You don’t have to own a five-bedroom Georgian home in the leafy suburbs or a half-million dollar co-op in a hip urban enclave to need insurance on the place where you live and the things that you own. Even if you’re just renting your first apartment out of school, you may have things you need to protect - computers, televisions and VCRs, stereo equipment, sports equipment and so on. These things can be worth thousands - or tens of thousands - of dollars.

So, it’s surprising that less than half of all renters in the United States bother to protect their personal belongings and furnishings with insurance. People under 40 are particularly remiss.

Tenant advocacy groups and others - like Illinois-based Condominium Insurance Specialists of America - estimate that as few as one in four renters in their twenties and thirties buy insurance. The number remains low - even though renters insurance is relatively cheap and easy to get.

The HO-4 insurance policy form - called the renters policy in the insurance industry - is available from most property and casualty insurance companies. Some confusion comes from the fact that the coverage is called different things by different companies - the contents broad form, broad theft coverage or tenants insurance - but, whatever it’s called, the coverage is inexpensive enough for just about any renter.

THE MECHANICS OF RENTERS INSURANCE

All personal property is insured against loss by the broad form perils under an HO-4 policy.

The policy is purchased most often by renters of apartments, dwellings or condominiums who do not require the complete range of coverages - liability coverage, dwelling structure coverage, etc. - provided by the other standard homeowners forms.

A renter doesn’t usually need to insure the building in which he or she lives. And renters who don’t want to pay for liability protection can opt for a policy that covers only personal property.

THE IMPORTANCE OF COVERAGE

Landlords will sometimes require that their tenants carry some form of renters insurance. (This usually applies to luxury apartments or, conversely, rent-controlled units.) In states with large urban centers, insurance and housing regulators have outlawed these requirements in the name of consumer protection.

Unfortunately, these prohibitions send the message to many people that renters insurance is a rip-off. That’s unfortunate because renters policies can be a bargain.

Example: In the mid-1990s, USAA - the Texas - based insurance company that specializes in covering military and former service personnel and their families - offered a tenant protection plan that cost $169 a year in New York City and insured $20,000 worth of belongings, with a $100 deductible. The policy also provided replacement cost coverage - and $100,000 of personal liability coverage.

Renters insurance can either be written in a comprehensive form for all risks that aren’t explicitly excluded or for named perils only. Named perils coverage averages about 20 percent less expensive, because the losses it covers are more limited.

Even insurance written on a named perils basis should cover fire, theft, or water damage. These are primary hazards that renters face.

Although it doesn’t cover the building itself, an HO-4 policy does provide a limited amount of coverage for building additions and alterations. (This coverage is also known as leasehold improvement insurance.) In short, this means that if you spend money to improve the apartment or house you’re renting - and haven’t been reimbursed by your landlord - the renters insurance will cover the investments you’ve made in the place.

How much coverage you need depends, of course, on the value of your belongings. Once you’ve calculated the value of the things you own, you simply have to ask yourself how much of this you could stand to lose.

If you don’t own more than a few hundred dollars of any specific kind of personal property, you probably don’t need renters insurance. But, if you care enough about a hobby, activity or other experience to invest thousands of dollars in related equipment, you probably do want to insure those things.

INSURING AGAINST THEFT

One reason that renters insurance is so attractive is that it covers personal property against theft.

By comparison, basic dwelling policies do not provide any theft coverage for personal property. A broad theft coverage endorsement has to be added to a dwelling policy - at additional premium - to provide such coverage.

For many insurance companies, the broad theft coverage endorsement - sold in a slightly different version as stand-alone insurance - is renters insurance.

Theft coverage provides insurance against loss by the following two perils:

* theft, including attempted theft, and

* vandalism and malicious mischief as a result of theft or attempted theft.

A caveat: The vandalism coverage won’t apply if your residence has been vacant for more than 30 consecutive days immediately before the loss. In most cases, though, this limit won’t be an issue for renters.

Broad theft policies (or endorsements) contain three definitions that affect the coverage:

* business means any trade, profession or occupation;

* insured person means the named insured and residents of the named insured’s household who are either relatives of the named insured or under the age of 21 and in the care of any insured person;

* residence employee means an employee of any insured who performs duties related to maintenance or use of the described location, including household or domestic services, or similar duties elsewhere which are not related to the business of any insured person.

Property used for business purposes isn’t considered personal property and, therefore, isn’t covered.

Only property that belongs to an insured person is covered - so, if the $2,000 camera you’re keeping for a friend gets stolen from your trendy downtown loft, you may have some explaining to do.

Finally, property of residence employees is covered only if you ask the insurance company to add language saying so. This may raise your premium - though many companies will add the coverage for no additional cost.

