Renters Insurance? Mustachian

[canisius]

After about a year of medical debts, my wife and I have put down the Ramsey books and let our mustaches grow.  So, after cutting our consumption so that we're paying about 40% of our salary to the remaining hospital loans and getting ready to now go towards our goal of early retirement.  We're always looking for places to save and this blog has helped.  However, what are your opinions about Renter's Insurance?  The cheapest premium we have is about $250 a year after a $1000 deductible for $15,000.  The paranoid in me says it's money well spent.  However, the other part of me says most of the furniture we have were either bargains from estate sales, or high end electronics, and basically things we couldn't and wouldn't replace.  It'd make more sense to replace it slowly as we did in the past. 

So, I know MMM has said on health insurance stick with higher deductibles and lower monthly premiums.  What are you all's thoughts on renter's insurance.  Would that $250 be better socked away each year so soon $15,000 is nothing for us on replacing or is it better to have the renter's insurance?

[arebelspy]

Self insuring is almost always the best option, especially on a non-catastrophic thing (such as losing a few thousand dollars worth of items), and especially in the case of a very rare event.

How many people have you known who rent?  How many who have been robbed?

[MooreBonds]

Personally, I'd skip the 'renter's policy' and only acquire insurance coverage to give me personal liability (if I do something to the apartment complex, or if I accidentally do something when I'm out and about on the town).

You are correct in that your electronics would likely be valued at Cash Value cost (i.e. depreciated) - but read the fine print of your policy. Same goes for your furniture. If it's just actual cash value (versus "replacement", which would buy it new for you), that means that after you pay your $1,000 deductible, your check from your insurance company might be $428.91 in the event that you lose everything.

Because of that, I'd just ask your auto insurer if they can underwrite you a low-cost umbrella policy or just personal liability policy for half (or less) of what they want for your renter's coverage.

Also, don't forget to shop around every few years on new policies on both your auto and other policies. Even if your insurer only raises rates by a few % per year, each year is a different animal for each insurance company. Perhaps a competitor had a really good year last year, and can afford to sell policies for low premiums to gain market share this year, etc.

[Peter]

Doesn't renters insurance cover your possession for fire/water damage as well? I would think that would be worth it. I haven't had to deal with it yet because i'm covered by my parents insurance, but in my city of 150k there have been two apartment building fires in the past year...

[c]

(warning, crazy rant ahead)

Get the renters insurance.

We never bothered for similar reasons stated. There was nothing we owned that we couldn't replace if it was stolen, there was a leak etc.

We had a fire in our apartment and lost EVERYTHING. Even the clothes we were wearing when we left the apt that day were destroyed when trying to find something to salvage. It was a totally random event - the fridge exploded. It burned hot, toxic and fast.

You honestly have no idea what it costs to put your home back together. You think that all you really need is a mattress and a toothbrush, but in reality there are hundreds of other things that are essential. Open your pantry and add up the cost of replacing just the basics.

At the very least, the renters insurance would have covered the cost of a place to stay while looking for a new apartment. It's surprisingly hard to find a place to rent when you are officially homeless, regardless of your credit or income. We ended up having to pay 3 months deposit and 3 months in advance, so basically 6 months rent up front.

We were lucky in that we had decent income, 0% store cards, which we used for basics, were easy to come by and I gambled my bonus on being able to pay them off before the interest kicked in. We also had a VERY generous relative who paid for the deposit/upfront costs on the rental.

We used to trawl flea markets and walk around the 'hood on trash day where we collected Danish Modern furniture, it cost us next to nothing to build up a beautiful home. It cost a fortune to replace that stuff with shit from IKEA, shit that cost even more because it's slowly been replaced with better quality stuff.

The fire was a random event, but one of our biggest regrets was not having renters insurance. It's taken years to recover and really set us back.

[Cooperstown]

Personally, I'd skip the 'renter's policy' and only acquire insurance coverage to give me personal liability (if I do something to the apartment complex, or if I accidentally do something when I'm out and about on the town).

You are correct in that your electronics would likely be valued at Cash Value cost (i.e. depreciated) - but read the fine print of your policy. Same goes for your furniture. If it's just actual cash value (versus "replacement", which would buy it new for you), that means that after you pay your $1,000 deductible, your check from your insurance company might be $428.91 in the event that you lose everything.

Because of that, I'd just ask your auto insurer if they can underwrite you a low-cost umbrella policy or just personal liability policy for half (or less) of what they want for your renter's coverage.

Also, don't forget to shop around every few years on new policies on both your auto and other policies. Even if your insurer only raises rates by a few % per year, each year is a different animal for each insurance company. Perhaps a competitor had a really good year last year, and can afford to sell policies for low premiums to gain market share this year, etc.

Umbrella's only go over the top of policies you have in place, increase limits you already have.  If you don't have an underlying policy they don't cover anything.  With that said get renters, it's generally dirt cheap and in the event the place burns down you are not going to screwed.  That said, you can get replacement cost coverage, check to see if there is a coinsurance clause and see if the policy is written on a special form or not.  Special form covers all perils except those specifically excluded which is what you want.  Obviously this comes at a cost so determine what is best for you, but atleast get some form of renters.

[arebelspy]

Sorry c, anecdotes are not data.

I'm sorry that happened to you, but that doesn't make renter's insurance worth it.  Saving the $250/yr. will likely be the much better option.  The very reason insurance companies make lots of profits, because all the people paying premiums don't get their value out of it. 

It's something each person has to decide.  I'm not a fan of insurance, but I also have no problems self insuring against extremely rare circumstances.  Someone more paranoid may want it for the peace of mind.

I'd rather have a peaceful mind for free, and play the odds.

[Nudelkopf]

Self insuring is almost always the best option, especially on a non-catastrophic thing (such as losing a few thousand dollars worth of items), and especially in the case of a very rare event.

