, although if a renter filed numerous claims based on
damage due to natural disasters, the policy might change based on a
recalculation of the risk of the particular location in general.
Disputing A Cancelled Or Non-Renewed Policy
As with insurance claims, there is always the possibility for the renter to dispute
an insurance company’s decision to non-renew or cancel a policy. On the one
hand, the company is under no obligation to insure a particular renter, but it may
be obliged to refund some portion of money to the renter if he or she can prove
that the decision to non-renew or cancel was based on inaccurate or partial
information. Most insurance companies, if they decide to cancel or non-renew
with a certain renter, are required to provide an explanation as to why they make
that decision. However, the explanation may not be as detailed as the renter
would hope– an insurance company may say that the renter’s CLUE Report
indicates too high of a risk for the company to take on, or that the renter’s credit
is not high enough, and consequently his or her insurance score not high
enough, to continue insurance coverage. In these cases, the renter has the right
to request a copy of the CLUE Report or his or her credit report in order to review
that paperwork and make any corrections. In addition, the renter has the right to
request a copy of his or her profile as a client of the insurance company, and
again to review and correct that paperwork. If there are errors in any of those
reports, the renter can make the appropriate corrections and resubmit the
information to the insurance company for review, which might result in a changed
decision on the part of the company as to whether or not to extend coverage to
that particular renter. Any fraudulent changes on those reports, however, when
discovered, would result in cancelled coverage as well as possible legal action.
The timing of the cancellation or non-renewal can be cause for dispute, as well.
The renter and insurance agency should be clear on the time period in which the
company is required to notify a renter of either of those decisions: typically, the
insurance company has to give the renter a 30 day notice, at the least, of nonrenewal, and if they fail to cover the renter for that extended period of time, the
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Understanding Renters Insurance
renter would have cause for a case against the insurance company. The amount
of notice necessitated by a cancellation varies by state and insurance company,
and depends on the reason for cancellation: if the renter has not paid his or her
premium or has committed fraud, the insurance agency may stipulate a shorter
amount of time before which it terminates the policy, such as ten days. If the
insurance agency decides to cancel the policy within the window of time before
which it is obligated to cover the renter, and for a reason aside from those stated
as plausible causes to cancel coverage after that window of time– failure to pay,
fraud, clear change in risks posed, or arrest– the company may be required to
give a thirty day notice to the renter. Many of the rules associated with the
limitations on notice are set by the state, so a renter moving to a new state
should be clear on what rules bind the insurance company.
If The Renter Decides To Cancel
Of course, in addition to reasons why the insurance company might decide that it
no longer wants to cover a certain person, the renter can cancel his or her policy
at any time. This might happen if the renter decides to move before he or she
expected to leave, if he or she finds that there’s not enough money to pay for
renters insurance, or if another insurance company is found to offer a better rate.
This last reason for canceling a policy might be null if the initial insurance
company charges a fee for cancelled policies: because the insurance company
has budgeted the amount of money to be earned from a particular renter, a
renter who cancels his or her policy represents a loss to the company. In order to
protect themselves from this, some insurance companies charge a percentage of
the “leftover” premium: even if a renter has already paid the entire thing and is
being reimbursed for the months or years for which he or she does not need
coverage, the insurance company may have the right, if it is stated in the policy,
to only reimburse the renter a part of that premium. If the renter pays in
installments, the insurance company would require the renter to pay the
company a certain amount of money for the cancellation. On the other hand, not
all companies charge for cancellation, since in the larger scheme of things,
renters insurance isn’t the most profitable branch of insurance for almost any
company.
Conclusion
Despite the fact that yes, renters insurance represents a much smaller and less
profitable part of homeowners insurance, it’s a growing area in which insurance
companies are focusing as more and more renters become aware of the need to
protect their possessions and cover the costs they would incur as the result of
injury to others within the apartment or condo. Because there are so many
different types of renters– people who live in apartments, rented houses, condos,
co-op apartments, and dorms, to name a few– renters insurance has to be
extremely flexible and meet the needs of a varied client base. Both the insurance
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Understanding Renters Insurance
agency and the renter benefits as renters insurance becomes more prominent:
the insurance company profits, since a large percentage of policyholders never
end up filing any claim, and renters benefit by having the protection and peace of
mind that comes with insuring ones possessions against any number of threats.
Recent events, such as Hurricanes Katrina and Ike, have highlighted the need for
people to get renters insurance; though many of the claims filed after those
disasters were from people who had lost their homes, a substantial number of
renters filed claims, and an even larger number of renters lost everything
because they didn’t have any insurance and couldn’t turn to the landlord to cover
their possessions. Part of the effort to dispel the myth that landlords or property
managers will cover the cost of repairing or replacing the renters’ possessions
has to come from clearer lease agreements between those parties, but insurance
companies also have a role to play in promoting renters insurance. The
numerous benefits that come with renters insurance often greatly outweigh the
relatively small cost of purchasing it for an apartment or condo, making it an
attractive product to potential policyholders.
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