by Enigmatic

Created on: September 10, 2009   Last Updated: September 16, 2009

A renters insurance, also known as an HO4 policy, is a form of risk management for people who have rented a home or an apartment. The insurance covers the losses of your personal belongings as well as providing protection against personal liability. It's not necessary to have this insurance, but it's very recommended that a renter is covered by it nonetheless since it helps lessen the impact of an event that would drastically change your financial well-being.

Having said that, it's important to be covered by a renters insurance since it protects you against events that are out of your reach to prevent. It's also crucial to have renters insurance if you're unable to completely pay for all the damages and losses.

As for what the insurance insures, there's a wide variety of"perils" that you're protected against which consist of fire or lightning, windstorms, hail, vehicle damage, smoke damage, theft, riot, vandalism and more. It's possible that by being covered by an insurance company that offers replacement cost coverage with a minimal deductible, that you end up turning a huge financial loss into a less severe, more manageable loss.

When something does happen to your rented property, it's important to know what kind of personal property applies to the insurance. A list of what personal items that would be insured are: furniture, clothing, jewelery, stereo, TV and other electronics and any other personal belongings of value. The insurance also covers your exposure to liability lawsuits. This could happen when you are believed responsible for injury to another person or if there was damage done to someone's property.

The insurance companies also usually cover property in one of two ways, either using the "actual cash value" or the "replacement value" of the household objects when paying a claim.

The actual cash value policies pay what the possession or belonging's actual price is, compared to how much it was bought for before.

To be specific, the way you're reimbursed for your lost or damaged personal property may not always be at full value due to depreciation. If an item consisting of your insured property, such as a 5-year old TV was stolen, the reimbursement value would be lower than what its price was at the time when it was bought. The exact value would depend on how much the price of that TV has depreciated when it was purchased.

Replacement-cost coverages however, are almost the opposite of actual cash value policies. If the insured party lost any possessions, the insurance company would pay that party the same amount of money as it would take to buy that possession or another item that performs the same function, at the time of its loss.

Having a renters insurance is a very important and worthwhile investment to make for securing your personal belongings. For many that can't afford to pay for and deal with a costly personal financial disaster, this is one way to soften the harsh blow.

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