What do you mean by self insuring? Just simply saving the money you would have paid to the insurance company?

I don't have renters insurance - I only own clothes, bags, shoes, my computer, and a trumpet.

[arebelspy]

Yes, that's exactly what I mean.

[Daley]

Keep in mind, a few areas and landlords require renters insurance, you should check to see if that requirement is in place for where you are first.

Second, some renter's policies cover more than just the property itself. Our renter's policy covers full replacement cost, personal liability (if say, there's a fire and we're found at fault), and medical for others... that coverage also includes our bicycles and any damage we may do outside the home with them (say, theft or hitting a pedestrian), overlapping and covering spots that our auto policy would not as peddledestrians. It's mandatory to carry a policy where we are currently, but given the added coverage outside the home and the policy only costing us an extra $11 a month (excuse the fact that dropping it would up our total insurance premiums more than we'd save) with the underwriter, it's worth it to us. YMMV, it all depends on the state's insurance laws, the underwriter, and any other policies you might already have.

[arebelspy]

Keep in mind, a few areas and landlords require renters insurance, you should check to see if that requirement is in place for where you are first.

Oh yes, I have it in all my leases that my tenants are required to have renter's insurance.

But that's mostly because I don't trust the average person to self insure.  A Mustachian I would advise differently.  But clearly most people here disagree, and that's cool.  Whatever works for you.

[TheDude]

Interesting discussion. I think most people underestimate what its like to have to stock an entire apartment. Even just consider a place to stay for a couple of days and replacing all your clothes.

When we lived in an apartment we elected to have renters insurance. For me there were three good reasons: 1. It protected us in case of a fire. 2. Liability Insurance (protect future income) 3. Protected expensive bicycles when out and about.  On the other hand my policy was $134/yer, 250 delectable, 25000 coverage (I think) and 300000 liability (I think).

250 seems really expensive for that coverage but I assume it depends on where you live. I think you have to decided based on the stuff you have and the amount of cash you can access. To me it doesn't sound like you have enough to self insure yet.

[jpo]

$250/year is a high premium for only $15k coverage. I only pay $64/year and I believe I have at least that much coverage.

I would get the insurance instead of self-insuring unless you have a large 'stache. It protects against a lot of random happenings, some outside of your control (neighbor burns apartment building down, etc).

[Uncephalized]

One of my goals in life is to have so few material possessions in proportion to my net worth that if my house exploded, it wouldn't be a big deal. I prefer to spend my mental energy thinking about people and experiences, not stuff. That's a major work in progress but in some ways I would consider it a blessing if all my stuff was lost. Then I'd be able to rebuild my material life consciously, the way I want it, instead of based on historical accident which is how most of the things in my house came to be there.

But yeah, my ideal state would be that everything I own fits in a travel trailer or a VERY small house/apartment, and if I lost it all, it wouldn't affect my wealth significantly to replace/rebuild. So I don't insure my stuff.

[yolfer]

Something for West Coast folks to consider: many renters policies have an "earthquake rider" that doesn't add much to the premium. I wasn't too concerned about getting robbed, but the chances are very good that an earthquake will flatten the home I rent, so I bought a policy.

As Mustachians, we tend to have less stuff so our coverage can be cheaper. Mine is $100 a year which includes the earthquake rider. That's for $30k property, $300k liability, with a $2,000 deductible.

[c]

Sorry c, anecdotes are not data.

I understand.

Our pre-fire thinking was something similar to what was discussed here, i.e. most of the stuff was cheap to replace, we could live without a lot of it if we had to etc. We never really thought through a catastrophic event, and I imagine most people don't. We gambled the odds and lost. I just wanted to add my perspective.
 
If I was at a different stage in my financial journey where I could afford to replace everything without it impacting my goals or putting me into debt, it might be the route I went, but if something like that happened now it would wipe out a large part of my savings. I guess one could argue that if I wasn't paying insurance I'd be that much closer to not needing the insurance. Right now it's just not a risk I can take, which may be more emotional than financial.

Canisius mentioned peace of mind, and to me that's worth a few hundred a year. I understand the merits of self insuring and I don't doubt the numbers work out for many, but they won't for everyone, which is of course what the insurers bank on.

I can't remember exactly what my renter's insurance premium was, but it wasn't $250, closer to $180 for $40k of "stuff" and something for personal liability (ETA, the insurance we got after the fire).

You really don't need to have a lot of stuff for it to cost a lot to replace. It's rare that people have to buy everything at once. Even when starting out, most people take their clothes, bedding, some books, toiletries and maybe a toaster oven from their parents home when they move out. Things are added gradually so it's a shock to see how quickly the costs add up and how much "stuff" you actually need to function in society (underwear, shoes etc). It's easy to see how some people never recover from these big events.

[Lars]

Deciding on renter's insurance was easy for me - like in IP Daley's experience, it was basically free thanks to the insurance company's multi-line discount.

[Cooperstown]

Sorry c, anecdotes are not data.

I'm sorry that happened to you, but that doesn't make renter's insurance worth it.  Saving the $250/yr. will likely be the much better option.  The very reason insurance companies make lots of profits, because all the people paying premiums don't get their value out of it. 

It's something each person has to decide.  I'm not a fan of insurance, but I also have no problems self insuring against extremely rare circumstances.  Someone more paranoid may want it for the peace of mind.

I'd rather have a peaceful mind for free, and play the odds.

While I agree with your message, my stache is still growing.  I can't self insure my house and all possessions.  Renters is considerably different than homeowners, but when I rented I still had around $50,000 worth of personal property.  I could very easily replace this with lesser quality goods, but it would set me back a lot more then the $250 a year would.  Obviously everyone's position is going to be different and you are entirely right about where insurance companies make their money.