If you rent a house or an apartment, you might think you don't need insurance
because you don't own the building. Your landlord has coverage, right? Probably. But
your landlord's insurance only covers the building, not the contents. Without
insurance of your own, you could be left with nothing in the event of a fire or
burglary. And what if a friend slips on your bathroom floor and hits his head on the
bathtub? Your landlord's insurance won't pay for his medical expenses, either.

What is it?
Renters insurance (HO-4) is a special kind of homeowners insurance. It provides no
coverage for the building itself. Instead, it covers your personal possessions if you
rent a house or apartment.

What is covered?
Renters insurance policies only cover losses which result from any of 17 "named
perils." If your property is lost or damaged as a result of one of these perils, your
insurance company will compensate you for your loss. The covered perils are as
follows:

Fire or lightning
Windstorm or hail
Explosion
Riot or civil disturbance
Aircraft
Vehicles
Smoke
Vandalism or malicious mischief
Theft
Broken glass
Volcanic eruption
Falling objects
Weight of ice, snow, or sleet
Accidental discharge or overflow of water
Sudden and accidental tearing apart
Freezing
Artificially generated electrical charge

What is not covered?
It should go without saying that losses caused by any other event are not covered.
However, most renters insurance policies go a step further, listing specific events
which the policy does not cover. Typical exclusions include:

Enforcement of building codes and similar laws
Earthquakes
Flooding
Power failure
Neglect
War
Nuclear hazard
Intentional acts

If you live in an area prone to earthquakes or flooding, you should consider
purchasing a separate policy to insure your possessions against damage caused by
these hazards.

Replacement cost vs. Actual cash value
These may sound like highly technical terms, but they are actually very important in
determining how much money you will get if you ever have to file a claim. When you
get a quote from your insurance agent, make sure you know which type of coverage
is being described.

Actual cash value coverage reimburses you for only the amount your property was
worth when it was stolen, damaged, or destroyed. This means that if all your clothes
suffer smoke damage in a fire, your insurance company probably won't pay much
more than you could've made at a garage sale - not the $4,000 you spent over the
last six years to create the perfect wardrobe.

Replacement cost coverage, on the other hand, reimburses you for the amount it will
cost to replace your property. If you bought a $400 television two years ago, you'll
receive enough money to go out and buy another television just like the old one. You
will probably have to replace the lost property with your own money and submit the
receipt before you receive compensation, but replacement cost coverage typically
pays significantly more than actual cash value coverage.

Limitations
Like any type of insurance, your renters insurance policy places a limit on the amount
it will pay out. Coverage levels typically start somewhere around $15,000 and go up
from there. As you increase your coverage level, your premiums will increase as well.

In addition, most insurance companies have per-category limits for certain items such
as jewelry, antiques, computer equipment. If the value of your property exceeds
these limits, you will probably have to get an appraisal proving its worth. You can
then purchase an additional rider to cover the full value of your property.

Liability coverage
Renters insurance also provides liability coverage. A typical renters insurance policy
covers you for accidents and injuries that occur in your home, as well as accidents
outside of your home that are caused by you or your property. (This does not include
automobile accidents.) This liability coverage includes legal defense costs, if you are
taken to court over such an accident. The level of your liability coverage is usually
somewhere between 3 and 10 times the amount of your personal property coverage.

Additional living expenses
If your house or apartment is unlivable as a result of any of the 17 named perils,
renters insurance will typically cover your "additional living expenses." That means
that it will pay for you to live somewhere else (usually in a comparable house or
apartment) while your home is being repaired. The limit on this type of coverage is
usually 30 to 40 percent of the amount of your personal property coverage. There
may also be a time limit on this type of coverage--often 12 months.

What does it cost?
The cost of renters insurance varies greatly depending on where you live, the
construction of the building, your deductible, and how much insurance coverage you
need. But renters insurance is much less expensive than homeowners insurance. On
average, you will pay somewhere between $100 and $300 annually for a basic policy
providing about $30,000 worth of coverage for your property. Replacement cost
coverage is somewhat more expensive than actual cash value coverage, but it is
usually worth the extra money.

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