As soon as we started looking for a home with a real estate agent, she advised me to get preliminary quotes from several insurance companies so we would be able to move quickly once we went into escrow. If you’re getting a loan, you can’t close the loan without insurance in place, and the first year’s premium will be paid through your escrow company in advance.

How to Research Homeowner’s Insurance
The initial research is simple. Follow these steps to accomplish the task in a few hours:

  • Approximate the average price, size, and age of the homes you’re looking at. In our area, that was about 1500 square feet and built in 1950.
  • Compile a list of potential insurance companies. Ask friends and relatives who own homes for recommendations.
  • Check your state insurance commissioner’s website, online review sites, and the Better Business Bureau’s site for ratings for each prospective insurer for homeowners and auto insurance (if you drive.) A combined policy will save you a few hundred dollars every year.
  • Visit the websites of three or four your top choices for online quotes. It will take a few minutes to complete the forms on each site. Most should supply you with an instant quote. For your auto quote, base your decision on the level of coverage you’ll need after you move into the home, not the lower level you most likely have now.
  • Contact your current auto insurance agent for a quote. You may get an additional discount for being an existing customer.

How to Choose an Insurer
Although you’re more likely to use your auto insurance, I decided to choose my insurance based on the best homeowner’s coverage because it has a much higher value. On the insurance websites, you can run different scenarios to adjust your cost. You can’t change the value of your home – that’s based on a formula – but you can adjust the deductible, the personal liability coverage, and a few other factors. I chose a $2500 deductible and a million dollar personal liability rider.

I narrowed it down to two possibilities, one of which is my current auto insurance company. When we went into escrow, I called each for a specific quote for the specific property. The quote I received was actually lower than the online quote, despite the home being larger than my estimate.

When making my decision, I relied on three primary factors:

  • Reputation – Does the company have a good BBB rating and insurance commission rating?
  • Coverage – Does the homeowner’s policy include the coverage I require?
  • Price – I wouldn’t automatically choose the cheapest, but I wouldn’t choose the most expensive if other factors were equal.

Once you have your quote, get the agent’s name, phone number, fax number, and any other information you need to complete the escrow form and submit it as quickly as possible. Our escrow company requires the information at least 10 days before closing to avoid delays.

At some point during the mortgage process, you’ll be faced with this mysterious item known as “title insurance.” There are actual two types of title insurance. If you’re getting a mortgage, you’ll be required to get the first type. You may also opt to get the second type.

Title Insurance Defined
Title insurance offers protection in case there is a defect in the title. That is, in case someone tries to make a claim against your house for something a prior owner did, or in the event that title was improperly passed.

Lender’s Title Insurance
The lender’s title insurance protects the lender from losses in case the title is later proven to be improperly issued due to inaccessibility of the land, liens, or defective documents.

Owner’s Title Insurance
An owner’s title insurance policy protects you, the homeowner, from losses in case a clear chain of title can’t be proven, previous fraud on a title transfer, errors in title records, or other encumbrances to your ownership.

Is It Necessary?
Title claims are rare. In some cases, a title can be clouded due to fraud, but usually it just means something was improperly recorded. As part of the title insurance process, the title insurance issuer will research the recording history and declare a clear title. If title can’t be cleared, then you don’t buy the house. However, most people can’t get past this step without first paying for the title insurance policy. In this sense, title insurance protects you from the possibility of a future problem. The premium is more of an add-on, because it’s unlikely the policy would be issued if title problems were found at the time the policy was written.

What Does It Cost?
This is the tricky part. Title insurance can cost anywhere from $800 to $2,000. Depending on your purchase situation, you may be able to choose the title insurer and negotiate the rate, but you might not be able to. Nearly 80% of this fee is commission, and only 20% is for the actual insurance premium.

Do You Buy It Annually?
Unlike homeowner’s insurance or a home warranty, you only buy title insurance once. If you refinance, the new lender may ask for a new title policy, but some insurers will offer to update your current policy at a reduced rate. If you’re refinancing, ask the title insurer about this. Of course, you will need a new policy if you sell your home and buy a new one.

The fact is, it’s not that expensive to run title searches now that most county records are digitized. While they do offer an important protection and provide an important service, it could be done for far less than title insurers currently charge. Unfortunately, they’ve dug their way into the system and there’s little likelihood that we’ll get rid of the system anytime soon.

