You may not be aware of this yet, but if you live in a rented home or apartment your property is stolen, lost or damaged, you won’t be compensated under your landlord’s homeowners insurance policy. For your property to be covered, you need a special type of insurance known as renter’s insurance. Luckily, renter’s insurance is far less expensive than homeowner’s insurance as its premiums usually range between $15 to $30 per month.
The rate you end up paying depends on various factors which we will look at later but first, let’s look at how the rate is calculated when you first go to purchase renters insurance:
The renter makes a list of all the items they want to be covered.
When you go to buy renter’s insurance, the insurance company will want to know which items you need the policy to cover and their value. For this to happen, the renter has to go through a documentation process where he/she makes a list of all the items in their rented home that they want to cover from room to room. The list should include the prices for the items and receipts if available. The items you need to document includes things like electronics, furniture, clothing, and other possessions. If you own any valuable items such as jewelry, collectibles or expensive art pieces, you may need a separate list for this as you will need to purchase additional coverage.
Once you have submitted the information, the insurance company will consider the following factors before deciding your renter’s insurance rate:
a) The total value of the property the renter intends to cover – this is the main thing that insurers consider. For instance, a renter with valuable possessions worth $300,000 will need to pay more for coverage than a renter with $100,000 worth of possessions.
b) The deductible – when buying renters insurance, you can include a deductible to reduce the amount you will be paying in premiums. The higher the deductible is, the lower your rate will be. However, it’s vital to choose a deductible amount that you can afford to pay out-of-pocket when needed.
c) Type of coverage – there are two types of coverage; replacement cost value coverage and actual cash value coverage. Replacement cost value coverage is the better choice since, in the event that your property is damaged, your policy will pay you the cost of replacing the damaged item while brand new. Actual cash value coverage is cheaper, but it only pays you what your damaged property was worth at the time of damage (cost of a brand new item less depreciation).
d) Your location – the location of the renters home matters because it determines the kinds of dangers they are exposed to. For example, a house in a high crime neighborhood will attract higher renters insurance rates than one in a safe neighborhood.
e) Smoking status – a renter who smokes is at more risk of setting off a fire, thus their rates are higher than non-smokers.
f) Credit score – excellent credit scores attract lower rates.