insurance 101

One kind of insurance that can be particularly important for baby boomers – and you may be surprised to hear this – is renters insurance.  Why?  Because if you aren’t already a renter, you may become one in the very near future.  Many people decide to downsize in retirement, and either rent a home permanently or rent something temporarily while they decide what their next step will be.  And with the housing market in a rut, renting is even hotter right now.

If you rent, you need renters insurance.  Most landlords won’t cover your belongings after a fire or break-in, so buying your own policy makes sense. You’ve probably accumulated a great deal of valuable possessions over the course of your life – things like your computer, television, camera, jewelry, and artwork.  Even if you don’t have a lot that you consider irreplaceable, small things are worth a lot more than you realize when you add them up. And because you’re only covering your possessions, as opposed to the physical building, the premiums on policies for renters tend to be low.

There are two categories of renter’s insurance. The first, called actual cash value, pays to replace what you lost, after a small deduction for depreciation. The second, called replacement cost, will pay the real cost of replacing your belongings, without taking depreciation into consideration. This option is, of course, more expensive, but it’s worth the extra money, particularly if you have older electronics like a television. You may have spent $500 on it, but if it’s only worth $200 now, that’s all you’re going to get with an actual cash value policy.

If you experience a disaster, like a fire in your home, a good policy will also step in and cover your living expenses if you’re forced out of your home. Costs such as hotel bills, another rental, and meals (within limits, of course) fall into this area. Most renters policies also provide liability coverage, so if you or even your pet injures someone, either in your home or out, the injured person’s medical bills should be covered, as well as any legal costs you incur if they decide to sue. The exception: Liability from car accidents, which would be covered under your auto policy.

As far as the possessions covered, you’re going to need to take an inventory to figure out how much your belongings are worth and then buy a policy based on that number. You should add up the value of everything you own, keeping in mind that there will be coverage limits on valuable items like jewelry and art. Most companies will put a cap of $1,000 or $2,000 on these items. If you have items worth more, you’ll need to purchase additional coverage with an add-on policy called a rider.

Then shop around.  These days you can use the Internet to request a number of quotes and then compare them side by side. What to look for:

Standard coverage limits. This will tell you limits on jewelry and other valuable items mentioned above.

Deductible. How much you pay out of pocket before the insurance policy kicks in? A higher deductible means lower premiums, but it’s not worth it if you can’t afford to pay the deductible, if necessary.

Distance. Some companies will give full coverage to your belongings no matter where you go. Others won’t. If you travel a lot, you may want to pay extra for this security.

Premiums. You will pay this amount each month, quarter, or year. Make sure you compare apples to apples, though—if a company offers more coverage, the premium should be higher.

You should also keep in mind that if you bundle your policies, you may get a deal. Be sure to check with the company that handles your auto insurance and see if they’ll give you a discount for adding another policy.