You’re probably familiar with the warranties your electronics came with – those convoluted promises it’s impossible to make a claim under. A home warranty is not exactly the same, and it can be issued on a house of any age. If you’re a new owner, you should get one. Current owners should consider it.

What a Home Warranty Is
A home warranty is a service contract on the appliances and systems in your house. If your dishwasher breaks down, you can file a claim under the home warranty to have it repaired or replaced. You’ll have to pay a service fee for the initial visit to diagnose the problem.

What It Includes
The warranty is not for items like the foundation or roof, although you may have a separate warranty for these if you’re buying a home directly from a builder or the home was built very recently. If you have an older home, those items would be included in the homeowners insurance policy. This warranty typically covers the systems, which are often excluded by your insurance policy:

  • HVAC
  • Appliances
  • Water Heater
  • Plumbing
  • Electrical

Before buying a policy, review it carefully to make sure the systems in your home are included. For example, well pumps aren’t usually automatically included. If your systems aren’t included, ask if there’s a policy or add-on that does include them.

How Much You’ll Save
It depends on the problem. If it’s a minor problem, your service fee may cover the cost of the repair. However, if it needs replacing, you could save thousands of dollars on a new heating system or major plumping repairs.

How to Get a Home Warranty
If you’re shopping for a home, include the home warranty in your offer as one of the items paid for by the seller. The seller may not agree to this cost, but most will. If the seller won’t, you can buy it yourself. Some real estate agents will buy it as a gift for you at closing.

If you already have a home, you can add a home warranty at any time. You can renew it annually.

Warranty Costs
The cost of a home warranty varies by region. It can be as low as $250 and as high as $500. Service fees also vary by region and service, but can range from $25 to $100. If you have a new appliance with an existing warranty, that should be your first call. However, if you have an older appliance, the home warranty may extend the coverage without the added expense of an appliance-specific extended warranty. As someone who spent a year fighting a major appliance dealer to have the extended warranty honored, I can tell you the high cost of the extended warranty isn’t worth it. Just get the home warranty.

Why New Owners Need It
If you’ve been living in your home a while, you know the issues that generally occur and about what it costs to fix them. You know how old your systems are and when you can expect to replace them. As a new owner, you don’t always have this information, and haven’t had time to save up the money for the needed repairs or replacement. You don’t want to be five months into your new home and discover the heating unit has broken at the start of winter, and then have to come up with $2,000 to fix it.

Even though it seems like one more expense to add to an already expensive process, a home warranty is key for new h

Adam commented on my post about how we save 25% of our income. “I am just in the process of getting married, and learning about the whole process of combining our finances.”

To help Adam, and any other couple, here’s a quick outline of the process. My husband and I agreed that we would set up a joint checking account after we got married. We could have set it up earlier, but we wanted to wait until after we had the piece of paper just to be safe. When combining your finances, there are a few things you must do as soon as possible after the wedding, and a few you can save for later.

Changing Names
In most states, you can change your name on the marriage license. In some situations, you must file a name change petition later. I didn’t change my name, so I didn’t have that hassle. The process is straightforward if the wife switches from First Middle Maiden to First Middle Husband’s-last or First Middle Hyphenated-name. A name change petition may become involved if you want to change to First Maiden Husband’s-last, as many women do.

Marriage Certificate
Whichever route you take, you must wait until you receive your marriage certificate to change your name on most accounts. If you change your name, order at least three extra copies of the certificate at the time you file the license. If you don’t change your name, one or two copies will do.

Driver’s License and Social Security
Your first step should be updating your driver’s license and social security file with your new name. You’ll also need to change your address with the DMV if you move after you marry. This process will take several weeks, so make sure you buy honeymoon tickets in your maiden name.

Joint Bank Accounts
Most banks don’t require you to provide a marriage certificate to set up a joint account. Simply go to the bank and tell them you want to change the names on the account. When we married, we decided to add me to his account and close my account because his account was drawn on a Southern California bank and mine was located in another part of the state.

Credit Cards
Changing the name on your credit cards may require sending them a copy of your marriage certificate, but some will accept a copy of a driver’s license as proof. Ask if you can add your spouse as a co-owner of the account. Most will fax or email you a form to sign and return. I had a better credit history, so we made my husband co-owner of two of my cards and an authorized user on the third, because they only allow one owner. He cancelled many of his own cards.

