If you are about to graduate from college, there are three financial things you should definitely do once you get your real-world job.
First, make sure you sign up for the 401(k) plan or any similar retirement plan if it’s available. Second, set aside a percentage of your pay (I suggest 10 percent) in a savings account (not checking) that you will not touch. This will be your emergency money.
And if you are renting, get renter’s insurance.
Renter’s insurance is one of those things that young people often skip. You may figure you don’t have much to lose if your apartment catches fire or if it’s broken into. Or I bet you believe the landlord’s insurance will cover your losses.
In both cases, you would be wrong.
Landlords typically insure building structures, but not the contents or liability of individual tenants. Renter’s insurance protects your personal possessions if your property gets damaged, destroyed or stolen. The policy also gives you liability coverage if someone gets injured at your house or apartment, even in the event you accidentally burn down your apartment and the landlord’s insurance company sues you for damages, according to the Independent Insurance Agents & Brokers of America (IIABA), based in Alexandria, Va.
About three-quarters of Americans insure their homes and personal possessions against fire, theft and other damages, according to a recent survey by the National Association of Insurance Commissioners (NAIC). However, the NAIC found young singles often don’t have renter’s insurance.
But it’s not just young folks.
Of families who rent, nearly 7 in 10 said they don’t have renter’s insurance, and another 5 percent weren’t sure, according to a survey by Trusted Choice, a group of insurance agencies and financial firms.
Often people don’t think they can afford the insurance. But the average cost of renter’s insurance is $12 a month for about $30,000 of property coverage and $100,000 of liability coverage, according to the IIABA.
When purchasing renter’s insurance, you should consider replacement-cost coverage as opposed to “actual cash value” or ACV, the NAIC recommends.
There is a big difference between the two types of coverage. Actual cash value is the amount it would take for you to repair or replace your damaged possessions after factoring in depreciation. Replacement coverage pays you what it costs to replace the items you lost. Of course, the latter is more expensive than ACV. But if you can afford the higher cost, get it.
Oh, and for those parents sending children to college in the fall, check to see if they are covered under your own homeowner’s or rental policy if they plan on living in an apartment off campus. Dependents, such as college students, are typically covered under their parent or guardian’s policies, according to NAIC. On average, a dependent is covered for up to 10 percent of the parent’s policy.
However, that coverage may not extend to off-campus apartments. If your child is not covered, then you need to get renter’s insurance.
Think about what could be lost – a computer, printer, stereo, flat-screen TV, DVD player, iPod, cellphone.
The college lifestyle puts them at risk, with unlocked doors, pizza delivery and parties, the IIABA points out.
Here are some additional things to consider when buying renter’s insurance, according to the IIABA:
Usually, it’s best if all roommates are on the same policy, although it is possible for each to purchase his or her own coverage. If only one roommate purchases renter’s insurance, only that person receives the benefit of coverage.
Standard renter’s insurance excludes damage from earthquakes and floods, so talk to your insurance agent about coverage for these incidents. Most policies limit reimbursement for theft of valuable items such as jewelry, furs or fine art. If you have particularly valuable items in these categories, you may need to purchase additional inexpensive coverage called a “floater.”
If you damage the building’s lobby or walls moving furniture into your apartment, you could be held liable. Likewise, if a fire starts in your unit and spreads through the building, you could be held liable for the entire structure if you are deemed at fault.
Renter’s insurance shields you from these liabilities.
Yup, buying insurance is a pain. Welcome to the real world.
Contact Michelle Singletary at singletarym@washpost.com.
