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HSFPP Weekly Update # 153—Renter’s Insurance
Message from Bob: Most teenagers ignore the need for insurance other than vehicle insurance, which they are required by law to have (there is a state minimum liability in Kentucky); however, health and renter’s insurance are in far less demand by teens, who tend to believe only good things will happen to them and bad things will happen only to others. They are, of course, self-insuring by default; that is, agreeing to pay all expenses or losses themselves. They might not realize how expensive the costs could be (especially for health care). After completing the reading and activities in Unit 6 of the HSFPP Student Guide (also available on http://www.nefe.org/hsfppportal/includes/main/home.asp?page=26000), I hope teens will better understand the need to cover themselves for illness, accidents, disability, fire, theft, and other events that can happen to them, and not just to other people.
Message from Chris: Many high school graduates will rent an apartment or house with friends after they graduate. Renter’s insurance is important because a landlord’s insurance usually does not cover your possessions. If you don’t have renter’s insurance and your new $1200 stereo equipment that you received as a graduation present is stolen or destroyed in a fire, you have lost that $1200 minus your deductible, if you have one.
Update #105 - Need to Teach Risk Management - 8 November 2004
Update #68 - Rental Costs / Should Parents Charge Rent - 6 October 2003
Web Site Picks of the Week:
This is the University of Missouri’s Office for Financial Success Web site. Mark Oleson, who manages their program, presents a Tip of the Week; his tip about renter’s insurance is the subject of our update this week. This excellent Web site covers a variety of financial topics.
The Kentucky Office of Insurance provides “A College Student’s Guide to Insurance,” available at this Web site. It covers renter’s, health, and auto insurance, as well as the risks of not having adequate insurance.
1.) If you decide to rent an apartment or house, would you get renter’s insurance? Why or why not? How would you go about making that decision?
Business class: Call three insurance companies and ask what it would cost to buy their minimum renter’s insurance coverage. Ask what the policy covers and does not cover and whether the policy comes with deductibles or coverage limits for computers, jewelry, collectibles, or anything else. Also ask if the policy covers rent until the apartment is livable again (in the event of a fire, tornado, or earthquake, for instance).
Social Studies class: Make a list of every large or expensive item (furniture, clothes, electronics, jewelry, tools, collectibles, etc.) and the value of each item that you would have with you wherever you might rent. Add up the values of all possessions. After comparing the value of your property and the premiums for (and limits of) renter’s insurance, does renter’s insurance look like a good idea for you?
In the New$... Renters Insurance
By Chris Hart, Senior in Telecommunications, University of Kentucky
Living in UK’s dorms got old quick, so, for my junior and senior years at UK, I have rented a house with friends. I admit that I don’t have renter’s insurance. It didn’t occur to my friends and me that we might need it, though some recent burglaries in nearby houses rented by UK students has shown us that it could be worthwhile. Although you might think, like we did, that renter’s insurance is unnecessary, a landlord’s insurance will not cover your property in case of destruction or loss.
One advantage of living in dorms is that your property might be covered under your parents’ homeowners’ insurance.
According to Mark Oleson, of the University of Missouri Office for Financial Success, “Renters insurance provides financial protection against the loss or destruction of your possessions when you rent a house or apartment. While your landlord may be sympathetic to a burglary or a fire, destruction or loss of your possessions is not usually covered by your landlord’s insurance. Because in most cases, renters insurance covers only the value of your belongings, not the physical building, the premium is relatively inexpensive (usually about $150-$300 per year).
“By purchasing renters insurance, your possessions are covered against losses from fire or smoke, lightning, vandalism, theft, explosion, windstorm and water damage (not including floods). Like homeowners insurance, renters insurance also covers your responsibility to other people injured at your home or elsewhere by you, a family member or your pet and pays legal defense costs if you are taken to court.
“Renters insurance covers the additional living expenses if you are unable to live in your apartment because of a fire or other covered peril. Most policies will reimburse you the difference between your additional living expenses and your normal living expenses but still may set limits as to the amount they will pay.
“There are two general types of renters insurance policies you may purchase:
1. Actual Cash Value – pays to replace your home or possessions minus a deduction for depreciation up to the limit of your policy
2. Replacement Cost – pays the actual cost of replacing your home or possessions (no deduction for depreciation) up to the limit of your policy
“With either policy, you may want to consider purchasing a ‘floater.’ A standard renters policy offers only limited coverage for expensive items such as jewelry. If you own property that exceeds these limits, it makes sense to supplement your policy with a floater. A floater is a separate policy that provides additional insurance for your valuables and covers them for perils not included in your policy such as accidental loss.”
Source: From Mark Oleson, Office for Financial Success, University of Missouri-Columbia. Financial Tip of the Week, 3/03/06: http://financialsuccess.missouri.edu/tipoftheweek/rentersinsurance.pdf
Used by permission.
Kentucky High School Financial Planning Program
The purpose of the HSFPP weekly financial updates and Web site is to assist county Extension agents, credit union educators, high school teachers, and parents who home school their teenagers so that they may improve the economic well-being of our teenagers; and also to show educators how the HSFPP and the weekly updates meet Kentucky core concepts. The Web site and weekly updates are provided by the University of Kentucky Cooperative Extension Service, and are free to all educators. The list of core concepts and order form for free program materials including the student guide and instructors manual can be found on the Kentucky HSFPP home page.