A limit of liability must be shown for on-premises coverage. This limit is the most the insured will pay for any one covered loss at the described location. On-premises coverage applies while the property is:

* at the part of the described location occupied by an insured person;

* in other parts of the described location not occupied exclusively by an insured person, if the property is owned or used by an insured person or a covered residence employee;

* placed for safekeeping in any bank, trust or safe deposit company, public warehouse, or occupied dwelling not owned, rented to or occupied by an insured person.

This type of insurance limits coverage either with one general dollar limit or a range of dollar limits applicable to different types of personal property. In the first case, a policy would insure all your property - regardless of type - to a limit of $20,000. In the second, a policy would insure computer equipment up to $5,000, stereo equipment to $2,000, sports equipment to $1,500, etc.

Although limits of liability are shown for the maximum amount of insurance for any one loss, special sub-limits of liability usually apply to specific categories of insured property. Each limit is the most the insurer will pay for each loss for all property in that category.

An example of the special limits of liability might be:

* $200 for money, bank notes, bullion, gold and silver other than gold ware and silverware, platinum, coins and medals;

* $1,000 for securities, accounts, deeds, evidences of debt, letters of credit, notes other than bank notes, manuscripts, passports, tickets and stamps;

* $1,000 for watercraft including their trailers, furnishings, equipment and outboard motors;

* $1,000 for trailers not used with watercraft;

* $1,000 for jewelry, watches, furs, precious and semiprecious stones;

* $2,000 for firearms;

* $2,500 for silverware, silver plated ware, gold ware, gold plated ware, and pewter ware, including flatware, hollowware, tea sets, trays, and trophies.

Limits similar to these are found on homeowners policies. The intent of the policies is to provide basic coverage for special items of value which may be subject to theft losses. However, some people collect particular items and may have disproportionate exposures not contemplated in average insurance rates. Most policies will not allow the full limit of liability to be applied to a specific kind of property.

If you have greater exposures, higher limits may be available for an additional premium charge, or a separate personal property floater may be purchased.

In some cases, off-premises theft coverage is available. Off-premises coverage applies while the property is away from the described location if the property is either:

* owned or used by an insured person, or

* owned by a residence employee while in a dwelling occupied by an insured, or while engaged in the employ of an insured.

Example: If you ride your $2,000 mountain bike from the houseboat you’re renting to the mountains north of Seattle - and someone steals it while you’re waiting to pay for a café latte - the insurance company will get you a new bike.

A number of conditions apply to off-premises coverage:

* you can only buy it if you’ve bought on-premises coverage,

* a separate limit of liability must be shown for off-premises coverage (this limit - usually lower than on-premises limits - is the most the insurer will pay for any one loss),

* off-premises coverage does not apply to property that you move to a newly acquired principal residence.

That last point is a considerable issue in renters insurance. One of the ways in which insurance companies shield themselves from the volatility that sometimes accompanies the renter’s lifestyle is by limiting the transferability of a renters policy from one location to another.

If you move during the policy term to a new principal residence, the limit of liability for on-premises coverage will apply at each residence and in transit between them for a period of 30 days after you begin to move the property. When the moving is completed, on-premises coverage applies at the new described location only.

PROPERTY NOT COVERED

Broad theft coverage does not apply to the following types of property:

* aircraft and parts, other than model or hobby aircraft;

* animals, birds, or fish;

* business property of an insured person or residence employee on or away from the described location;

* credit cards and fund transfer cards;

* motor vehicles, other than motorized equipment which is not subject to motor vehicle registration and which is used to service the described location, or is designed to assist the handicapped;

* motor vehicle equipment and accessories, and any device for the transmitting, recording, receiving or reproduction of sound or pictures which is operated by power from the electrical system of a motorized vehicle, including tapes, wires, discs, or other media for use with such device, while in or upon the vehicle;

* property held as a sample or for sale or delivery after sale;

* property of tenants, roomers and boarders not related to an insured person;

* property separately described and specifically insured by any other insurance;

* property while at any other location owned, rented to or occupied by any insured person, except while an insured person is temporarily residing there;

* property while in the custody of any laundry, cleaner, tailor, presser or dyer except for loss by burglary or robbery;

* property while in the mail.

You may recognize some of these exclusions from standard homeowners and dwelling policies. A number of these recur through all the various forms of household insurance.

The broad theft form adds two conditions that can influence whether or not property (which would otherwise be covered) is covered:

* in addition to standard duties after loss, theft coverage requires the insured person to notify the police when a theft loss occurs;

* the other insurance condition that applies to standard homeowners and dwelling forms is changed slightly - if a theft loss is covered by other insurance, the insurance company is only obligated to pay the proportion of the loss that the limit of liability under the theft endorsement bears to the total amount of insurance covering the loss.

WHEN YOU’RE THE LANDLORD

Of course, renters aren’t the only people who may need insurance in a rental situation. If you’re renting out an apartment or house you own, you have significant exposures to financial loss. However, you may find yourself in an awkward place - lost between the limits of a standard homeowners policy and the technical complexity of commercial landlord coverage.

