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Why You Need Renters Insurance

Your stuff isn't protected by your landlord's policy, so make sure you have the coverage you need.

Just because you're renting your apartment or home doesn't mean you're off the hook when it comes to insurance. Your landlord's property insurance policy will cover the building if disaster strikes, but it won't cover your belongings. That's why you need renters insurance.

This affordable insurance -- a policy costs less than $200 a year, on average -- covers renters against losses from fire or smoke, lightning, vandalism, theft, explosion, windstorm and water damage (not including floods), according to the Insurance Information Institute (III). If your home is damaged by a covered event and you have to live somewhere else, most policies will reimburse you the difference between your additional living expenses and normal living expenses. Plus, renters insurance helps cover legal costs if you're taken to court because someone is injured at your home.

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If you don't have a policy -- 57% of renters don't -- here's a checklist from III to help you choose the right coverage:

Figure out how much coverage you need for your possessions. Create a home inventory to determine the value of all of your belongings (furniture, electronics, clothing, jewelry, etc.). A replacement-cost policy will pay to replace your possessions (up to the policy's dollar limit), whereas a cash-value policy will pay only what the items are worth when stolen or damaged. Expect to pay about 10% more for replacement-cost coverage. If you have expensive jewelry, collectibles or art, consider adding a floater to your policy to provide more coverage. Standard policies offer only a limited amount of coverage for these items. You'll need receipts or appraisals for items to be covered by the floater.

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Understand the deductible. The deductible is the amount you'll pay out of pocket before insurance kicks in. The larger the deductible, the lower your premium. So if you can afford a $1,000 deductible, you'll cut your premium by as much as 25%, according to III. But considering how inexpensive renters insurance is, the savings might not be worth the large amount you'll have to fork over to pay a high deductible.

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Know what disasters are covered. Although losses from fires, lightning, windstorms, theft, vandalism, explosions and certain types of water damage are covered, standard policies don't cover floods or earthquakes. You can get flood insurance through the federal government's National Flood Insurance Program, and check with your insurer about getting separate earthquake policy.

Make sure you get enough liability coverage. Most policies provide at least $100,000 of liability coverage (if someone sues you) and about $1,000 to $5,000 worth of medical payments coverage (which allows someone who gets hurt on your property to submit medical bills to your insurance company). If you need more than $300,000 worth of liability coverage, consider getting an umbrella policy for an additional $150 to $300 a year for $1 million worth of coverage (see Why You Need an Umbrella Policy).

Be aware of limits on living-expense reimbursements. Although most policies will help renters pay for living expenses if they have to live elsewhere as a result of property damage, insurers will either limit the amount of time they'll provide coverage or place a cap on the amount that they'll pay.

Ask about discounts. Many insurance companies offer a variety of discounts. For example, you might have to pay less if you have a security system, smoke detectors and deadbolt locks. Insurers also offer discounts to customers who have multiple policies with them, have good credit or are 55 or older. So be sure to ask about ways to lower your premium.

You can compare costs for different policies at Web sites such as NetQuote.com and InsWeb.com. If you have a roommate, ask whether the insurer will allow you to purchase a single policy for both of you (then you can split the cost).

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