By Financial Advisor Peter Egolf
Whether you rent an apartment or own a house or condo, you likely have purchased insurance to protect yourself. But do you know what insurance protection you have?
I will outline the different types of insurance so you can be better prepared to find the policy that meets your needs.
This policy covers only property and belongings for listed causes of loss.
These “named perils” typically are lightning or fire; hail or windstorm; damage caused by aircraft; explosions; riots or civil disturbances; smoke damage; damage caused by vehicles; theft; vandalism; falling objects; volcanic eruption; damage from the weight of snow, ice, or sleet; water damage from plumbing, heating, or air conditioning overflow; water heater cracking, tearing, and burning; damage from electrical current; frozen pipes.
Belongings are replaced at “actual replacement cost,” meaning the depreciated value of your possessions (e.g., your old TV), not the current cost to replace your possessions (e.g., current cost to purchase your TV).
This policy provides more expansive coverage than the basic HO-2. Specifically, your property is covered by “open peril” in that all perils to your property are included except those explicitly excluded (e.g., earthquakes and floods). Thus, this coverage protects your property from a wider array of potential liabilities.
Like HO-2, belongings are replaced at “actual replacement cost,” meaning the depreciated value of your possessions.
This policy provides the most expansive coverage for property and belongings.
Like HO-3, your property is covered by “open peril.”
However, unlike HO-2 and HO-3, your belongings are replaced at “replacement cost,” meaning the current cost to replace your belongings (e.g., the current cost to purchase your TV).
The choice between HO-2, HO-3, and HO-5 depends on the perils you would expect in a loss and whether you want your possessions replaced at cost or the depreciated value. For those wanting the most expansive protection for their property and belongings, HO-5 is the most expensive but most comprehensive homeowners policy.
If you own a townhome, rowhome, or subdivision classified as a condominium, you must obtain insurance that protects the property and belongings in your unit and excludes the common areas in your complex that the association insures.
The cost of condominium insurance is usually less than homeowners insurance due to the smaller size of the structure and fewer portions of the property to insure.
Renter’s insurance is the simplest and cheapest form of property insurance. As a renter, the structure of the apartment or house is insured by your landlord.
Therefore, renter’s insurance is strictly insurance for your belongings. Unlike homeowner and condominium insurance, which requires the insured to understand the property's value and belongings, renters only have to value their belongings and additional coverages that they may desire (e.g., sewer backup, etc.).
For example, if you have $50,000 in possessions in your apartment, you would want to purchase a renter policy with at least $50,000 of belonging protection.
The cost of renters insurance is usually no more than a few hundred dollars per year.
If you have additional questions about your insurance and investments, you can contact me to schedule a conversation. I enjoy helping clients simplify their financial lives.
Peter Egolf | Fiduciary Financial Advisor
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