Why you need renters insurance

One common misconception among many people who rent their homes is that they are covered under their landlord's insurance in case of an accident, burglary, or other disaster. Let me dispel that myth: Landlords typically only insure the building and any fixtures they own, so renters are responsible for lost or damaged possessions. And, if someone has an accident in your apartment, you're liable.

Given this level of risk exposure, it's surprising that up to two-thirds of renters don't have insurance. You may feel your belongings aren't worth insuring, but suppose you had an electrical fire or burst pipe: Think how much it would cost to replace your possessions – not to mention pay for alternate housing during repairs.

Here are a few tips for finding the right coverage:

Ask what's covered. Renter's insurance commonly covers property that's lost, damaged or stolen due to most occurrences including fire, lightning, windstorms, hail, explosions, smoke, vandalism, theft, plumbing leaks, electrical surges or falling objects.

You're also usually covered away from home – for example, if something is stolen from your car or hotel room, or if you get mugged. However, flood, hurricane and earthquake damage usually isn't covered, so you'll need a separate rider.

Catalog everything you own and how much it would cost to replace. Consider furniture, clothing, electronics, jewelry, art and other collectibles, books and CDs, sports equipment, etc. Many insurance companies and personal financial software packages provide free inventory forms. To settle claims faster and verify losses for tax purposes, save receipts and photograph or videotape everything; then store copies in a safe deposit box or other offsite location.

Compare payout options. "Actual cash value" (ACV) coverage pays the amount needed to repair or replace your belongings, minus depreciation and your deductible. The alternative method, "replacement cost" coverage, pays the amount needed to replace the items in today's dollars, minus deductible.

Here's the difference: A five-year-old TV that cost $500 is worth a fraction of that today. ACV would pay that depreciated amount, while replacement coverage would pay enough to buy a comparable new television. Replacement cost coverage is slightly more expensive, but often worth it.

Personal liability coverage protects you if someone files a claim alleging you caused them bodily injury or property damage, provided it's not vehicle-related or tied to business activities. Consider coverage well above the minimum amount, especially if you own significant assets.

Loss-of-use coverage. Many policies pay an allowance for housing and living expenses if you're forced to move out temporarily. Check whether this coverage is included or costs extra and what the limits are.

High-value items. Standard policies typically place limits on how much they'll pay to replace certain expensive items like jewelry, antiques, art, electronics and computer equipment – often well below replacement value. You'll probably want to purchase additional riders to fully cover these items.

Here are tips for lowering your premium:

• Raise your deductible.
• Ask about discounts for non-smokers or added security devices like deadbolt locks, alarms and smoke detectors.
• Many carriers offer multi-line discounts if you also purchase car insurance through them.
• Insurance is a competitive business, so shop around.

One last tip: If your elderly parents live in an apartment or assisted-living facility, make sure they're covered as well.