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Planning / June 10, 2014

You Need Renter’s Insurance


Most everyone I know who owns their home has homeowner’s insurance, probably because mortgage lenders require it. But few people have renter’s insurance. As a matter of fact Rent.com surveyed 1,000 US renters last year and found that 60% of them had no renter’s insurance. I’m here to tell you — warn you, really — that it can be very expensive not to have it.

A disaster can creep up on you when you least expect it. That happened to my family the first weekend of January when a fire two doors down the hallway displaced us from our New York apartment. Six months later we are still not back in our home. You can read the harrowing details in a story written by my wife, a reporter for the New York Times.

Thankfully my family escaped unscathed, but others were not so lucky. A couple living many floors above us were both overcome with smoke trying to descend the emergency stairwell. One died and the other was hospitalized for weeks.

As traumatic as the fire has been, my purpose here is to share the financial ramifications of the accident. As a home owner  I was fortunate to have homeowner’s insurance, but the financial lesson is just as appropriate for renters. Without homeowner’s insurance, we would have footed the bill for everything that has transpired since.

The Costs

Let me start with a brief description of the expenses we incurred as a result of the fire that were covered and not covered by homeowner’s insurance.  I will then detail what would have been covered by renter’s insurance.

Over the course of the past six months our homeowner’s insurance covered the following:

Two-week initial hotel stay*

$2,819.82

Five-month apartment stay in short-term corporate apartment**

$33,995.35

Post-fire cleaning of apartment and belongings (smoke and soot damage)

$8,000.00

Packing and moving of belongings into storage

$2,940.00

Five months of moving company storage

$1,630.00

Meals for the first two weeks

$398.82

Total

$49,783.99

 

*Includes $150 fee to accommodate our dog; having a pet by the way limited our temporary living options.

**$6,799.07 per month or ~$215 per day + $4 per day for our dog.

Our coverage did not include our $4,100 combined monthly mortgage and building condominium common charges, which we continued to pay despite having to live elsewhere (a total of $24,600).

The homeowner’s policy for our one bedroom, 850 square foot apartment in Manhattan cost us $835 per year. Over the 12 years we have owned our apartment we have paid less than $10,000 in total premiums. We therefore paid far less in premiums than we received in benefits. We’re still $39,000 ahead if you subtract our aggregate premiums to date. Had we not had homeowner’s insurance we would be in great financial distress.

Our Renting Neighbors

The same fire that displaced us also displaced a number of our neighbors who rent from their condominium owners. Unfortunately none of the renters who were displaced had renter’s insurance. While none of them incurred costs for repairing their apartments, all of them had belongings that were damaged and all had to relocate.

One of our renter neighbors who preferred not to have his name disclosed provided the following list of out-of-pocket expenses he incurred that would have been covered by renter’s insurance:

Three months of temporary apartment rental

$7,500

Unexpected commuting and travel costs

$1,200

One week of lost pay

$5,000

Three months of storage cost for belongings

$630

Packing, movers, etc.

$450

Clothes cleaning from smoke damage

$150

Total

$14,930

The average annual cost for renter’s coverage in New York City is only $200. The cumulative cost of renter’s insurance, no matter how long they lived in the apartment, would have been far less than the expenses my renter neighbors incurred. I find that especially sad given that renter’s insurance costs less than Internet service and far less than mobile phone service.

“I will definitely buy renters insurance in the future,” my neighbor said. “I lost around $15,000 total — and I’m not making this mistake again — in fact, I even bought insurance on the things I had to put in storage,” he added.

Be Prepared

Renter’s insurance is extremely inexpensive, especially when compared to the potential cost you may incur if something bad happens to your apartment or rented home. If you are a renter with stable income, and can meet your other basic needs like having health insurance and car insurance, then renter’s insurance should be added to your list of high-priority expenditures.

As of this writing, the New York fire department still has not released its official final report. We still do not know with certainty what caused the fire, but the preliminary report cited a substandard, overloaded power strip. Regardless, we’ve been told that our neighbor who started the fire, who owns his apartment, had no homeowner’s insurance. Don’t make the same mistake as my neighbor. Don’t let your homeowner’s insurance lapse if you’ve paid off your mortgage.

This post dealt with the singular example of a fire disaster, but there are innumerable others, and the best way for you to be financially prepared to face them is to make sure you have some type of comprehensive insurance to cover you.

Useful links:

A Word to the Wise Renter: Insurance

Why You Can’t Afford to Skip Renter’s Insurance

Five Myths About Homeowners Insurance