If you're going to get your recent college graduate a gift, you may want to consider something he'll never get himself: renters insurance.
A new survey by insuranceQuotes finds that 66% of 18- to 29-year-olds rent their homes, compared to just 37% of consumers overall. However, less than one-third of Millennial renters have renters insurance. When asked why they don't have a renters policy, 59% of renters ages 18 to 29 age group said that cost isn't the primary reason. More than 61% forgo insurance, because they believe their property is secure, 43% say they don't own enough personal belongings to insure and 41% say they just don't understand renters insurance.
"A big takeaway from the survey is that many consumers underestimate the benefits of renters insurance and overestimate its cost," says Laura Adams, senior insurance analyst for insuranceQuotes. "The average annual premium is $188; however, 25% of 18- to 29-year-old respondents believe they'd have to pay $1,000 or more. We need to educate a new generation of renters who don't fully understand its benefits because it's an affordable financial safety net that every renter should have."
Well, you say that, but we can't stress enough just how cash-strapped that generation is. Student loan and financial advice site Edvisors.com reminds us that, last year, the average student loan debt for a graduate who just received a bachelor's degree was $35,051. That debt was carried by 70.9% of all graduates. Compare that to just 20 years ago, when average student loan debt was $12,759 and just 54% of all students graduated with debt.
According to the Federal Reserve Bank of New York, total student loan debt reached $1.23 trillion by the end of 2015 and more than one in ten (11.6%) student loans are past due. That's a worse delinquency rate than even that of credit card bills, of which 8.2% are past due. However, it's easier to pay off all of the above when you have a job. Though the Bureau of Labor Statistics puts the current unemployment rate at 5%, that jumps to 8.2% for people ages 20 to 24 -- or roughly the age of most recent college graduates. Only 63.4% of people that age are an active part of the workforce, compared to more than 81% of people between 25 and 54.
As a result, the most likely renters insurance buyers aren't Millennials, but their parents.
Last year, Kansas City Federal Reserve senior economist Jordan Rappaport issued a report indicating that older Americans are "increasingly downsizing" to apartments. Most do so around age 70 and only increase the exodus from houses around age 75. With the oldest of the Baby Boomers turning 70 this year, and the number of Americans aged 70 and older increasing by more than 20 million in the next 15 years, according to the Census Bureau, insurance experts predict that they'll get around to buying renters insurance a lot more quickly than their kids will.
"Boomers see the value in protecting their life's important memories," said Stacey Vogler, U.S. managing director for Protect Your Bubble by Assurant, a nationwide provider of renters insurance policies. "Boomers may not specifically be worried so much about theft, depending on where they live, but accidents like fire and water damage can happen. More than any other demographic, Boomers see the value in protecting the things that matter most to them since they often have a deeper sentimental value."
A lifetime of memories and attachments is a lot more difficult to replace than one's savings, but Millennials haven't yet reached a stage where they've amassed a whole lot of the former. Instead, they generally need to be convinced that their clothes, bike, furniture, dishes, TV and other electronics will be expensive to replace. Also, 60% of them already mistakenly believe that renters insurance doesn't cover items stolen outside of your home or from your car. Worse, only 40% know that renters insurance also doubles as liability insurance, with only 21% aware that it covers you if your dog bites someone outside of your house. While it also comes in handy if you need to pay for another place to live when your apartment is damaged, it's certainly worthy of consideration if that apartment contains valuables that aren't necessarily your own.
If a couple will be starting out in an apartment together, it is a good idea to ask about adding renters insurance, which is affordable and helps to protect belongings from loss or damage," says Richard W. Lavey, president of personal lines and chief marketing officer at The Hanover. "Also, it often provides a layer of liability coverage providing protection if someone is injured on the renters' property and brings a lawsuit against them."
If you hear all of this and get a little nervous, do yourself a favor and shop around first. Most policies will give you $100,000 worth of liability coverage, but State Farm suggests having enough liability coverage to equal your assets. That'll run you about $20 extra per year. Also, don't just simply assume everything is included. While the 35% of renters who don't think insurance covers property damaged in a natural disaster are wrong, they aren't completely misled. Renters insurance typically doesn't cover flooding, so you'd have to check in with the National Flood Insurance Program to cover that -- whether it be from storms or plumbing issues.
Though 64% of college graduates have renters insurance, compared to just 24% of high-school graduates, either you or your favorite graduate may want to take inventory and decide whether or not renters insurance is a smart move.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.