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Do You Need Renters Insurance?

Maryalene LaPonsie

When the building that housed Paul Joseph's office burnt to the ground, it could have been a bad situation. After all, the space was rented, and the insurance policy held by Joseph's landlord didn't cover the office contents. Fortunately, the attorney and certified public accountant with the firm Joseph & Joseph in Williamston, Michigan, had a renters insurance policy that paid to replace everything lost in the fire.

"I think renters insurance is a critical thing," Joseph says. "It's your property, and you need to protect it." That's a belief widely shared by finance experts who say renters insurance is cheap, comprehensive and essential. If you're wondering whether you need renters insurance, they say the answer is yes.

[Read: 6 Traps That Snare First-Time Renters.]

Liability protection. Replacing lost or stolen items may seem like the main benefit of renters insurance, but Jason Shepherd, co-founder of Atlas Real Estate Group in Denver, says there is an even more important reason to buy a policy: liability protection. Most renters insurance comes standard with liability coverage. That means if your dog bites someone or if you accidentally start a fire that damages an adjoining apartment, your insurance will insulate you from legal action and damages. "The liability insurance is what saves you from those huge mistakes," Shepherd says.

Even better, renters insurance will cover your liability and possessions outside your apartment or rented home. It's called worldwide coverage, says Kathy Phillips, senior programs underwriter for USAA. As a result, policies may provide liability protection even in cases when a dog bites a person while on a walk or cover the replacement cost of items left in a car parked off the property. "It's only $15 a month for peace of mind," Phillips says, explaining why every renter should own a policy.

[Read: Are Millennials the Renter Generation?]

Shopping for renters insurance. Renters insurance is largely standard from one carrier to another, but there can be some key difference between policies. Most notable is the difference between replacement cost policies and actual cost policies. "Replacement cost means that they will pay for brand new items," says Rebecca McQuarrie, an agent and office manager for Alpine North Insurance Agency in Alpena, Michigan.

In the case of a damaged 5-year-old couch, an actual cost policy will determine its current value and only reimburse for that amount. Policyholders may be required to submit receipts or other documentation as part of the claims process as well. However, a replacement cost policy will reimburse whatever amount is deemed appropriate to buy a new comparable couch at today's prices. "Replacement cost for your contents is automatic with some carriers, but with others, you need to request it," McQuarrie says.

Another difference is coverage for water damage due to flooding. While a few policies, such as those offered by USAA, come standard with flood protection, most renters insurance will not pay for items destroyed by either natural flooding or burst pipes. A separate policy or rider may be necessary for that coverage.

Consumers should also review the policy for other limitations and exclusions. Many policies will cap the reimbursement for categories of items such as electronics or jewelry. Those who own a significant amount of property in a particular category should consider purchasing additional coverage beyond what's offered in a standard policy.

[Read: 5 Mistakes Renters Make.]

The value of renters insurance. As far as insurance products go, renters insurance is among the most affordable. Monthly premiums are often less than $25 and can go as low as $12 to $15, according to Phillips. Renters may be able to save by purchasing their policy through the same carrier they use for auto or life insurance.

Some renters may think their landlord or roommate's policy will cover their goods, but that's a mistake. In the event of a fire, vandalism or theft, the landlord's policy typically only covers the structure, while a roommate's insurance will only pay for his or her personal items.

"People assume they don't need renters insurance because they don't have anything of value in the home," Phillips says. However, the cost to replace an entire wardrobe, furniture, appliances and electronics can quickly add up.

Joseph says renters should document everything in their space in case they need to make a claim. "One of the best things you can do is take photos and video of [your] stuff," he says. "It's so much easier to look at the photos and remember what you have."

While it's nice to think nothing will ever happen to your property, Joseph knows better. And like Joseph, when the call comes that there's been a theft or fire at your rented space, you, too, will be thankful you had the foresight to purchase renters insurance.

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