Published: December 2014
Q: I'm moving in with a roommate for the first time. Neither of us own much, so we're not sure if we want or need to spend the money for renters insurance. Is it really worth it? Can we split the cost of a policy?
Not only is renters insurance relatively inexpensive — averaging $187 a year according to the Insurance Information Institute (III) — it may be more important than you think, says Cathy West, an Allstate agency owner in Palm Beach Gardens, Florida.
"Renters frequently underestimate how much stuff they actually have," says West. "But it's not just your furniture. It's every single cabinet that you look in, all of your clothes, your pots and pans ... everything. You'd have to refurnish and refill all those cabinets and drawers and closets [if something were to happen]. It does add up."
A renters policy can also do more than just protect your possessions. West says one of the most eye-opening selling points of renters insurance is the liability coverage. That's the portion of a renters policy that protects you in the event that you're sued — if someone comes over and is injured at your apartment, for instance.
"We talk to renters who say, 'I don't own much, so my stuff isn't worth insuring,'" says West. "But they forget about their liability risks, and the fact that a liability claim can be so much higher than a property claim. You just don't know how much you can get sued for."
If you have a roommate, you may find that it's convenient to share the cost of your rent and utility bills — so, naturally, you may also wonder whether it makes sense to split the cost of a renters insurance policy, too. But while the "all for one, and one for all" philosophy can be nice when it comes to everyday expenses, you may want to give it some thought before extending that same mindset to renters insurance, says West.
West notes that some states, including Florida, do not allow unrelated renters to share a renters insurance policy. Additionally, according to the III, some insurers (including Allstate) don't offer the option.
"Just because a [shared] policy is available does not mean it is the best thing to do in every situation," says Jeanne M. Salvatore, a senior vice president with the III.
Here are some reasons why:
- It can create more administrative work. If you share a policy with a roommate, the III says, you'll have to notify the insurance company and get a new policy anytime a roommate moves in or out.
- It may not protect you from your roommate. A shared policy may not be your best bet, according to personal finance publisher Kiplinger, when an accident or a dispute occurs and you end up needing legal protection from your roommate.
- It can complicate a claim. If there's a fire and multiple roommates have items that are damaged, the insurance claim can get sticky if you aren't all on the same page about who owns what. (Make sure to inventory of each person's stuff when you move in, the III says.)
- It can muddle payments. When there's a payout from a claim, the insurance company makes the check payable to everyone named on the policy, says Michael Barry, a vice president with III. Each roommate has to endorse the check before it cashes, which means you'll need to agree on how money is split. If a relationship goes sour, your roommate can prevent you from cashing a check.
If you find that sharing a renters policy isn't right for you, Allstate agent West has important parting advice about renters insurance overall: "Just make sure you don't go without," she says.