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Most people who live in rented houses and apartments have a common misconception. They assume that their landlord’s insurance policy will cover their personal belongings if an unexpected loss occurs. Unfortunately, this is not the case. Your landlord’s insurance policy only covers the property that you live in. It does not include anything which belongs to you as the tenant.

Similarly, your landlord’s insurance does not cover injuries that happen on the property. That is where renters insurance comes in.

So what is renters insurance and how does it work? In its simplest form, renters insurance is a policy which covers tenants, belongings, and potential liabilities that may occur on the property. If you are a renter, it is essential to be informed about your renter’s insurance policy and how it works.

What Is Covered By A Renter’s Policy?

A renter’s insurance policy, also known as tenants insurance is similar to homeowner’s insurance. The primary difference is that the policy is tailored to the needs of the tenant and can protect you from unexpected accidents in your home. Here are the various renters insurance coverage options:

Personal Liability Protection (No-Fault Medical Coverage)

This coverage allows a person who gets injured on the property to submit medical bills to the insurance company. For example, your sweet chihuahua bites a visitor.

The insurance company will pay for medical expenses up to the limit stated in the HO-4 policy. If the victim wanted to take you to court, this policy would also protect you from legal fees and shield you up to your policy’s limit. As a result, check if your renter’s insurance policy includes no-fault medical coverage under liability protection.

Additional Living Expenses (ALE)

Imagine a horrible scenario where you come home to a house fire. Everyone is ok, but your house is uninhabitable, and your belongings were destroyed.

You do not have renter’s insurance and unfortunately, have to cover all temporary expenses out of pocket. Now image the same scenario, but you do have a renter’s insurance policy. While your house is under repair, your policy will bear the expenses of additional living cost such as rent, meals, and laundry.

One important caveat is that the temporary accommodation must be similar to the destroyed property. For example, if the property was a one-bedroomed apartment, the insurer will not pay for a three bedroomed flat.

If you had to relocate to a hotel temporarily, keep all receipts for meals and accommodations to speed up the claims process. Some insurance companies may give a cash advance and pay for ALE immediately after a loss notification. Others will reimburse their policyholders after the restoration of the property.

It is important for policyholders to get clarification on this matter from their insurance agent or the insurer before trying to catch any curveball that life may throw.

Personal Property Coverage (Chattel)

Personal property is also called chattel in the insurance industry. It classifies as any property unattached to a structure or building on the real estate. A renters policy will cover theft and personal property including personal possessions like clothes.

Some of the personal possessions that are usually covered by a renter’s policy are:

  • Appliances
  • Electronic equipment such as TV sets, computers, music systems and others
  • Drapes, linen, and clothing
  • Furniture
  • Cookware, dinnerware, and utensils
  • Sporting equipment
  • Jewelry and watches
  • Fine art and collectibles

It is important to note that if an article is not listed in your renters insurance policy, then it is not covered. If you are a policyholder who owns valuable articles, it is advisable to buy added coverage. The limit set on the basic policy will not compensate you for the full amount when loss or damage occurs.

What Renters Insurance Will Not Cover

Some perils that are not covered by standard renters insurance policies are:

  • War
  • Loss from an intentional act or neglect by the insured
  • Rust and mold
  • Nuclear hazards
  • Earthquakes
  • Damage by flood
  • Vehicles

Replacement Cost and Actual Cash Value (ACV)

There are two types of policies for renters considering purchasing coverage: Replacement cost and actual cash value. Both procedures refer to how the insurer comes up with a value for your property. It is essential to understand the primary differences.

Replacement Cost

The replacement cost policy means that the insurer will cover the cost to replace your property.
For instance, if your laptop gets stolen, your insurer will compensate you with a new laptop of similar specifications and quality.

This policy does not take into consideration the age of your possession at the time you lost it. It ensures that you receive the full amount in current market rates to replace your property. This policy is usually more expensive than ACV.

Actual Cost Value (ACV)

In an ACV policy the insurer will consider depreciation when calculating how much to pay out for the loss. For example, if you lost a 15-year old Hi-Fi system, the insurer would pay you for a 15-year old Hi-Fi system.

The paid amount would not be enough for a new music system. You would pay for the difference between the amount to replace your possession and what your policy pays.
The actual cost value policy is less expensive than the replacement value, but it is better than having no insurance.

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