Renters Insurance Can Offer a Safety Net

Three months ago, 27-year-old Joel Sorensen watched as fire ripped through his Austin, Texas, apartment building. The flames were so high that firefighters couldn't get near the building. "I knew instantly that it was a total loss," says the computer-sales account executive.

Mr. Sorensen alerted his insurer, State Farm. "I had a check within a week for the entire claim and they picked up all my living expenses for 30 days," he says.

Most of the other 19 tenants, however, didn't have renters insurance. "These people are starting over with absolutely nothing," says Mr. Sorensen. "I feel pretty grateful."

A relatively low premium for renters insurance can yield a big payoff in the event of a fire or other property loss. But when you're young and don't own much, the coverage may also seem like something you can skip.

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"Not every kid with a boom-box and a laptop needs renters insurance," says Robert Hunter, director of insurance at the Consumer Federation of America. He says to consider it if you have a lot of high-priced furniture, electronic equipment, jewelry or collectibles. Add up the estimated value of your possessions to decide. Typically the smallest policies cover $10,000.

Renters insurance covers your belongings in many cases of theft or damage, and it may pay for temporary living expenses if your rental is damaged. Policies typically include some form of liability protection, which pays, for instance, if you are sued by someone injured in your apartment.

'Actual' or 'Replacement'?

You have two choices in insuring your possessions. "Actual cash value" policies pay the depreciated value of the damaged property -- say, the current market value of that computer you bought new three years ago. "Replacement cost" coverage reimburses the cost of replacing your property.

Most insurance specialists recommend replacement-cost policies even though they typically cost around 25% more. "An old pair of jeans may be worth a buck today, but what's a new pair of jeans cost?" says Jim Fiske, vice president of marketing at Chubb Personal Insurance.

According to Allstate Insurance, the average annual renters insurance premium is $195. Cost varies based on policy size and where you live. Those living in urban and disaster-prone areas will pay more.

The deductible, or the amount of loss you shoulder before the insurance kicks in, is commonly $250 or $500. To lower your premium, consider opting for a higher deductible, says Tim Wagner, director of Nebraska's Department of Insurance, but "get only what you can afford to lose."

Renters in some locales should consider purchasing flood insurance or additional coverage against earthquake damage and other events that aren't covered under standard policies.

Some insurers, including State Farm and Allstate, will extend parents' homeowners insurance coverage to dependent adult children, typically 25 years old and younger, even if they are out of school. Some state and domicile restrictions may apply.

Note that roommates typically need separate policies unless they qualify as "domestic partners."

Call Your Auto Insurer

If you already have auto insurance, be sure to get a quote from that insurer as you weigh various renters-insurance offers. You may qualify for a "multi-line" discount. State Farm offers to discount your auto-policy premium by 5% to 15%, while Allstate may cut both your auto- and renters-insurance premiums 5% to 15%.

Basic smoke alarms can save you 2% at State Farm, while having an alarm that automatically dispatches authorities can save you as much as 15%.

To learn more, try the National Association of Insurance Commissioners' consumer information Web site, www.InsureUonline.org. There you can also find links to sites of the individual state insurance departments.