Fortunately, you can protect yourself against some rental losses. With some modifications, a combination of dwelling insurance and broad theft coverage should meet your needs.

Protection against tenant theft deserves particular attention. Even in a case where you feel that you know the renters well, there’s the possibility that some of your possessions might disappear during their stay. If so, the chances are good that you won’t collect on a basic dwelling policy - which insures the house and contents against theft and damage from fire, wind, smoke, vandalism, and other hazards.

If it turns out that your tenants are the thieves - which does happen sometimes - you’ll need more coverage than a standard dwelling policy. You’ll need the same theft coverage that the renters themselves should be buying.

There can also be problems if a renter’s lack of concern about your property leads him to forget to double-latch the door or secure a window - making things easy for a burglar.

If your insurance company learns about this, it might resist paying for some stolen items - on the grounds that the low premium rates for its standard coverage are based on the assumption that you will be around to keep the home and contents safe. At best in this situation, the company might pay for such things as a stolen television set and furniture - but not for missing jewelry, furs, silver, coins, and watches.

So, you need to look again at your homeowners or dwelling policy before you accept a renter’s deposit check. In particular, you need to look in the exclusions or conditions section for a clause that reads something like:

Peril of theft does not include any part of loss when the property is rented by the insured to another party.

If your policy has language like this, you may want to convert to an all-risk homeowners policy or buy an endorsement broadening your theft coverage.

As we’ve noted before, you can expect to pay as much as 20 percent more than the cost of a basic policy for all-risk coverage that provides more protection. The endorsement to theft coverage will usually cost less than this - but still 10 to 20 percent more than a standard theft package.

If you rent your home frequently, you may need an even costlier special multi-peril policy. This kind of insurance - which is actually a commercial policy - is designed for professional landlords. It covers just about every exposure a landlord faces - and can be modified to insure against various particular risks. But, if you’re just renting one house or apartment, you’ll probably do best to use endorsements to make a standard homeowners or dwelling policy work.

Some part-time landlords may be tempted to avoid the extra insurance and, if there’s an insurable loss, simply fail to mention to the insurance company that the incident occurred while the property was rented. This may work. The fact that insurance companies don’t like to talk about it suggests it does happen. But this kind of claim can progress quickly from white lie to outright fraud.

For most people who have enough assets to insure, it’s better to tell the whole truth and pay a slightly higher premium.

EXCHANGING HOMES

The practice of exchanging homes - you stay in another family’s place while they stay in yours during vacations - can present a different kind of problem when the exchange includes use of the family car. What if someone using your home has an accident with your vehicle? Or if you have a collision as you drive an unfamiliar car in a foreign country?

In the U.S. and Canada, your car insurance - collision and liability - automatically remains in effect as long as the driver has your permission to get behind the wheel. It’s not always like that elsewhere.

You may want to consider increasing your personal liability insurance to safeguard your assets - just in case, for example, a renter who’s unfamiliar with that low cellar doorway suffers a concussion and decides to sue.

If you’re thinking about turning your house over to guests of any sort for more than a few days, you probably want to expand your homeowners or dwelling policy. Typically, an all-risk homeowners policy provides for $2 million worth of liability insurance - you may need this if the house you’re swapping has a swimming pool, sauna bath or other potentially dangerous amenity.

The broader protection can also be useful in some unusual situations. One insurance broker told a national business magazine about a client whose alcoholic renters destroyed an expensive sofa by spilling drinks and dropping cigarettes on it during their stay.

Damage caused by renters or people who use your house in an exchange will usually be considered normal wear and tear - and not be covered by a basic policy. In these cases, an all-risk or special form policy may be worth the extra premium cost.

Finally, you may want to manage some risks when you loan your house or join an exchange program. If possible, try to control the kind of people who will use your place. People who have traveled or exchanged homes before will usually be better guests than people who are new to the process. Families with older children will be less inclined toward dangerous situations than families with toddlers.

CONCLUSION

Overlooking insurance when it is necessary can be a big mistake. Even if you are not a homeowner you probably have belongings of value (at least to you). Fortunately, there are policies available for renters to insure protection in the case of theft and more.

Renters insurance is one kind of coverage that most people agree is a bargain for consumers.

No matter what type of living arrangement you have, the price of a household’s insurance is an important issue.

Please note that the precise coverage afforded is subject to the terms, conditions, and exclusions of the policy as issued. This explanation is intended only as a guideline. This information is not intended to be considered investment, tax or legal advice. It is provided, for your education only. This is not an insurance contract. All terms and coverages are defined solely by your policy.

For more details, please call a PaulBalep representative toll-free 1-800-964-8614 to receive a free, no-obligation quote. Like so many satisfied clients, we think you’ll be happy you did. And to set up a meeting to discuss additional insurance and financial goals: Visit us online at www.paulbalep.com, or e-mail us at info@paulbalep.com.

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