If a fire in your rented home destroyed your belongings, how much would it cost to replace them? How much money could you lose if you’re held responsible for an accident in your home and sued? Your renters insurance could reimburse you in these (and other) situations. Deciding how much you need means considering the value of your personal belongings and potential financial liabilities.
Understanding renters insurance coverage limits
The question “How much renters insurance do I need?” is more accurately stated as “What renters insurance coverage limits should I choose?” A limit is the maximum possible amount the insurance company might pay if you have a claim for a particular coverage on your policy. You choose limits when you buy your policy. So, you need to think about how much you could stand to lose if a catastrophe occurs, then choose limits accordingly.
Most renters insurance policies have four standard coverages. You choose a limit for each.
| Coverage | Description | Common policy limits* |
|---|---|---|
Personal property | Pays if your belongings, such as furniture, clothing, appliances, electronics, etc., are stolen, damaged, or destroyed by a fire, storm, or other event. Claim amounts are typically based on the depreciated value of the item (known as its “actual cash value,” or ACV) | $10,000 - $250,000 |
Personal liability | Pays if you’re held responsible for a third party’s injuries or property damage. (Does not apply to car accidents) | $100,000 - $1,000,000 |
Additional living expense | Pays for things like hotel and restaurant meals if your rented home is uninhabitable while being repaired | $3,000 - $200,000 |
Medical payments | Pays a guest’s medical bills if they’re injured while in your rented home. | $1,000 - $5,000 |
*This is a sample of ranges. The coverage limits provided by your insurer may vary.
In the example above, choosing a $10,000 personal property coverage limit means the insurance company would never settle a personal property claim for more than $10,000, regardless of the dollar value of the property you’ve lost. So if you lose $20,000 worth of belongings in a house fire, your insurance payout will fall well short of what’s needed to replace those things.
Of course, you could choose a higher personal property coverage limit—up to $250,000 in this example—to mean you have “more insurance.” But it would also cost more than one with lower limits. In an ideal scenario, you buy a policy with coverage limits that reflect—but do not exceed—your needs.
4 tips to determine how much renters insurance you need
Figuring out your exact coverage needs can be tricky. However, you can likely do a good job of estimating how much renters insurance you need by following a few tips.
1. Create an inventory of your possessions
List everything you own and keep in your house or apartment, including their estimated value. Include the purchase date and price, and keep the receipts if you have them. Take photos as well. You’ll want to include your furniture, clothing, electronics, appliances, hobby and sports gear, etc.
Your inventory can be on a spreadsheet or document or even a pad of paper if you prefer to go analog. Whatever works for you. The National Association of Insurance Commissioners has a handy home inventory app that allows you to go from room to room and document your belongings, log the purchase price and purchase date, and take photos of the items and any receipts.
Once you’ve completed the inventory, you should be able to develop a more informed estimate of the total value of your belongings. This can guide your choice of a personal property coverage limit. Your inventory, including receipts and photos, could also be useful if you ever file a claim.
2. Consider your lifestyle and assets
Whether you’re an entertainer or more of an introvert could affect your insurance needs. Do you have people coming in and out of your home a lot (for example, for parties and get-togethers)? Or do you lead a more low-key lifestyle?
The real question is: Does your lifestyle make you more likely to be held financially responsible for others' injuries and/or property damage? If so, you may want to consider higher limits for both personal liability and medical payments coverage.
When it comes to personal liability, you should also consider your assets. If you have a lot of money in savings and investments, for instance, you’ll want to have liability coverage that reflects that amount.
3. Consider how much it would cost to have to move out temporarily
Renters insurance additional living expense coverage helps you pay for extra costs you incur if you’re forced to move out temporarily if a fire, storm, or other catastrophe makes your rented home uninhabitable.
So if something were to happen forcing you to move out for a few weeks while your landlord handles repairs, what would you do? Could you possibly stay with a friend or relative? Or would you have no choice but to pay for a hotel, restaurant meals, and laundry services? If your “Plan B” is more like the latter, you might want to consider bumping up your additional living expense coverage limit.
4. Decide whether you need additional coverage
Personal property, personal liability, additional living expenses, and medical payments come standard on most renters insurance policies. But you do have some other options you might want to consider.
Adding these will increase your amount of renters insurance, but will also increase the cost of the policy.
Replacement cost
An option for your personal property coverage, replacement cost ensures any claim will be based on the cost to replace an item with a brand new one, rather than the item’s depreciated value.
For example, say your two-year-old laptop, which you purchased for $2,000, is stolen. Standard personal property coverage would base the claim payout on the item’s actual cash value (ACV), which may only be $1,200 at that point.
But a policy with the replacement cost option would base the claim payout on the current cost of a new laptop of the same make and model, which now might be $2,050.
Scheduled property
It’s not uncommon for standard renters insurance policies to provide only limited coverage for high-value items such as jewelry, artwork, expensive electronics, firearms, and clothing such as furs. A scheduled property rider can boost the coverage for those types of items.
