NEW YORK (CNNfn) - When it comes to real estate, being a renter can be a lot simpler than being an owner. Property insurance, for instance, usually isn't an issue. But the flip-side of this freedom is that you may take a loss on your possessions if there is a fire or break-in. Unless you buy renter's insurance.
Few renters do. While almost all homeowners are required by their mortgage company to carry insurance, only one renter in five carries renter's insurance, according to the Insurance Information Institute, a trade group. But the coverage is relatively cheap and protects renters from accidents like fires and from theft, wind damage and vandalism. It also provides liability coverage.
It doesn't cost that much
A typical policy costs between $150 and $300 a year, depending on where you live. The price will be higher for places with a high crime rate and at locations a long way from the fire department.
If you own a car or have another insurance policy of some kind, you may get a discount from that insurer for having more than one policy. Having smoke detectors and extinguishers or living in a building with a guard or doorman also can get you a cheaper rate.
Some insurance companies also have started letting roommates get joint policies. If you shop around, you should be able to find a company that allows that, insurance industry trackers say. Make sure you change the policy as soon as roommates change, though, if you go for that option.
What does that get you?
The policy normally buys you $30,000 or $35,000 in coverage for personal possessions and between $100,000 and $300,000 in liability coverage. The liability coverage would protect you if a delivery man injures himself on your property or if someone falls through a glass table at a party and sues you. It also will cover you for your pets, if your dog bites a passerby who then sues you, for instance.
The regular renter's policy will cover theft as well as damage from a fire or from a bath overflowing and ruining your goods. Though the landlord's insurance covers the structure, for instance rebuilding an apartment block after a fire, it doesn't cover your possessions, which is where renter's insurance proves valuable.
A renter's policy also covers wind damage and will likely protect you from lightning hitting your property and blowing out equipment. Check with your insurer to see if the policy covers a surge caused by the power company. That varies by state and insurer.
The policy typically gives you off-premises protection at 10 percent of the rate of your personal-possession coverage. In other words, if you have $30,000 of coverage, it would cover up to $3,000 if your golf clubs were stolen from your car or your luggage were stolen while you were traveling.
There's a deductible before any of the insurance kicks in. That's normally $250, though you may be able to get as low as a $100 deductible if you shop around. The lower the deductible, the more expensive the policy will be. You can raise the deductible to get a cheaper premium.
The renter's policy also covers what are called "additional living expenses," normally up to 20 percent of the value of your possessions. So for a $30,000 policy, you'll be covered up to $6,000.
The additional living expense coverage will pay for a hotel and meals if you can't live at home, because of a fire, for example. It may cover other additional costs, if it costs you more to get to work in gas or other travel costs. But you should check with your agent to make sure what's covered.
For an extra cost in premium, typically adding about 10 percent onto the cost of the insurance, you can opt to buy replacement-cost coverage for your possessions. You may want to consider that because it pays you the cost of replacing an item, buying it new.
Otherwise a regular renter's policy only pays the "actual cash value" of possessions that you've lost, or the purchase price minus depreciation. For expensive electronic goods like a high-definition TV, for instance, the difference can be significant.
Take stock of what you own
If you're thinking about getting renter's insurance, it's a good idea to take an inventory of your personal possessions, even though the insurance company doesn't normally require it.
"It's quite possible you have more than $30,000 of personal possessions," said Jayna Neagle, a spokeswoman with the Insurance Information Institute. Making a list of your possessions may help you get a handle on the value of what you own. In that case, you'd want to consider extra coverage.
The inventory doesn't have to be incredibly detailed -- just list big pieces of property such as furniture and appliances. Ballpark other items like clothing, unless you own expensive furs or the like.
"People tend to forget the value of stereo equipment, computer equipment, even your clothes," said Madelyn Flannagan, a spokeswoman for the Independent Insurance Agents of America.
Write down the serial numbers of appliances and electronics. In case of a fire, keep a copy of the list somewhere outside your home -- at work, perhaps. You also may take photos or make a videotape of your more-valuable items. That will make it easier to make a claim on them if they are lost or stolen.
If you own collectibles, art, lots of jewelry or particularly expensive furniture, you might want to schedule a separate policy for those valuable items. Even your Beanie Baby or Pokemon collection might be worth breaking out.
Your policy will limit the amount you can claim for specific types of possessions -- up to $1,000 for jewelry, $1,000 for collections and $1,000 for silver, for instance, or $2,500 for guns. Computer equipment is another area that gets capped, between $3,000 and $10,000, depending on the policy.
You can buy extra coverage for collections or particularly valuable items with a "floater" policy. The cost will vary depending on the kind of possessions you're insuring.
What's not covered
Make sure you understand what's covered under the policy. Like a homeowner's policy, damage from floods and earthquakes, for instance, is not covered by renter's insurance. If you live in a flood-prone area you will have to buy that insurance separately, which you can do through the National Flood Insurance Program, run by the Federal Emergency Management Agency.
Many agents sell the insurance, but it is set at a fixed rate for each location so there's no point in shopping around for a better rate - it all comes from the same underwriter. You can call FEMA's flood-insurance hotline at (800) 427-4661 to find an agent or ask other questions. Only around 5 percent of flood insurance is held by renters.
Some private insurers offer earthquake coverage, and states such as California have their own earthquake-insurance programs. Your agent should be able to help you get coverage if you feel you need it.
Car-related problems won't be covered by renter's insurance. Neither will any damage you create through a crime, such as arson or assault, where liability and damages become a legal matter. But theft, water damage and fire are more common problems that renter's insurance protects against.
Tips for buying a policy
A renter's policy is more than just another way for insurers to tap your wallet, according to Stephen Brobeck, executive director of the Consumer Federation of America, a watchdog organization.
"Generally it's a good idea, but you need to comparison shop to make sure you get a good deal," Brobeck said.
He offered these tips for getting renter's insurance:
Make sure the amount of coverage you're buying is adequate -- not too much and not too little.
Look for companies that provide low-cost home-owner's insurance for the best rates.
Check with any insurer you already have a policy with to see if you get a discount.
Check with your state insurance department for complaints and information on reaching insurers. They may well have a line to help consumers, like the New York State Insurance Department at (800) 342-3736.
Look for articles in consumer magazines that rate insurers.
Renter's insurance "is a reasonable value if you comparison shop," Brobeck said.