5 things to know about buying renters' insurance

Chicago Tribune (MCT) - It is, unfortunately, an all-too-familiar news image: An apartment building smolders in the hours after a major fire. The traumatized residents have gone off to put their lives back in order. In all likelihood, they have lost most of their possessions.

Some of those tenants will find financial support for their losses through their renters' insurance policies. However, a majority of renters probably don't have coverage, either because they believe they can't afford it or because they don't even know such a thing exists, according to a 2007 survey by Apartments.com.

"The average renters' insurance in the U.S. is about $200 annually," according to Loretta Worters, a spokeswoman for the Insurance Information Institute, a trade group in New York.

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"A lot of people don't think about purchasing (it because they think) their landlord is responsible, but in reality, it's the tenant that's responsible for their own belongings," Worters said.

And the value of those belongings can add up, even in the households of many young adults just starting out on their own: Computers, stereos, plasma-screen televisions, etc., are part-and-parcel of many an urban lifestyle these days.

Insurers say beyond personal property, renters may need to consider another possession _ protection from liability lawsuits in this litigious age.

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Here are five things renters should know about insurance:

1. What's the real cost? That $200 annual cost is a generalization, though it's generally regarded as a reliable one.

"It depends on where you live and how much property you're insuring," said Janet Patrick, a spokeswoman for the Illinois Insurance Association. "It also depends on the size of the deductible and other coverage."

Patrick said a $250 deductible (an amount the insured party pays out-of-pocket before coverage kicks in on a claim) is probably most commonly found in the standard wording of renters' policies. "But you should take the highest deductible you can afford, maybe a $500 one, because it's going to lower your (premium) cost," she said.

2. Two forms of coverage. Policies usually cover property in one of two ways, providing either the "actual cash value" or the "replacement value" of the household objects in paying out a claim.

Actual cash value policies pay what a possession is deemed to be worth at the time of the loss. In other words, if, your laptop cost you $800 a few years ago, its value would be less today, an amount the insurer would calculate in determining how much to pay you for the loss.

Replacement-cost coverage is just what it sounds like _ it pays out the equivalent cost if you were to go out and get a similar laptop today. Such coverage, because of the higher payout, carries a higher premium.

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3. Beyond property. Policies cover more than lost property. For example, they also provide payment for living expenses if you're displaced from the unit for covered events, such as fires.

Another major area of coverage is liability. "If somebody comes into your apartment or rented home and trips on a rug, that's still a liability issue," Patrick said.

Generally, policies include up to $100,000 liability coverage, according to Worters. "However, experts recommend that you purchase at least $300,000 of protection," she said.

4. Talking about catastrophes. The list of catastrophes and circumstances that are likely to be covered by renters' insurance is a long one, ranging from such "typical" events as fire, vandalism or theft to such things as damage from frozen pipes or even riots. What often isn't included is damage from flooding, and insurance experts suggest if you live in a flood-prone area, you'll need separate coverage.

5. Other things affecting costs. There may be ways to keep your premium costs down. Or drive them up.

Some policies, for example, may give you a discount if your building has a security system _ especially if you have it connected to a central station alarm.

And then, there's a lifestyle consideration that might make your coverage pricier _ that is, having a dog. "Some companies are concerned because of the additional liability of certain dogs that are aggressive in nature," Patrick said.

Additional dog-related insurance costs and whether you get coverage or not depend on the company, she said. "Some won't write a policy if you have a certain type of dog; others will take a look at the risk and evaluate it differently."

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© 2009, Chicago Tribune.