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Thanks for making it easy to find the cheapest renters insurance. Knowing our stuff is always protected gives me peace of mind.

Matt and Bethany, Charleston SC

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During this tumultuous period of economic uncertainty, tenant contents insurance has never been more important. While an increasing number of consumers are looking for areas in which they can cut spending, given the relatively low premiums of this type of insurance and the potentially high cost of not having coverage, this is not a place to save money. If you are faced with one of the various situations in which coverage is needed - a theft, a fire, a flood, an earthquake, or some other disaster - compounding the tragedy by needing to bear the cost of replacing all of one’s belongings is unnecessary.

Distinguishing the Difference from Homeowner’s Insurance

While most, if not all, banks require property owners to carry homeowner’s insurance, tenant contents insurance is not always required. When a bank writes a mortgage and makes a loan, one of the ways that they defer some of their risk is by requiring the borrower to protect the physical property with insurance. In many cases, if the homeowner does not adequately maintain coverage, the lender will purchase a policy of behalf of the homeowner at his or her expense; the loan documents likely contain a covenant that allows for the bank to take these steps.

While the land accounts for a portion of the value of the property that is being purchased, the structures are usually a significant part of the expense. If the property owner did not carry insurance and the structure were damaged or destroyed, the value of the bank’s collateral would have been diminished. The bank is now in a precarious position because not only does it wish to maintain its loan-to-value ratio, it may be required to by law. If the borrower does not, or cannot, make the repairs, the bank loses. In certain cases, the loss is so great, the borrower may decide that simply walking away is preferable, despite the negative impact to one’s credit. By requiring coverage, the bank avoids these issues.

Tenant contents coverage is different because it provides personal property insurance within a rented piece of real property and is rarely required. This is an important distinction to make because normally a homeowner’s policy covers personal property as well. The homeowner’s coverage will likely exclude the property of a tenant, thus making renter’s insurance necessary. This can get particularly complex when the tenant occupies a non-differentiated space with the residence; the divide is more clear when an apartment or condominium is involved.

Coverage Mechanics - Liability and Personal Property Insurance

The purpose of tenants contents coverage is to protect both the liability and personal property of an individual who lives in a rental property against loss from naturally occurring disasters or from theft. If a fire destroys all of your belongings, this is the type of coverage that can replace the things you have lost. The added benefit of carrying renter’s insurance, particularly with a major carrier, is that the insurance company will help to protect your rights in the instance of a dispute.

Consider, for example, a fire that destroys all of your property. If the fire started in one of the common areas of the building, the building’s policy may cover your loss. This will depend, at least in part, on whether the fire was a result of negligence on the part of the property owner. If it was unavoidable, that insurance company may argue that your property is excluded. Similarly, if the fire started in another apartment and was the result of negligence by another tenant, the property owner’s policy may exclude your property from coverage. It is not unlikely that a serious dispute may be involved. In this case, even if you are right, in order to receive payment on your claim, you will have to hire an attorney to defend your claim. This process can be lengthy and the result is often uncertain.

If you have tenant contents insurance, your insurance company will likely pay on your claim as a first step. After this is done, the insurance company will then take the necessary steps needed to recoup the loss. Their time and their attorney will be responsible for addressing the issue and spending the effort to resolve the situation. The insurance company is in a better position to see the issue through to its logical conclusion, rather than allowing your resources to be depleted. The cost to the company is relatively small, while the cost to you would have been relatively large.

Cost of Coverage Versus Benefit

Facing the challenges of the current economic environment, more and more individuals and families are looking for ways to cut items from their budgets. This is a responsible and understandable reaction to the real pressure that people are facing.

It may seem like tenant contents insurance is a luxury since it performs no benefit on a month-to-month basis in most instances. It is a fixed cost that appears like one of the many taxes most consumers must pay to simply exist. However, relative to this ongoing cost, the benefit that you will receive should you ever need to exercise your rights under your policy will be immeasurable. Between the emotional damage and the loss of time that occurs after a flood or a fire, the cost is high enough. If you are forced to bear the expense for replacing everything that is lost, the cost of the incident never stops climbing.

Another important factor to consider is whether you would even have the ability to replace everything should the need arise. Particularly as the economy languishes and savings are exhausted, more and more people are not in a financial position to replace their belonging all at once. If this is the case, your quality of life can change dramatically. Given the relatively minimal cost of tenant contents insurance, not buying a home renters insurance policy is an unnecessary risk. When consumers are trying to become more responsible, you should understand that in some cases, the responsible course of action is to spend a little money today, so as to avoid having to spend a lot of money in the future.