YOUR HOME: Weighing Renter’s Insurance

By JAY ROMANO September 30, 2001

SIMPLY stated, property and casualty insurance provides that in exchange for a relatively small amount of money paid by a policyholder, an insurer promises to pay a relatively large amount of money if a relatively unlikely event — like a fire or other catastrophe — occurs.

It is the last element of that equation, however — the unlikeliness that a catastrophe will befall a particular individual — that keeps some people, including many who rent their homes or apartments rather than own them, from purchasing property and casualty insurance.

As recent events clearly illustrate, however, when catastrophes do occur, their impact can be devastating, unpredictable and far-reaching. ”From an insurance perspective, what happened in downtown Manhattan on Sept. 11 provides the clearest illustration of why property and casualty insurance is essential for every homeowner and renter,” said Andrew M. Schutzman, president of AMS Risk Management & Consulting in Rockville Centre, N.Y.

Aside from the excruciating losses that occurred in the buildings that sustained direct damage in the attack upon the World Trade Center, Mr. Schutzman said, there are thousands of tenants in nearby buildings that had secondary damage from smoke and debris. In addition, thousands of residents in undamaged properties are only now being permitted to return to their homes after their buildings were declared off limits by officials.

”And those people who didn’t have insurance or a sufficient amount of insurance on their homes or apartments are going to suffer losses,” Mr. Schutzman said. ”Unfortunately, in New York a lot of renters don’t bother to get insurance.”

He explained that in most cases, a renter’s insurance policy is basically the same as a homeowner’s policy, without the coverage for the dwelling and ”appurtenant structures” like garages. ”A basic renter’s policy, for example, might provide $25,000 in contents coverage and $100,000 for personal liability coverage,” Mr. Schutzman said, adding that such a policy could cost as little as $200 to $300 a year.

Robert E. Mackoul, president of Mackoul & Associates, a Long Beach insurance broker, said that besides making sure the limit of personal property coverage is sufficient to cover total loss of a property, a homeowner or renter should also ensure he or she has the most comprehensive coverage available. ”It is critical to make sure you have guaranteed replacement cost coverage for personal property,” Mr. Mackoul said.

He explained that some insurance policies provide coverage for only the ”actual cash value” of the contents of a residence and that such policies provide lower payments than replacement cost coverage would pay.

”If you have a 10-year-old television that is destroyed in a fire, the insurance carrier is going to take into consideration 10 years worth of depreciation in figuring out how much to pay you,” Mr. Mackoul said. On the other hand, he said, with guaranteed replacement cost coverage, the loss of the same television would result in a payment sufficient to replace the set with a similar model at today’s prices. He said that while the premium rates for both types of coverage are about the same, replacement cost coverage will cost more because the carrier will require a higher limit of coverage.

Another thing that renter’s and homeowner’s insurance typically covers is ”additional living expenses” if a fire or other casualty makes it impossible to live in the home or apartment. In most cases, Mr. Mackoul said, the amount of coverage on a typical homeowner’s policy is 20 percent of the coverage for the dwelling. So if a house is insured for $500,000, the coverage for additional living expenses will be $100,000.

Since renter’s policies do not have dwelling protection, however, the additional living expense coverage will typically be 20 percent of the personal property coverage. Thus, if a renter has $25,000 in personal property coverage, he will probably have only $5,000 in additional living expense coverage. For co-ops and condo, Mr. Mackoul said, the additional living expense coverage is typically 40 percent of the contents coverage.

”But even that still isn’t enough,” Mr. Mackoul said. ”If you have to live in a hotel in New York City and eat your meals in New York City restaurants, you’re going to go through $5,000 or even $10,000 pretty quickly. As a result, he said, it is probably wise for apartment residents to purchase increased additional living expense coverage if their carriers will allow it. In most cases, Mr. Mackoul said, carriers will provide additional living expense coverage up to the amount of the contents coverage.

Some insurers provide even more expansive coverage. ”We don’t put a specific limit on our additional living expense coverage,” said Mary Ann Avnet, vice president of marketing and customer relations for the Chubb Group of Insurance Companies in Warren, N.J.

Ms. Avnet explained that Chubb policyholders would typically be covered for reasonable additional expenses incurred as a result of being forced to leave their homes or apartments. Such coverage, she said, extends to those displaced as a result of government action.

”We refer to that as forced evacuation coverage,” Ms. Avnet said. She said coverage for additional living expenses and forced evacuation is based on the actual additional loss incurred by the policyholder. So, for example, Ms. Avnet said, if a person who normally spends $2,000 a month for rent is forced to rent a replacement apartment for $3,000 a month, the insurance would cover only the difference. Forced evacuation coverage, she said, is typically limited to a maximum of 30 days.

Another thing that renters should be cognizant of, Ms. Avnet said, is that different types of policies cover different types of risks. ”There are basically two ways people can buy renter’s insurance,” she said. ”They can buy either named-peril coverage or all-risk coverage.”

With named-peril coverage, Ms. Avnet said, only risks specifically named in the policy are covered, while with all-risk coverage, all possible perils are covered except for those specifically excluded. In either case, Ms. Avnet said, the cost of the policy depends on both the construction and location of the building and the limits of coverage. An all-risk renter’s policy costs about 30 percent more than a named-peril policy.

Ms. Avnet pointed out that in most cases, under Chubb policies, smoke damage will be covered by either type of policy, even if the fire was not in the insured building.

Mr. Mackoul, the insurance broker, said insured homeowners or renters who sustained damages as a result of the World Trade Center disaster, should submit claims to their carriers even if it is not perfectly clear the claim would be covered.

”When in doubt, have the insurance company tell you whether you’re covered or not,” he said. ”There are always gray areas in claims adjusting.”