What kind of insurance do roommates need?

Kathryn Hawkins

Living with a roommate once was primarily an arrangement fit for college students and recent grads. But thanks largely to a sluggish economy and a rise in the average age of marriage, many people are continuing to double up or more) on housing for longer than ever.

In New York City, the number of non-relatives living together climbed 40 percent between 2000 and 2010. And nationwide, the number of people in their 30s living with non-family roommates jumped from 10.6 million to 12 million between 2009 and 2010.

Living with a roommate can certainly help you save money on rent and other expenses. But how does it affect your insurance policies? Here are some factors to consider.

Renter's insurance

If you live with one or more roommates, you're most likely renting a house or apartment. That means your landlord should be responsible for insuring the physical structure itself. But the landlord's policy won't cover your furniture, electronics and other possessions.

According to State Farm, an average renter has as much as $20,000 worth of possessions that aren't covered by a landlord's policy. To protect those belongings, you'll need to buy a renter's insurance policy, which typically costs just $20 or so each month.

"An important factor that roommates should consider is that most renter's insurance policies will only cover personal property for individuals listed on the policy," says Jeremy Schaedler, a Farmers Insurance agent at Schaedler Insurance in California.

With that in mind, if you and your roommate have your own possessions, it probably makes the most sense to buy separate policies.

If you're sharing a place with a close friend or romantic partner, however, you may have jointly purchased items of furniture and other expensive possessions. In that case, you may be able to serve as joint policyholders, depending on your state's regulations and your insurance company's rules.

A renter's insurance policy also covers liability issues; you may want to avoid the possibility of getting wrapped up in your roommate's legal issues by maintaining a separate policy.

"Just because a policy is available does not mean it is the best thing to do in every situation," says Jeanne Salvatore, a spokeswoman for the nonprofit Insurance Information Institute. Think carefully about whether it makes sense to combine all of your possessions -- and your liability risks -- before switching to one policy.

Homeowner's insurance

If you own your own home, you can make some extra cash by renting out a spare room. But what should you do as far as insurance is concerned?

Mike Choi, owner of the website RentingOutRooms.com, found that his homeowner's insurance company, State Farm, didn't have a problem with him renting a room in his house, provided that he still was living there. His insurance agent told him he could host up to two renters without any additional premium costs, although there would be an extra cost if he took in even more renters.

Choi's policy should cover any property damage inflicted by his tenants, but he's never had to file a claim. "I've never had a roommate deliberately damage anything," he says. "Now, stuff does wear out faster, but that normal wear wouldn't be covered by any insurance claim."

Choi's insurance agent stressed that his policy wouldn't cover his tenants' possessions. The agent encouraged Choi to make sure his roommates bought their own renter's insurance policies to protect their belongings.

Car insurance

When it comes to car insurance, it depends on your relationship with your roommate. Would you let your roommate borrow your car to run an errand, or do you plan to keep the keys in your own pocket?

If there's even a small chance you might let your roommate use your car, it's important to add him or her to your car insurance policy.

"Most, if not all, insurers require all household residents to be listed on a policy as insured or excluded from coverage," Schaedler says. "It's possible for coverage to be denied in the event of an auto claim if it's found that a household resident involved in an auto accident was not listed on the policy."

If your roommate has a history of auto accidents, including him or her on your policy could lead to a rate increase. And if he or she gets involved in an accident in your car, you'll be responsible for paying the deductible, and the accident will go on your insurance record and may lead your insurer to raise your rates.

Even worse, if your roommate doesn't have his or her own car insurance, you'll be on the hook for liability claims arising from a serious accident. Even if your roommate is insured, your insurer will likely share the cost of the claim. As a result, your rates could skyrocket or your insurer could drop you altogether.

If you're not confident in your roommate's driving abilities and don't want to risk damage to your car or your insurance record, it's probably best to hide the car keys when you're not using them and say "no" if your roommate asks to use the car. If you're able to prove to your insurance company that your roommate was forbidden from using your car, you shouldn't be responsible for any penalties beyond your deductible in case of an accident.

Talk with your insurer

Insurance needs for roommates can vary substantially, depending on whether you're moving in with a stranger, a friend or a romantic partner. To determine when to share a policy or list your roommate on an existing policy, discuss the situation with an insurance representative or agent, who can help you understand the risks and rewards involved in each scenario.

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