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Money April 2015

Dollar Sense

Why You May Need Renter’s Insurance and/or a Personal Umbrella Policy

By Teresa Ambord

This type of policy also covers you if someone who does not live with you is injured while at your home. Suppose you have friends over for a barbecue, and one of them ends up with a severe burn from the grill. Renter’s insurance usually offers medical payments to cover the cost of the doctor or emergency room visit.

I hear people say sometimes, “I’m glad I’m a renter because if something breaks down, my landlord fixes it.”

That may be true, assuming you have a good, honest landlord. Owners of commercial property have insurance that helps out when the building and grounds suffer damage, such as by fire or water. But according to the Insurance Information Institute, that insurance does not generally cover your belongings.

Let’s say your rented house came with appliances, including a nice big freezer. You spend a fortune filling it with good cuts of meat and other food items. Then one hot August day you arrive home to see a puddle beneath the fridge. The appliance broke down, and everything in it is spoiled. You’ve lost hundreds of dollars in food. Your landlord will likely replace the appliance if it’s part of the rental contact. But he or she has no obligation to pay for what you had inside.

The same is true for damage to your furniture and electronics if there is a fire or if a pipe bursts and drenches your belongings with water. That’s where renter’s insurance comes in. Also keep in mind that rental units are prime targets for burglars. If your TV, stereo, computer and other electronic gadgets are stolen, your landlord is not generally responsible.

"Many renters underestimate the value of their possessions and would be surprised by how much it would cost to replace the items they have accumulated," Emily Lyons, a Liberty Mutual property insurance expert told reporters at USnews.com. Before you decide you don’t need renter’s insurance, think about what you could lose and whether you could afford to replace those items.

 

Other Benefits of Renter’s Insurance

Suppose your apartment suffers smoke damage when your neighbor forgets she lit a candle and ends up setting her curtains on fire. Your apartment could be unlivable for weeks, but renter insurance may pay for you to live elsewhere until you can move home again.

My niece lived in a duplex which had floor furnaces. She was happy to learn she was getting a new neighbor. That is, until the new neighbor didn’t realize the floor furnace was on, and piled moving boxes on it, then left. The fire rendered both sides of the duplex unlivable for quite awhile. Fortunately my niece had renter’s insurance which paid for her to live in a nice extended-stay motel for several weeks.

This type of policy also covers you if someone who does not live with you is injured while at your home. Suppose you have friends over for a barbecue, and one of them ends up with a severe burn from the grill. Renter’s insurance usually offers medical payments to cover the cost of the doctor or emergency room visit.

Before you complain that you have an abundance of insurance and are sick of paying premiums, you should know, renter’s insurance is very affordable. And of course, you can always lower the premiums by having a higher deductible. There’s also another type of insurance you may want to consider.

 

Personal Umbrella Policy (PUP)

A PUP is also generally very affordable. A $1 million personal umbrella policy might cost you $150 to $300 per year. What does it do? In many ways it extends the limits of your existing auto and renter (or homeowner) policies. It doesn’t cover the exact same things, however.

The Insurance Information Institute says that a PUP won’t cover your personal belongings, since the main purpose of this kind of policy is to protect you if you accidentally cause damage to another person or their property. So let’s say you decide to take a bath, turn on the bathtub faucet and then get a phone call and forget about the water. Damages you cause to your own belongings are not covered (your renter or homeowner insurance will help with that). But if your downstairs or next door neighbor suffers losses of furniture, equipment, and the use of their living space, a PUP will generally compensate them. Otherwise, you may be on the hook to pay for the losses you caused.

Going back to the example of a visitor to your home being burned on a barbecue grill,  if the cost of the resulting medical bills exceeds what your renter or homeowner policy will pay, that’s when your PUP kicks in to cover the rest (up to the limits of the PUP of course).

Also, if you cause a traffic accident and another person is severely injured, your auto policy may only cover you for, say $250,000. If the victim’s medical bills exceed that amount, a PUP will pay the rest, up to its limits.

Like any kind of insurance, a PUP won’t cover everything. It won’t cover you if you intentionally do something that will cause harm. It won’t pay for the results of your reckless behavior, like speeding down a residential street. It won’t pay if you get mad at your neighbor and deliberately back over his fence with your car. And it will not come to the rescue if you get the notion to pinch someone on the rump and he or she sues you for sexual harassment. However, in this society where everyone seems more than willing to sue for just about anything, a PUP will protect you when you unintentionally cause damage to another. It’s something to think about.

 

Teresa Ambord is a former accountant and Enrolled Agent with the IRS. Now she writes full time from her home, mostly for business, and about family when the inspiration strikes.

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