Health Insurance
If you plan to add your spouse to your plan and have employer-provided insurance, contact your HR department for the proper forms. If you have individual plans, like we did when we married, compare plans to find the new best rate for a joint health insurance account. We added my husband to my plan and chose a new deductible level. They didn’t require a marriage certificate because California recognizes domestic partnerships for all couples. Insurers in other states may have different requirements.

Life Insurance
Once you marry, your spouse is automatically your life insurance beneficiary, as required by law, but you should contact your insurer to file an updated form with current information.

Auto Insurance
We already had auto insurance from the same company, but opted to combine our policies to get the two-car discount. This was the only account that required a copy of our marriage certificate, but the process was simple. They sent us forms that we returned with a copy of the certificate and a week later we received our new cards. If you renew every six months, consider waiting until the policy is about to make the switch easier.

Investment and Retirement Accounts
You can choose to merge your investment accounts, or hold them separately. Retirement accounts remain separate. In both cases, you should file updated forms designating your spouse as the beneficiary. If you don’t, the original party listed on your account will be the beneficiary after your death, regardless of any directions included in your will.

Student Loans
By law, your student loans cannot be merged. This is for your protection because student loan debts die with you, unless there is another name on the account.

Cell Phone
Save money in a flash by switching to a family plan. You will have to go to your carrier’s local store to make the switch, but it’s easy once you get there.

If one of you owns a home, you may wish to add your new spouse to the title via a Quit Claim Deed or other title conveyance. Contact a real estate lawyer for guidance. Adding a spouse to your mortgage may require refinancing, so contact your bank for advice.

If you rent, you’ll need to add your spouse to the rental agreement. Contact your landlord to complete the process.

Be sure to add your spouse to any homeowner’s or renter’s insurance policies you have.

Miscellaneous Accounts
You can, if you wish, add your spouse to your cable, utility, and telephone accounts, but it’s not absolutely necessary. Most of these companies will speak to a spouse without having him or her on the account as long as the spouse has the account number.

This list of accounts seems like a lot of work, but it’s really not. Set aside an afternoon to make all the necessary calls, and prepare a form letter that you can customize. Some accounts should be updated immediately, but most of the rest can be tackled over the first few months of your marriage.

As you go through the rest of your year-end financial wrap-up, it’s also a good time to take a look at your life insurance policy. Most people buy a 10 or 20-year term life insurance policy and then just forget about it, but you could be under-insured if your life has changed since you bought the policy.

When to Adjust Your Life Insurance
If you bought your life insurance more than a year ago, stop and ask yourself these questions:
1. Has my income greatly increased?
2. Have I had children?
3. Have I married or divorced?
4. Are my children independent adults?
5. Have I bought a new home or a second home?
6. Has my spouse returned to work or retired?
7. Have I returned to work or retired?
8. If I expect to receive a pension, has the pension policy changed regarding spouse benefits?

Changes to Income/Living Expenses
If you’ve received a small raise and nothing else has changed, then you probably don’t need to update the insurance policy, but if you’re income has increased 30-50% since you bought your policy, then it may be time to make a change. The general rule is to buy a policy worth at least five times your income, under the theory that spending and living costs increase as income increases. If you’re frugal, you might not need that much, but it’s a good rule-of-thumb. In other cases, you may need much more. For example, you may have moved into a larger house and now have a larger mortgage. You may want an insurance policy that will completely pay off that mortgage, instead of relying on the standard income rule.

Changes in Children’s Status
If you’ve had additional children or your children are no longer dependents, then your living expenses have undoubtedly drastically changed. If you have young children, you may need to increase the policy to ensure that their needs will be met. If you’re children are adults, then you may be able to scale back because you won’t need to provide for them.

Changes in Marital Status
If you recently married, you may need to increase your policy to provide for your new spouse and future children as well as any prior children. If you divorced and aren’t mandated to provide an insurance policy for your spouse as part of the agreement, then you may be able to reduce your policy. At the very least, update the beneficiaries to accurately reflect your new situation.

