Should you ever share a renter's insurance policy?
Roommates share many things - household expenses, clothes and even that precious last bottle of beer. But does it make sense to share a renter's insurance policy?
Renter's insurance covers the loss or destruction of your personal items -- including clothing, furniture and electronic equipment - due to events such as:
- Theft or vandalism
- Fire or smoke
- Windstorm and water damage aside from floods)
Renter's insurance also provides temporary living expenses if you are unable to live in your rented home or apartment after a fire or other disaster. Finally, renter's insurance provides liability protection and pays legal costs if you injure someone and are sued.
Renter's insurance is relatively cheap. The average annual premium was $185 in 2010, the most recent year that statistics were available, according to the National Association of Insurance Commissioners. That compares to an average of $909 in annual premiums for homeowner's insurance.
Still, just 35 percent of renters have renter's insurance, while 96 percent of people who own their homes have homeowner's insurance, according to III.
Renters who skip this insurance may feel the price is too high, especially if they are on an extremely tight budget. As a result, some roommates team up to afford the coverage, says John Carr, president of CSI Insurance Agency.
And it's legal to do to so - roommates in all states have the option of taking out a policy jointly, Carr says. States typically allow unrelated renters living in the same dwelling to be named on a single renter's policy, Carr adds.
Should you share a renter's insurance policy?
However, if you plan to purchase a renter's insurance policy with a roommate, you may have to search out an insurer willing to take your business, says Carol Walker, executive director of the Rocky Mountain Insurance Information Association.
"Most insurance companies discourage roommates from sharing a renter's policy," she says.
Walker says insurers typically do not want to deal with the hassle of trying to settle claims when two unrelated people share legal responsibility on a policy.
Even if you can find an insurer happy to let you share, that does not mean such a move is always wise, says Lynne McChristian, Florida representative for the Insurance Information Institute.
She says purchasing a single policy jointly makes sense "if the roommates share everything," McChristian says. But if that is not the case, it typically makes more sense to insure your own property under a separate policy.
"If the only thing shared is a roof and maybe a spot in front of the TV, it may make better sense to keep separate policies," she says.
Emily Lyons, a property and renter's insurance expert for Liberty Mutual Insurance, says Liberty Mutual does allow roommates to share a policy, but that it may not be the best choice.
"Each circumstance is individual, but having your own renter's policy is the best way to ensure that your personal property is covered," she says.
She adds that if roommates insist on sharing a policy, they both must agree to be named on the policy.
"On a combined policy, roommates should account for their own individual property, and the policy should reflect the value of both their inventories," she says.
5 questions to ask before sharing a policy
Before sharing a policy, ask yourself these 5 questions:
1. Am I unable to afford my own policy? Carr says sharing a policy can make financial sense for some renters. "The benefit is they would be sharing the premium cost," he says. In that light, buying a policy with a roommate makes more sense than having no coverage at all. However, Lyons reminds renters that an individual policy is often affordable. "Renters insurance is more affordable than they might realize and can be as low as $15 to $20 a month," she says.
2. How well do I know my roommate? If you share a policy, you are counting on the roommate to pay his or her share of the premium. You also will have to agree on how to split the check if you successfully file a claim. In some cases, you may think you know your roommate well. "It's more common for romantic partners to share a renter's policy than it is for those who are strictly roommates," McChristian says. Still, even romantic relationships can go sour.
3. Does my roommate have expensive tastes? If you're frugal and your roommate is a spendaholic, he or she is likely to have many more possessions - and more expensive items - to insure. That could mean you need more coverage, and will pay a correspondingly higher premium, than if you just purchased your own policy. "Weigh the risks of being in a policy contract with a roommate," Walker says. "Consider the pros of only being responsible for your stuff."
4. Do I move frequently? If you have a pattern of changing apartments - and roommates - sharing a policy can be more hassle than it's worth. "If an individual anticipates frequent moves over the course of a career, getting an individual renter's policy provides easier portability," McChristian says.
5. What happens if I am sued? It is relatively easy to figure out how much insurance you will need to replace your possessions. But determining the appropriate amount of liability insurance can be more difficult, and may lead to disagreements with your roommate. Carr says good agents usually suggest purchasing as much insurance as you can afford, because liability judgments can be expensive. "Claims at values well over $250,000 aren't uncommon," he says. "Million-dollar awards and more are infrequent, but do occur."
Walker says a claim against your roommate - such as a payout after your roommate's dog bites and injures someone - could end up biting you if you are part of a shared policy. "That could draw you into their legal mess," she says.She adds that having the roommate's dog-bite claim on your record could result in higher premiums for you when you try to secure individual insurance down the road.
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