This post is from GRS staff writer April Dykman.

On 02 August 2005, my friend Frank and his partner awoke at 2:45 a.m. to the dog barking and a neighbor knocking on their door. The apartment complex was on fire. They grabbed their dog and whatever they could carry and ran from the building.

“We lost everything,” he says. Later they’d find out that it was arson. A former employee of the apartment complex stole rent checks and set the office on fire. Frank was moving into a new apartment in ten days, and the new complex agreed to let them move in early. “We moved in with a plastic bag of groceries, paid for with a $50 food voucher from the Red Cross,” he says. The other 70 displaced tenants stayed in Red Cross shelters.

To make matters worse, Frank didn’t have renters insurance. “We didn’t think we’d ever need it,” he says. “You don’t see why you should pay this extra bill until you’re in a situation where you need it.” They had to start over from scratch.

Why renters skip the insurance
There are any number of reasons renters don’t think insurance is a necessary expense. I myself didn’t have a policy until Frank’s situation motivated me to get one. Common reasons renters forgo an insurance policy include the following:

  • “What are the odds anything will happen?” The odds are not in your favor. The Bureau of Justice Statistics reports that renters are 50 percent more likely to be burglarized than homeowners.

  • “My landlord has insurance.” That means that your landlord (or condo association) has their valuables — the building — protected. Your belongings are not covered.

  • “I can’t afford renters insurance.” Many people are willing to spend a couple hundred dollars on clothes, but won’t spend the cash to protect themselves from the risk of losing everything they own. It’s possible to find a policy for $10-12 per month, though your premium will depend on location, the deductible, the insurance company, and coverage needs.

There are ways to lower the cost of coverage, including raising your deductible (make sure you can afford it, though) and having protective devices such as smoke detectors, extinguishers, and security alarms. Some insurance companies offer discounts to senior citizens. Also look for a multi-line discount, which is a discount for buying more than one type of policy from the same company (e.g., renters insurance and auto insurance).

I suspect that the main reason most people don’t have a policy, though, is that they don’t understand how renters insurance works, or why they need it.

Renters insurance 101
Renters need a HO-4 policy. Condominium owners need a HO-6 policy. Both will cover personal property loss from “named perils,” which is insurance-speak for what you’re insured against. Your policy will likely include the following named perils:

  • Fire and lightning
  • Windstorm and hail
  • Smoke
  • Vandalism and malicious mischief
  • Theft
  • Accidental discharge of water

Other named perils covered sound like scenes from Die Hard (explosion, riot, damage caused by air crafts and falling objects), but I suppose you never know when German radical activists might terrorize your Christmas party.

Renters insurance also includes liability protection, which covers medical expenses for a person injured on your property and legal defense, if necessary. Additionally, if your apartment or condo becomes uninhabitable due to a named peril, your coverage will pay for somewhere to live in the meantime.

What is not covered: If you live an an area prone to floods, earthquakes, or hurricanes, you may need to purchase a rider, or separate policy. Also, if you have valuables that would exceed your policy limit, such as expensive jewelry or antiques, you’ll need a rider to recover the full loss.

Buying a policy
Shopping for renters insurance is similar to shopping for other types of policies. Here are the basic steps:

Take inventory. This seems to be the step that most of us dread, but it’s where we should start. (Confession: I haven’t done it yet. It’s been languishing on my to-do list for almost a year now, but I’m going to make it a top priority.) If you lost everything, it’d be awful to have to recall every item you owned and it’s value. Better to document it. Here’s the plan of action:

  1. Photograph or videotape each room.
  2. List the value and serial and model number of items.
  3. Attach receipts, if you have them.
  4. Save the list and the photos or video to a DVD, and make at least three copies. Keep one copy in a fireproof place, one at an off-site location (could be a parent’s house or a safe-deposit box), and send one to your insurer.

There also are software programs that walk you through the process. The Insurance Information Institute provides free inventory software that helps you complete a room-by-room inventory.

Prepare. Write down a set of questions you want to ask your potential insurance providers. Some suggestions include:

  • Do you have brochures or any information you can send me in the mail? (Keep the ones from insurers that appear to be a good fit and use them to compare each provider’s policies.)
  • What could cause my rates to increase?
  • What discounts do you offer?
  • Does the liability insurance cover legal defense and medical expenses?
  • Do you pay actual cash value (ACV) or replacement cost coverage? (ACV coverage pays what your property was worth at the time it was destroyed or stolen, minus the deductible. Replacement cost coverage pays what it will cost to replace the items, minus the deductible. It costs more in premiums, but pays more if you file a claim.)
  • Do you offer separate policies for roommates? (Alternatively, talk to your roommate about splitting the cost of a policy.)

Shop around. To find the right provider and policy, consider the following:

  • Contact the insurance company that provides your auto insurance policy. Ask about multi-line discounts.
  • Call your local bank. Some banks offer insurance policies.
  • Search “renters insurance” online. Most providers have Web sites that give you a free quote.
  • Ask friends and neighbors which company they use, and if they are happy with their experience.

Updating your policy
Renters insurance is like many other forms of insurance - not fun to think about. But it isn’t a Ron Popeil rotisserie — don’t set it and forget it. Stay in touch with your agent to make sure you’re getting the best deal and taking advantage of new options or discounts. Also, be sure to contact her if your living situation changes, as in the following situations:

  • You moved. Each residence requires a unique policy.
  • You got a roommate: human or furball. You’ll need to decide on a separate or shared policy for the former. Make sure the latter is listed in your liability coverage.
  • You bought an expensive bauble or a pricey new toy. You need to have it listed in your policy, or you might need a separate rider to cover it.

It’s easier than you might think to find an affordable renters policy with good coverage, and it’s time and money well-spent. As my friend Frank says, “It’s the cheapest bill you’ll have. For very little money, we could have replaced everything we lost.”

If you are a renter, do you have renters insurance? If not, is there a reason you don’t have it?

Photo by DVS.