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Renters Insurance: Small Price, Big Peace of Mind

You've seen them the news, standing out on the sidewalk as they watch their apartment building go up in flames. 

Their TV and digital camera have melted to a pile of nothingness, their couch didn't have a fighting chance against the blaze, their wooden dresser is scorched, the clothes inside ruined with the smell of smoke. Although many of the items lost were priceless because of their sentimental value, victims are often at a loss as to how they will afford to replace their possessions. 

Renters insurance would be a start.  Although most mortgage companies require homeowners to carry insurance, there is no such watchdog over the majority of renters.   And surprisingly, more than half of renters do not carry insurance for their personal effects. 

More than 81 million Americans rent in the U.S. and about 50 million of them do not have renters insurance. A consumer survey conducted for the Independent Insurance Agents & Brokers of America found that nearly two-thirds of those living in U.S. rental properties are going without renters insurance. A national consumer telephone survey asked people living in rental properties whether they had renters insurance; 64.4% said "no."

Many renters say they do not purchase the insurance because it's expensive.  However, many of them hadn't bothered to look into the actual costs. The average cost of renters insurance is $12 per month for about $30,000 of property coverage and $100,000 of liability coverage.

Many of us have never really sat down to add up the value of everything we own – it usually tallies up to much more than you think.  

And it's not just fire. Even though a residential fire occurs every 76 seconds in this country, according to the National Fire Protection Association, most claims against renters insurance involve theft or accidental damage of products. 

Many policies also include some liability coverage, which means if someone is injured in your home and you are held liable, the insurance can pay for hospital costs, or even pay the cost of your lawyer.  You can even be covered if your landlord's insurance company sues you because your actions were the reason your apartment accidentally went up in flames. 

The most common misconception among renters is that they are covered under their landlord's insurance in the event of fire or theft, but that's not the case. The landlord's insurance covers the building and its infrastructure, such as the elevators and the furnace.

Renters can choose between two types of policies: The "actual cash value" package or the "replacement cost" package. Actual cash value pays to replace your possessions minus a deduction for depreciation up to the limit of your policy. This means that the $1,500 computer workstation you purchased five years ago will be replaced at the cost it was worth today, possibly $500 -that wouldn't be enough for you to go out and buy a new one.  Replacement cost pays the actual cost of replacing your possessions up to the limit of your policy. 

So if it would cost you $1,500 to replace your five-year-old computer today, then you'd get $1,500 from the insurance company.  The difference between the two types of policies is usually only a few dollars a month.

In some cases, however, big-ticket items, such as computers and some jewelry or furs, will need to be documented beforehand with the insurance company, and a special floater or rider will extend the coverage of these items.

The cost of renters insurance: Less than a latte a day.

The benefits of renters insurance: Priceless.

Sheree Curry is a business journalist who writes a regularly for the Wall Street Journal on real estate issues. Her work has appeared in Entrepreneur, Trump magazine and Black Enterprise.

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