Monday, November 17, 2008

Importance of Renter's Insurance and Reading Your Policy

As you know, over the weekend, the Santa Ana winds wreaked havoc in Southern California by spreading wild fires. As I watched a news footage of a large apartment complex engulfed in flames, I wondered how many of the residents have renter's insurance? For these people, their entire wordly possessions have gone up in smoke.

It's times like these that I'm glad I have renter's insurance. But when I looked at my own renter's insurance, I was in for a shock.

A renter's insurance policy generally has 3 components:
  1. Coverage for your personal property in the event of a covered loss,
  2. Additional living expenses you incur in the event you are displaced from home as a result of a covered loss, and
  3. Liability coverage (in the event you are sued due to a covered loss caused by you).

Since I live in a 1 BR, I've kept my coverage limits minimal:

Personal Property: $27,000,

Additional Living Expenses: The least of the following:

  • (a) the time period required to repair property covered,
  • (b) the shortest time to settle elsewhere if I decide to permanently relocate, or
  • (c) 12 months (or 24 months if a state of emergency is declared).
Liability Protection: $300,000/occurrence

"Valuables" such as jewelry, watches and fur have very limited coverage under a renter's insurance policy. (Usually limited to $500-$1000.) Since I have a nice pair of diamond earrings (and other nice smaller pieces of jewlelry), I purchased a "floater" that covers my jewelry up to $2,500 per item/$10,000 per occurrence subject to a $500 deductible. This shouldn't come as a surprise but my floater costs $253/year as compared to $172/year I pay for the basic policy!

More shocking, however, was that when I purchased my renter's insurance, I had "replacement cost guarantee" for my personal property. Over the years, I never reviewed my renewal policies and discovered that the insurance company had taken that coverage off and only covered my personal property for actual cash value!

This makes a big difference since Actual Cash Value (ACV), also known as market value, means that in the event of a covered loss, my insurance company will only pay me equal to replacement cost minus depreciation. For example, if my DVD player gets stolen and it costs $200 to replace, my insurance company could potentially only reimburse me for $50.

In a total loss, the difference between ACV and Replacement Cost is not likely to make a difference since my insurance company will pay policy limits. But chances are, I'm not likely to suffer such a loss, (knock on wood). In a partial loss, renter's insurance policy with ACV coverage is pretty useless.

I'm ticked off that my insurance company would unilaterally take the Replacement Cost coverage off and I'm more ticked at myself for not catching this earlier. I'll be calling my insurance agent today to add this coverage back upon renewal in January. Sigh. Another increased cost for 2009. Bummer.


Sharon Rose said...

Hi there-sorry to hear about the increased cost, but so well done for checking the policy out too.

Miss M said...

I just learned this the hard way, we were robbed last monday. I thought I had replacement cost coverage too, but no, they'll only pay the depreciated value. Because of that the deductible is as much as the loss and we'll get nothing. I'm going to have to get that changed on my policy too. Insurance sucks sometimes, you pay them every month/year and when you need them they aren't there for you!

Wasn't the smoke this weekend awful, my eyes and lungs have been irritated. I feel so bad for everyone who lost their home, it could have been us.

Shtinkykat said...

Thanks as always, Sharon Rose.

OMG, I'm so sorry to hear about your robbery. I live in SD so I fortunately avoided the smoke and soot. But my insurance agent in Marina del Rey said the smoke and soot was heavy even there! Amazing. I'm glad your house was spared, though.