Is Renter’s Insurance Worth It?

As a tenant renting a home, you may be operating under the assumption that your landlord's dwelling insurance covers your personal possessions as well as his/her interests. Many renters are under this false assumption.

The fact is, if something happens to the home you're renting, whether it be fire damage, theft, storm damage, etc., without renter's insurance your personal possessions have absolutely no insurance protection.

The Importance of Renter's Insurance

According to a poll conducted for the Insurance Information Institute, renter's insurance is significantly under-utilized in the U.S., although statistics show it's recently becoming more popular. According to the poll, approximately 95% of homeowners in the country have homeowner's insurance, while only about 41% of renters have renter's insurance. This is a sizable uptick since 2011, when those having renter's insurance was only 29%. Renters made up approximately 37% of all American households in 2014, according to the Census Bureau.

A renter's policy is similar to a homeowner's policy, with the exception of coverage relating to the actual structure, including fixtures, plumbing, heating systems and any appliances not owned by the tenant.

Specific benefits of a renter's policy include:

• Coverage for personal possessions against damage/loss from a long list of perils including fire, theft, smoke, vandalism, windstorm, explosion, water and more.
• Liability protection from lawsuits stemming from bodily injury or property damage caused by you or your family members. This includes medical coverage in case a visitor becomes injured while in your home.
• Additional living expenses to pay hotel bills, restaurant meal bills and other expenses above and beyond your normal daily expenses as a result of your home being temporarily uninhabitable because of a covered peril.

Why It's Important

It's natural to consider your personal possessions and their protection as the major factor covered by tenant's insurance. When you start adding up the value of everything you own that's kept in your home you'll probably be surprised at the total. This includes clothing, furniture, electronics, books, artwork, appliances, kitchen utensils, bathroom and bedroom linens and more.

But, perhaps even more important is the liability coverage your policy provides. If someone is injured in your home, or a fire starts in your apartment and ends up damaging every other apartment in your complex, imagine the cost of a liability lawsuit! The average cost of renter's insurance ($188 annually) is a small price to pay for all the protection provided.

Is Life Insurance Through Work Good Enough?

If you're fortunate enough to have a life insurance policy through your job, either at no cost or at a subsidized cost, you may have wondered if this coverage was enough to completely take care of your life insurance needs. Many employers may offer a certain amount of life insurance to employees through a group policy and may also allow you to add additional amounts for you or your spouse. You'll be responsible for paying the additional premium amount in this case. This may sound like a great deal on the surface – free or low-cost insurance through work – but there's another side to this plan that should be considered.

How Much is Enough?

Your employer may offer a great deal on no-cost or low-cost life insurance coverage, but the face amount of the policy offered may only be something like $100,000, $50,000 or even less. This is far less protection than someone with a spouse and kids will need in the event of the policyholder's untimely demise.

Many experts recommend your life insurance coverage be equal to eight to twelve times your annual income. Policyholders with large families will probably need even more. Another suggested method of determining your life insurance needs is to multiply your annual salary times the number of years you have until retirement.

What if Your Job Goes Away?

While it may be possible to cover your increased life insurance needs through supplemental coverage through your employer's group policy, having all of your life insurance through this one single source may be a mistake. It's recommended that any supplemental coverage you obtain comes from a separate third party provider. Then, if you quit your job, you're fired or your employer goes out of business and the insurance you have through your company is discontinued, you'll still have continuous coverage. Your third party policy will continue on and can be increased to make up for the coverage that was lost.

Another consideration is your state of health if and when you do lose the coverage provided through your job. If you've developed a health condition prior to losing your employer-provided life insurance coverage, you may find it difficult or impossible to replace the insurance you lost with a new private policy. The best time to buy life insurance is when you're young and healthy, before a health problem makes this prohibitively expensive or even impossible.

Should You Get Life Insurance for Your Child?

A question that many new parents find themselves asking and often pose to their insurance agent or broker is whether or not they should get life insurance for their child. You may perhaps have seen a Gerber Life Insurance television commercial, or something similar from another insurance provider, that touts their child insurance program as a way to:

• Lock in a lifetime of low premiums for your child at an early age.
• Guarantee your child's future insurability, or their ability to buy more insurance at a later age, regardless of their health.
• Since most of the child policies sold are of the whole life type, which have a built-in cash accumulation component, these policies are sold as a savings vehicle.
• Provide money for funeral expenses, counseling, medical expenses or help with money lost from taking time off work.

Before You Buy Your Kids Life Insurance

The main purpose for life insurance is to replace ongoing income lost through a family provider's death and to pay off outstanding debts left behind. Experts recommend that both parents have life insurance while their children are growing up, even if one of the parents is a stay-at-home mom or dad. This is because the cost of hiring someone to perform the duties of a stay-at-home parent while the income-earning parent continues at his or her job is significant.

Kids, of course, don't typically have an income that would need to be replaced and, in fact, when a child is no longer in the family household, costs generally decrease. They also don't have debts that need to be paid off. As far as having money for funeral expenses, there are other ways of saving for these types of contingencies that make more sense. Paying in regularly to a household emergency fund will provide a more balanced method for creating a financial safety net and that fund can be used for any type of emergency that comes up.

Locking in Insurability

Children developing medical problems early in life could have difficulty qualifying later for life insurance. Getting coverage before this happens guarantees that they have some coverage now and can buy more later, regardless of health problems.

This alone may be reason enough to consider insuring your young children now, although “guaranteed insurability” is limited to a multiple of the amount of the original policy, and may be much less than what's needed for adequate protection.