The Truth About Rental House Insurance

As many people read their lease agreement or rental agreement for their rental house, condominium, or apartment, increasingly they are finding a clause that requires them to purchase rental house insurance.

The first reaction upon reading this is usually, “Why do I have to purchase this?

After all, I don’t own the building and should not have to purchase insurance on it.”

A misconception about rental house insurance is that the coverage applies to the building in which a renter lives.

Rental house insurance is designed to provide insurance protection for the contents of a rental house as well as any liability coverage that may be needed because of occupying the rental.

This insurance in no way offers protection for the actual owner of the property but does provide necessary protection against loss of the contents of your home through covered perils as well as valuable personal liability that follows the members of the household as they pursue their non-business activities.

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Why purchase rental house insurance?

Property owners prefer that you purchase rental house insurance for the contents of your home and for personal liability to reduce the possibility that a fire, vandalism, or theft will adversely affect your tenancy in their building.

Even though this sounds incredibly altruistic, a property owner has a stake in a tenant who will exhibit responsibility by protecting herself or himself from the possibility of a catastrophic loss to the contents of his or her own home.

Essentially, a good tenant is hard to find and keep.

You should purchase rental house insurance to protect yourself for a number of reasons:

• Protect your interest in the value of the contents of your home
• Provide additional living expenses should your home become uninhabitable because of any covered reasons
• Personal liability protection for you and your family against lawsuits for bodily injury or property damage
• Medical payments coverage to the limits of the policy for injury to a guest in your home

Prices of Insurance on Rentals

Insurance premiums vary from state to state, depending upon prevailing weather patterns and exposure to such things as hurricanes, tornadoes, wind, hail, and wild-fire. The premiums may also vary from zip code to zip code depending upon populations and crime rates.

Renters insurance in Mississippi costs, on average, $252 annually; whereas premiums in Iowa may be as low as $149 annually. For data on average costs of homeowners policies and rental homeowners policies in your state, you may consult the Insurance Information Institute.

How Home Insurance and Rental Insurance Is Computed

Home insurance and rental insurance are computed in essentially the same ways except for the stated values of property coverage. The following criteria are applied when rating a home policy:

• Age of the house – older houses and apartment buildings have higher premiums because usually their heating, plumbing, wiring, and roofing are older and less secure.
  
• Type of construction – frame houses and apartment buildings cost more to insure than brick or reinforced concrete because of the relative flammability of the construction.
• Fire protection – distance from fire hydrants and quality of your fire department make a difference in premiums.

The following considerations can reduce your premiums:

• Higher deductibles – the larger the deductible, the less you pay. Be certain that there is adequate credit to offset the larger deductible.
• Amount of coverage you choose.
• Discounts offered by various insurance companies – be sure to ask about these
• Installation of alarm systems for burglary and fire
• Purchasing both home insurance and auto insurance from the same insurance carrier – this can reduce your premiums by up to 20%.
• Acquiring quotations from at least three different insurance companies can help with comparing insurance premiums.

How much insurance is enough?

When determining the amount of insurance coverage you need to carry on the contents of your rental dwelling, condominium, or apartment, consider the value of the contents.

The best way to determine this is by doing a careful inventory of the contents of your dwelling. A list, perhaps accompanied by a video, is useful to evaluate the costs.

Replacement Cost or Actual Cash Value

Replacement cost coverage indicates that in the event of a covered loss, the insurance company will replace the items damaged with items of like value.

Actual cash value coverage indicates that, in the event of a covered loss, the value of the property will be reduced by depreciation, wear and tear, and the condition of the property. Replacement cost is more cost-effective because it means that your necessary appliances, clothing, and furniture will be replaced with items of like value.

Steps Toward Getting Insurance Quotes

Take the following steps to obtain insurance quotes:

Decide upon insurance companies for your quotes

Go to the website for the Insurance Department in your state to examine the ratings, licensing, and recommendations that they may give about insurance agencies and companies.

It is required that all insurance companies selling insurance within a state are licensed with the state.

You should also discuss insurance with your neighbors, co-workers, and friends to determine their recommendation about agencies and companies.

Research the financial status and complaint ratios for insurance companies

The following websites are available for information about both financial ratings and complaint ratios:

• National Association of Insurance Commissioners (NAIC)
• A.M. Best Rating Services
• Standard and Poor’s Ratings

Claims services tend to be more responsive to the needs of consumers if insurance companies have a better financial rating and history of handling claims sensibly.

Determine the limits of insurance coverage you wish to carry

After you have done your inventory, add up values to determine how much insurance to carry. For replacement cost coverage, you need to carry at least 80% of the value of your property.

Liability coverage is ordinarily set at $300,000 per incident for bodily injury and property damage that you or your family causes.

Medical payments coverage of at least $1,000 is necessary to cover injuries that occur on your premises.

Request quotations from insurance companies

Three entities sell insurance in most states. All must be licensed by the state and meet the necessary requirements for education and knowledge. These entities are:

• Independent agents – who represent several insurance companies
• Exclusive agents – who represent only one insurance company
• Direct market sales – through the Internet, mail, or telephone

Your state insurance department will have lists of agencies as well as their licensing status.

Choosing an Insurance Company from Quotations

Compare the following aspects of the companies from which you obtain quotes:

• Perils covered
• Deductible offered
• Amounts of coverage
• Financial status of the company
• Complaint ratios
• Premiums

Read the policy provisions and requirements carefully to determine both the expectations you can have of the insurance company as well as your responsibility to them.

Insurance policies are a legal contract and must be regarded as such.

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