Changes in Employment Status
If you or your spouse has retired, see if your living expenses have gone down. If they have, then you can probably scale back the insurance policy. However, it may be worth keeping the policy if either of you is likely to require expensive medical care and your spouse will be left with large medical bills.

Changes to Pension Benefits
If you receive a pension that guarantees the same income to your spouse after your death, then you may not need a life insurance policy. Unfortunately, spouse benefits are frequently cut when companies look to contain pension costs. Check your current benefits for a spouse benefit, then adjust your life insurance accordingly.

If you haven’t made any life changes, it may still be worthwhile to see if you can get a better price for your policy. If you do need to make changes, contact your current insurer for a quote, then use a service like NetQuote to request competitive life insurance quotes before you make a change. The end of the year is a good time to do this, but you can update your life insurance policy anytime you experience a life change.

If you receive health benefits from your employer or are enrolled in the company 401K plan, then you’re most likely subject to open enrollment rules. Basically, that means you can only make changes to your plan at designated periods unless you experience a life status change. Here are some basic questions and answers about the open enrollment period.

How Does the Open Enrollment Period Work?
During open enrollment, you can make changes to your health plan, which includes switching to a new plan if your company offers more than one, adding or removing beneficiaries, increasing or decreasing coverage, or opting out of coverage entirely. Open enrollment typically lasts one to two months and you should receive a notice from your employer announcing the period in case you need to make changes.

Many retirement plans also have open enrollment periods. These are usually quarterly, but could be yearly. Open enrollment is the time when you can join the plan, leave the plan, or change your contribution level.

Do I Have to Wait Until Open Enrollment if I Get Married? If I Have a Baby?
Although I have met one person who could only add a new child to her health plan during open enrollment, most plans allow you to make changes outside of open enrollment if you experience a “life status” change. Life status changes include:

  • Marriage
  • Divorce
  • Birth
  • Adoption
  • A child surpassing dependent eligibility (usually 24 or college graduation)
  • A change in employment for you or your spouse.

That last one can be tricky, though, so change your plan during open enrollment if your spouse is planning to leave the workforce before the next period.

What Should I Do If I’m Planning a Life Change?
If you currently have a baby on the way, you should contact HR to ask if you need to add the dependent now or can wait until the baby arrives. Do the same if you’re planning to get married. Most of the time you can wait until the event occurs, but some plans don’t allow changes outside the period. You don’t want your baby born without coverage. At any rate, you’ll need to know about parental leave or other benefits, so this is a good time to cover all your bases.

If you’re planning to retire, you should also ask HR what you need to do to prepare for that. There may be paperwork to complete in order to start receiving benefits.

Must New Employees Wait for Open Enrollment?
In most cases, new employees can be added to either a health plan or retirement plan immediately or at the end of the waiting period. Most waiting periods are a maximum of 90 days. Ask your new employer about the waiting period before leaving your old job so you can arrange for COBRA coverage or transfer to your spouse’s employee health plan during the interim.

When Is Open Enrollment?
For many employers, open enrollment occurs during September or October. Some employers have it in January if their fiscal year is also the calendar year. Many government entities have open enrollment during May or June, which is also usually when their annual budgets begin. If you don’t know, ask your HR director now and mark your calendar for the start of the next period.

What Do I Do if I Missed Open Enrollment?
Unless you’ve had a life status change, you’re probably out of luck until the next period.

Although open enrollment periods are strict, they’re easy to manage if you’re aware of the dates and take action during that period. This is not a time to hem and haw. Make changes while you can, otherwise you’ll have to wait another year.

Continuing with the series about the documents you need in an emergency, today I’m covering titles, deeds, high-value receipts, and loan documents. I’ll sum it up first in one line: keep them in the safe deposit box. If you want more info about obtaining copies of lost items or ensuring everything is secure, keep reading.

Car Title, Boat Title, and other Title Documents
Even if your car, boat, motorcycle, or other vehicle is technically owned by the bank, you’ll still receive a copy of the title reflecting you as the owner and the bank as the lien holder. Once the loan is paid off, you’ll receive a clear title. Regardless of what is stated on the title, you should keep a copy in your safe deposit box. If you don’t have one, keep it in the emergency box or a home safe. These documents rarely need to be accessed, so you don’t need to worry about instant access. Whatever you do, don’t keep it in the car.

