FOR RENT: The Basics of Rental Insurance

FOR RENT: The Basics of Rental Insurance

By DENNIS HEVESI / November 7, 2004

FIRE and flood do not discriminate between apartment renters and owners.

Yet most renters do not have renter’s insurance; some may think (incorrectly) that they are covered under the landlord’s homeowners policy. That coverage is limited to the building’s structure.

”Less than 20 percent of renters get insurance,” said Thurman McKoy, owner of the McKoy Agency in Manhattan, which is affiliated with Allstate. ”They don’t see the need.”

And while Mr. McKoy has a vested interest in selling more renter’s policies, he certainly sees their value: replacement of the renter’s personal property, financial protection if someone is injured in the apartment, payment of the tenant’s temporary housing costs if disaster strikes.

”If your home is uninhabitable because, say, there’s a major fire,” he said, ”standard policies pay for a hotel or another apartment for a year. That’s huge.”

For most people, the priority in seeking renter’s insurance is coverage for personal belongings. ”A renter doesn’t necessarily have the same high assets as a homeowner,” said Andrew M. Schutzman, president of AMS Risk Management and Consulting in Rockville Centre, on Long Island. ”But if you’ve lived in an apartment for years, built up clothes and furniture and have a terrible fire loss, how do you replace it all?”

In determining their coverage level, Mr. Schutzman said, renters should ”make a ballpark estimate” of the total value of their possessions by itemizing, as precisely as possible, the purchase prices. ”And the valuation should be at replacement cost, not depreciated cost,” he said.

Jeanne Salvatore, vice president for consumer affairs at the Insurance Information Institute, pointed out that replacement policies cost about 10 percent more than those covering only depreciated value. ”The easiest way to itemize is with a video camera,” Ms. Salvatore said, ”narrating what you have, how much it cost.” The videotape should be kept in a safe deposit box or another safe place outside the home.

More valuable possessions, like artwork or fine pieces of jewelry, require separate riders to the policy, priced according to bills of sale or an appraisal.

Many renters are not aware that standard policies include liability insurance, covering them if, for example, a chandelier falls on a guest, or even if the family dog bites someone on the street (but not for automobile accidents). ”You’re covered for legal defense and if there’s a settlement against you, up to the policy limit,” Mr. Schutzman said.

Setting that limit can be subjective. ”My rule of thumb,” Mr. Schutzman said, ”is think about your net worth and buy coverage that reasonably protects your assets from exposure in a lawsuit. If you’re living in a nice apartment, earning a good wage and have other assets — stocks, bonds — you wouldn’t want to buy a $50,000 limit.”

Most policies include a minimum of $100,000 in liability coverage. You can buy higher coverage, perhaps $300,000 or $500,000. ”The cost differential is not that great, a couple of hundred dollars” in annual premiums, Mr. Schutzman said.

Ms. Salvatore pointed out that renters can also purchase umbrella policies, expanding coverage for all their insurance. ”If you own a car, you would have additional liability coverage when you drive,” she said. People with assets of, say, more than $1 million are more likely to buy an umbrella policy.

In Mr. Schutzman’s estimation: ”It’s one of the best buys. Instead of just having liability coverage of $300,000, you’ve got $1.3 million.” Generally, the additional premium for $1 million in umbrella coverage would be $200 to $300.

A renter can contact either an independent broker or a direct writer who represents an insurance company. Working with a direct writer may save some money. But an independent broker can help you negotiate with several companies.

Robert E. Solberg, president of Campbell Solberg Associates, an independent brokerage firm in Manhattan, noted that most renter’s policies come with a standard $500 deductible. ”But if you increase that deductible to, say, $1,000, you’d save 5 percent of the premium,” Mr. Solberg said. Mr. Schutzman, asked to sketch a typical Manhattan renter’s profile, said: ”A couple with two children in a two-bedroom earning $100,000 total. Estimated total replacement cost is $75,000. They also purchase $300,000 in personal liability coverage. Add on $1 million umbrella coverage.”

Asked for a premium estimate for that apartment, Mr. Solberg said, ”In general, about $340 a year.” In a more upscale high-rise building, according to Mr. McKoy, ”approximately $500.”