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Why having rental insurance is important

Approximately 35 percent of Americans rent the place they live in, but few of them insure that property. Here's why having renters insurance is a good idea.

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    A "for rent" sign is posted outside a home in Denver (Sept. 24, 2007). Most plans for renters insurance are extremely cheap, making them an attractive option for protecting valuables in a rented property.
    David Zalubowski/AP/File
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Insurance (whether it's for your car, your health, or your home) is all about risk management — and though you might not think it, financial risk management. If you crashed your car, got seriously ill, or your home burned down (with everything you own inside), how much could you afford to spend to fix these things without sending yourself into financial ruin?

However, while car, health, and home insurance are well-known — and most people have them if they're in a position to need them — one type of insurance you might not think of is renters insurance.

What Is Renters Insurance?

If you rent your living space — and 35% of people in the U.S. do — then renters insurance protects the contents of your home, whether you're living in an apartment or renting a house with a roommate.

Though you might think you don't need renters insurance because your landlord's insurance will cover you, you're only half right. While your landlord's insurance will cover the building itself should there be a fire or a water leak, if your property in the home is damaged, you'll still be on the hook for replacing it.

If disaster struck, could you afford to replace your televisionfurniturecomputer, and clothes all at once? Even for those with a healthy savings account, that could prove a problem — and that's why renters insurance is important, even though only 37% of renters have it.

For most renters, we're pretty sure that having renters insurance is a good buy — but let's dig into exactly what it is, what it does for you, and whether you really need it.

What Does Renters Insurance Do for You?

First and foremost, renters insurance protects the contents of your home if they're stolen or damaged. (And, yes, this can even include items when they're outside your home — say, a laptopstolen while you're on vacation or out at the coffee shop.) However, you will want to read the fine print to guarantee that potential types of damage or loss are covered.

If a type of damage isn't mentioned in your policy, don't expect coverage for it. Flooding, for example, is not typically covered, meaning that if a pipe breaks in your apartment (considered water damage), your insurance would cover it, but if a deluge of rain caused water to flood your home, you wouldn't be covered. Again, this is going back to risk management: Are you in an area that's unlikely to flood? Then you probably don't need extra flood insurance on top of your renters policy.

If you are confronted by a disaster such as a fire, which makes your home unlivable, renters insurance will help pay for temporary living expenses, like hotel accommodations.

If you are confronted by a disaster such as a fire, which makes your home unlivable, renters insurance will also help pay for temporary living expenses, like hotel accommodations and any other expenses you wouldn't typically have if you were in your own home. Depending on the severity of the damage to your home, not having renters insurance means you could rack up a big bill — and wreak havoc on your financial situation.

Finally, renters insurance offers liability coverage in case someone is injured in your home. While this is something you may not consider, it could be a major expense if you're sued over it.

What Does Renters Insurance Cost?

Looking at the bills for your car and health insurance, you may be concerned that you can't afford renters insurance on top of everything else — but it may actually be your smallest insurance bill. (And if you get it from the same company you get your car insurance from, you may even find it at a nice discount.)

Renters insurance costs an average of $187 per year (or about $16 a month). That means that skipping three Starbucks drinks a month could save you a world of financial trouble if you run into a disaster.

A number of things go into determining what you'll pay for renters insurance, including how much (and what type of) coverage you need, where you're located (high-crime or disaster-prone areas are likely to have higher rates), and the amount of your deductible. With a high deductible that would protect you in case of major disaster — say, a fire destroying everything you own — but do nothing for a minor incident — say, a thief stealing your iPad — you may be able to get your renters insurance for even less.

When thinking about whether you need renters insurance, consider the costs of a potential disaster. How much would it cost you to replace items in your home? How much would it cost you to find a place to stay while your home was made livable again? Would you be able to afford those costs if you had to take them on? And can you afford this adequate coverage?

What Kind of Renters Insurance Do You Need?

You'll want to consider the value of the things in your home you're insuring, and the best way is probably by going around your home and taking an inventory. When you do this, note any big-ticket items, like a pricey engagement ring, that may require separate coverage due to their value. If the worst happens, you won't be able to get more from your insurance company than the amount of coverage you opt for, so you want to have a policy that's good enough without going beyond what you need.

When you take an inventory of the things in your home, note any big-ticket items, like a pricey engagement ring, that may require separate coverage due to their value.

You'll also need to choose whether your insurance will reimburse you for the actual value of your possessions or the replacement cost of those possessions. If you get coverage for the actual value, you may find that the laptop you bought for $1,000 three years ago is now only worth $100, which won't buy you a new laptop. With replacement cost, you'll get enough to buy a new laptop — though, as you might guess, this will cost you more, so you have to decide how much you'll be able to afford in a disaster.

So, Should You Get Renters Insurance?

Even if you don't think your goods are valuable enough to need insurance, or that you're unlikely to need this insurance, getting it is usually a good financial move. Plus, for a cost of around $16 a month, it's not likely to break your monthly budget, while a disaster definitely could.

This article first appeared at DealNews.

The Christian Science Monitor has assembled a diverse group of the best personal finance bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link in the blog description box above.

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