If you lost the title and need a replacement, you can order a new one through the DMV for a small fee. When you receive it, make sure the VIN and other details match those of the vehicle, and then put it in a safe place.

Property Deed or Mortgage Deed
A deed is actually the document that conveys title, but it isn’t usually called a title. If you have a mortgage, the deed may be a deed in trust held by the bank until the loan is paid off. Whichever type of document you have, you should also keep it in the safe deposit box, home safe, or emergency box. You’ll only rarely need to access the deed.

If you lost your copy, you can order one from the county clerk, country recorder, county registrar, depending on the rules of your state/county. Deeds are public records, so you can also search for it yourself. There’s usually a small fee to order a certified copy.

Loan Documents
Loan documents rarely need to be accessed, so a safe deposit box is sufficient. You could also keep them in a safe or your emergency box. If you’re not terribly concerned about a disaster, then a home filing cabinet will even work.

For many years, you could ask the lender for a copy of the documents if you lost yours. Most mortgages are now sold and resold so many times that many banks can’t find the documents anymore, so don’t count on them if you need a copy.

Home Inventory
Always keep your home inventory in a safe deposit box, emergency box, or with a friend or relative who lives out of the area. Your inventory should be a detailed list of your belongings, including make, model number, and original price if you can find it. You should also do a video or photo home walk-through to document your belongings. You could keep it in the emergency box, but a large fire could make it unreachable. The inventory is a valuable weapon in the battle with your insurance company, so take the extra step of getting it out of your house.

High-Value Receipts
Your home inventory may not be enough in the event of a major fire. For computers, electronics, fine jewelry, and art, you should also keep the original receipts. You may also need an insurance rider, so have the art or jewelry appraised and keep it with the receipts. Receipts for items outside of their warranty periods should be in a safe deposit box or safe. You could also mail them to a trusted friend or relative. Keep receipts within the warranty period in your emergency box in case you need to make a warranty claim.

If you don’t have the receipts and the purchase was recent, you might be able to get a copy from the store or your credit card company.

Your safe deposit box is probably getting pretty full by now, but it’s better to have too much in there than to realize you’ve lost an important document just when you need it. Tomorrow the series continue with more important documents: family photos and videos.

If you followed my advice from a couple months ago, then you already have your life insurance, auto insurance, health insurance, and homeowner’s or renter’s insurance policies in place. If you don’t, get them now. Use a company like Netquote to arrange your policies. Once they’re in place, you need to keep them somewhere they can be easily accessed during an emergency.

Auto Insurance
Keep a your auto insurance card in your car or your wallet. Each time a new card comes, remove the old ones. It’s not just a neatness thing – if you get pulled over or have an accident, you don’t want to present an expired card or have to sift through a dozen expired cards to find the right one.

Rather than filing the insurance policy and related information in an auto folder along with myriad repair receipts, keep it in an insurance folder in your emergency box. Replace it with the new policy each time you renew or change your policy.

Homeowner’s Insurance or Renter’s Insurance
Your home or rental insurance policies should also be in your emergency box. A disaster, large or small, is exactly when you need the policy, so keeping it in the box ensures that it will leave the house with you.

Each time you receive a policy update, replace the old one in the box. You can also keep a back-up copy in your safe deposit box, but you should keep one copy handy in case you can’t get to the bank when you need it.

Life Insurance
In addition to your primary life insurance policy, you’ve probably got a dozen or so small policies from your employers, credit card companies, and other services. Although each of these policies is only worth $1000 or so, that money could come in handy were something to happen. Instead of stuffing those policies into whatever file is handy when they come, put them in your emergency box with your primary insurance policy. You may also want to give a list of policy names, numbers, and contact information to the executor of your estate or keep it with your will.

Health Insurance
Your health insurance card should be in your wallet at all times. If you travel, keep a photocopy in your suitcase with a copy of your passport. In addition, keep a copy of the card and any back-up policy information in your emergency box. You don’t need to keep the entire policy book, just the basic policy details and contact information. This way you’ll still have the information you need if you forget to take your wallet when you run out of the house with your box.

If you don’t want to keep all of the policies in your emergency box, at the very least keep a copy of the account details pages or a list of all company names, account numbers, and phone numbers. You don’t want to scramble to figure out how to contact your insurance companies in the aftermath of a disaster.

