A Wake-Up Call for Renters

I'm renting a home. Should I get renters insurance?

To answer that question, take a look at the contents in your home (from your computer to your clothes) and ask yourself: If there was a fire (or some other disaster) in your home and you lost everything, would you be able to comfortably replace it?

For most of us, the answer is no. "A lot of folks don't realize how much their suits and shirts and VCRs would cost to replace," says Tom Woods, assistant vice president of product management for USAA.

The good news: Renters-insurance policies typically aren't very costly. On average, a $20,000 policy with a $100 deductible costs about $150 a year, says Woods. That said, rates vary based on the state that you call home as well as the claims history of the rental unit, whether you have a burglar and fire alarm, the proximity of the fire department, the type of unit you're renting and your credit history.

So what does a renters-insurance policy get you? Probably more than you think. While your landlord's insurance covers the rental unit's physical structure, a renters-insurance policy will generally protect your belongings against 17 "perils," including fire, lightning, windstorm, as well as theft or vandalism. A great perk is that you're also generally covered for belongings that you take out of your home, so if, say, your iPod gets stolen while you're on vacation, you can still get reimbursed. You also get liability coverage, which protects you should someone get hurt in your home and sue you.

To find the best policy, be prepared to shop around a bit. "You could be paying twice as much with one company as with another," warns Robert Hunter, director of insurance at the Consumer Federation of America.

Rates can also vary based on the type of coverage you choose — whether it's an actual-cash-value (ACV) policy or replacement-cost coverage. Actual-cash-value policies will pay for what your property is worth at the time you lose it, subtracting depreciation from its original cost. (That means you could only get $150 for the sofa you bought three years ago for $900.) Replacement-cost coverage will reimburse you with the amount you need to buy the same product today. (So if that same couch was $600 in IKEA today, that's how much insurance would pay you.) Hunter's advice is to get replacement-cost coverage. It costs about 15% to 20% more, which is negligible given the skimpy price of renters insurance.

To determine just how much insurance you need, make a detailed inventory of what you own, and include photographs. And be sure to keep it up to date. "When a loss does occur, the responsibility of proving what was there falls on the consumer," says Woods. "Any kind of inventory would help."

Also, if you buy something expensive, be sure to call your insurer to make sure your policy has enough coverage. "Your policy should keep up with your lifestyle," says P.J. Crowley, a vice president at the Insurance Information Institute. If you own or buy expensive jewelry, art, antiques or weapons, for example, check if you'll need separate riders. Finally, inform your insurer if you move, especially if it's out of state.