Tomorrow I’ll provide more details on creating your account list in my series on the documents you need in case of an emergency.

If you don’t have health insurance through your employer, or your spouse’s employer, you can either buy an individual health insurance plan, a family plan, or a group plan through a trade group or credit union to which you belong. The costs will be higher, but the cost of not having insurance is much higher. More than 50% of all bankruptcies are caused by medical bills.

This basic overview of your options and methods for saving money on insurance can help you wade through the process of buying private health insurance. If you don’t want to compare quotes manually, a site like NetQuote can help you get several quotes for health insurance.

Types of Individual Health Insurance Plans
Group plans, usually through an employer, offer the best coverage at the lowest cost because you can’t be rejected due to pre-existing conditions. Individual health insurance coverage isn’t as extensive, but you can find a plan to suit your needs and your budget. Plans come in four primary types:

Indemnity coverage is best for young, healthy people. Most indemnity plans have a very high deductible. You also often have to pay the total cost up front and then file a claim for reimbursement. This option has two benefits: low annual premiums and complete flexibility to see any doctor, any time.

Preferred Provider Organization (PPO)
A PPO controls costs by limiting coverage to in-network doctors and hospitals. When you opt for a PPO plan, you don’t have to choose a Primary Care Physician (PCP), and can see an in-network doctor without a referral. Most plans include a deductible, which you have to pay before your coverage kicks-in. You’ll pay a co-pay when you visit the doctor, but the doctor then bills your insurance. In most cases, preventative care visits are covered, but you’ll have to pay the negotiated rate for tests until the deductible is met. Some also require co-insurance after the deductible is met, which means that you pay a set percentage of the total cost, often 30%.

Health Maintenance Organization (HMO)
An HMO offers a limited number of doctors and hospitals that you can choose from. You’re also required to choose a PCP. If you need to see a specialist, your PCP must provide a referral. You may have a small co-pay, but there’s no deductible to meet. Most have no or very limited out-of-network coverage. Premiums are usually lower than those of a comparable PPO because of the limits.

Point of Service (POS)
POS coverage combines an HMO and a PPO. You choose a PCP, but pay no deductible for care provided by the PCP. Most plans require referrals if you need to see specialists. They may also provide limited out-of-network coverage.

How to Choose an Individual Health Insurance Plan
When choosing a family or individual health insurance plan, first review the coverage offered by different plans from a few different companies. You should also check with the state insurance commissioner’s website to see how each plan rates in your area. None of the reviews will be great, but some are better than others.

Note: if you have a pre-existing condition, you will probably be charged a higher rate, regardless of how minor it is. My husband had a hospitalization as a result of a car accident and one insurance company offered a ridiculously high rate because it had been within the past year, never mind that he wasn’t at fault and didn’t plan to repeat the injury.

You should also compare the various deductibles. Most have a medical deductible and a prescription deductible. If you add dental coverage, expect to find a third deductible. If all you need are semi-annual cleanings, skip the insurance. The premium costs more than paying the dentist directly.

When my husband and I got married, we didn’t have employer-provided coverage. We combined our individual health insurance plans into a family plan, and opted for a PPO with a $2500 deductible because the premium was $100 a month less than the plan with a $1500 deductible. Paying an extra $1,200 to save a possible $1,000 didn’t make sense to us.

If you can, deposit the premium difference between the lower deductible plan and the plan you choose into a savings account. That way you’ll have the money to cover the deductible if you need it, but the money is yours to keep if you don’t need it.

How to Apply for Individual Health Insurance
Most applications can now be completed online. Although it’s tempting to leave out some conditions, past surgeries, or other factors that might increase your rate, don’t do it. If you intentionally exclude information, your insurance could be cancelled just when you need it most. In addition, they will probably find out anyway, so lying only makes you more likely to be declined.

You usually have to submit the first payment with the application, and the money will be refunded if you’re declined.

When to Apply for Individual Health Insurance
You should apply for insurance the moment you discover you will soon be without it. If you’re leaving your job and your new job has a waiting period before your coverage is active, see if you can buy COBRA coverage for the gap.

If you don’t qualify for COBRA, and only need coverage for a few months, you can apply for a short-term plan. If you don’t know how long you’ll need coverage, buy an annual individual health insurance plan. You can pay annually, semi-monthly, or monthly, so choose the payment plan that works best for you.

Whatever you do, don’t risk going without insurance. My parents’ friends decided they could do without coverage for three months, but the husband had a major heart attack one month after their coverage lapsed. Fortunately, he was a valuable enough employee that his new employer paid for his car, but don’t count on your new employer doing the same. Unlike renter’s insurance or auto insurance, everyone eventually needs to use their health insurance.

Most of my friends who rent don’t have renter’s insurance, for one of three mistaken reasons:

  • They think it’s too expensive
  • They think their landlord’s policy covers them
  • They think their stuff isn’t worth much.

If you rent, then you do need a renter’s policy. It’s actually very affordable – it’s usually less than $20 a month. $12 a month is the national average. I pay $20 where I live in California, and that buys me $20,000 in coverage with a $500 deductible.

What Renter’s Insurance Covers
Rather than the structure, renter’s insurance covers your possessions. Your landlord’s policy will only cover the structural damage. If your stuff is ruined due to a leaking pipe or collapsed ceiling, you might be able to sue your landlord, but a renter’s policy will cover you with less hassle.

In most cases, insurance policies protect your personal property from loss due to fire, theft, vandalism, water, and other similar damage. Most policies also cover a limited amount of liability if you injure someone or if they’re injured in your rental property.

Some policies will also cover theft of your property when you’re away from home. For example, if you’re traveling and your suitcase is stolen, your renter’s policy may cover the loss of your clothes.

What Renter’s Insurance Doesn’t Cover
Renter’s insurance, like homeowners insurance, doesn’t cover everything. If you live in a flood zone or earthquake country, you may need a supplemental policy. My insurance agent recommends against earthquake insurance for renters because the deductibles are high and the coverage is low. It’s mainly designed for structural damage incurred by owners.

Most policies offer only limited coverage for the following items. If you have any of these, you should ask about a special rider to cover them:

  • Cash
  • Business equipment
  • Jewelry
  • Furs
  • Firearms

How Much Coverage You Need
The level of coverage you need depends on the value of your personal property and the cost of replacing it. The more stuff you have, the more you’ll need to cover. State Farm has a handy estimator as part of their quote tool.

According to their tool, I would need a policy worth $40,000 to cover the entire contents of my 4.5 room apartment in a total loss (that’s two bedrooms, a living room, and a kitchen with dining room.) My policy is only $20,000, but I didn’t factor in replacing all of our books, CDs, and DVDs. I estimate that it would cost right around $20,000 to replace the following items if we shopped carefully:

  • Clothing
  • Bedroom furniture
  • Linens
  • Personal care items
  • Luggage
  • Computers
  • Entertainment center
  • Desks
  • Living room furniture
  • Dining room furniture
  • Cookware
  • Dinnerware
  • Flatware
  • Glassware.

To determine how much you need, write an inventory of your home or apartment, along with the current value or replacement cost of the items you could/would replace. As I said, I wouldn’t replace all of my books or CDs, just some of them. I’d look at this as a chance to get only what I really needed, rather than to replace the odd collection of kitchen utensils I’ve amassed over the years.

After you’ve completed your inventory, put the list and photos or a video of your belongings in a safe place off the property. I don’t have a safe deposit box (it’s been on my “to do” list for a year now), so I gave them to my parents and they gave me theirs.

How to Buy a Policy
If you have auto insurance, contact your insurance company to see if they offer renter’s insurance. If you can combine your policies, you’ll probably get a discount on both. If your insurer doesn’t offer it, then go online to find it at a site like NetQuote, which offers competitive renter’s insurance quotes. You may need to contact an insurance agent. When I bought my policy, State Farm was the only company offering it, but there are now numerous companies offering policies.

Compare quotes from a few different companies and check them out with the state insurance commission. You should also compare the levels of coverage they each offer. Most will offer actual value coverage, but spend a little extra to get replacement value coverage if it’s available.

Unlike my auto policy, I’ve never had to tap my renter’s insurance policy, but I’m glad I have it every time I turn on the news and see an apartment building engulfed in flames. Don’t be so cheap that you avoid insurance to save $20 a month. Anything can happen. If you’re not insured, Murphy’s Law guarantees it will.

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