For example, Lemonade Renter's Insurance allows you to purchase scheduled personal property coverage, referred to as “Extra Coverage”, if you want to insure valuables such as jewelry, bikes, cameras, fine art, and musical instruments.
Lemonade Renter's Insurance Money
Lemonade Renter's Insurance Money
Average annual cost
$168
Earthquake coverage
Standard renters insurance policies typically do not cover damage caused by earthquakes. So if a quake destroys your rented home and damages your belongings, you’ll get nothing from your insurer. However, many insurers offer supplemental earthquake coverage. If you live in an area prone to earthquakes, consider checking to see what your insurer offers.
Flood insurance
Similar to earthquakes, standard flood insurance policies will not cover damage caused by watershed flooding (such as a flooded river or ocean storm surge).
If your rented property is in a flood zone, you may want to consider coverage through the National Flood Insurance Program.
Other common renters insurance coverage options include identity theft protection, pet liability, and pet medical. You can add these, if needed, to your policy.
What is a renters insurance deductible?
One more important thing to consider is your personal property coverage deductible.
The deductible is a dollar amount the insurance company subtracts from a claim settlement. When you purchase your policy, you choose a deductible level from options that typically range between $250 and $2,500.
For example, say you choose a $500 personal property deductible. After a fire in your rented home, you file a claim with your insurance company to help pay to replace damaged belongings. The insurer settles for $5,000 and sends you a check for $4,500.
The remaining $500—the deductible amount—is your “share” of the costs.
Choosing a lower deductible means you’ll have less of a share if you file a claim, but it will also increase the cost of your policy.
On a standard renters insurance policy, you’ll choose a deductible for your personal property coverage but not for personal liability, additional living expenses, or medical payments.
How to be confident you have the right amount of renters insurance
Create an inventory to understand your needs
As explained earlier in this article, an inventory can be a valuable tool to pinpoint your specific renters insurance needs. You owe it to yourself not to rely on guesswork.
Check the policy to understand what is and isn’t covered
Make sure you understand your policy’s details. Remember that most standard renters insurance policies have limited coverage for certain items and likely do not cover belongings damaged or destroyed by flooding or earthquakes.
Shop around to find a policy that fits your budget
Renters insurance can be quite affordable, but you owe it to yourself to shop for the best deal. A recent study of 12 insurance companies by USA Today showed that there was a $246-per-year difference between the least and most expensive rental insurance policies.
Regularly review your policy
Consider reviewing and updating your home inventory every year prior to your policy renewal to see if your coverage needs have changed. Update your policy accordingly.
Consult with an independent agent
Many insurers make it relatively easy to buy renters insurance online. But if you’re unsure of your insurance needs, know there’s no reason to go it alone.
Independent agents are trained and licensed professionals who typically represent multiple insurance companies. They can understand your needs and shop from among the companies they represent to make sure you get the right policy at a price that works for your budget.
More good news: Because agents earn money through commissions, they typically don’t charge customers for their services.
Factors that may influence the cost of a renters insurance policy
Renters insurance is relatively affordable, with the national average policy costs about $15 per month. Here are several factors that might affect what you pay.
Your state
As previously mentioned from the USA Today study, the average cost of renters insurance in the cheapest state (Alaska, at $48) and the most expensive state (Louisiana, at $294) differs by $246 per year.
Your insurer
As we’ve seen earlier in this article, the the choice of insurer can significantly impact the cost of renters insurance.
Where you live
Living in an area with a higher crime rate or that’s more susceptible to natural disasters may result in a costlier renters insurance policy.
Type of building and features
The type of building—freestanding home, condominium, apartment building—may affect the insurance cost. The presence of safety and security features such as smoke detectors and burglar alarms can also affect what you pay.
Your claim history
People who frequently file insurance claims are likely to be charged more for a policy.
Your credit history
Insurers recognize a correlation between a person’s responsible use of credit and their likelihood of filing claims. They therefore tend to extend better policy pricing to those with better credit histories.
Your other insurance coverage
Insurers typically offer discounts to those who “bundle” coverage: For example, having both a car and renters insurance policy with the company.
TIME Stamped: You don’t have to guess how much renters insurance you need
Take the necessary steps to get a better sense of how much renters insurance you need. Complete (and regularly update) a home inventory of your possessions to make a more informed choice for your personal property coverage limit.
Also, consider your lifestyle and what you might be able to do if your rented home became temporarily uninhabitable to help decide what limits to choose for your personal liability, additional living expenses, and medical payments coverages.
Frequently asked questions (FAQs)
Is renter’s insurance worth it?
Renters insurance is worth it for many people renting their homes. A policy provides important financial protection if you were to lose your belongings in a house fire, theft, or other catastrophe. It can also help if you’re held responsible for another’s injury or property damage and sued.
Is it better to have a higher or lower deductible for renter's insurance?
Your choice of deductible depends on your financial needs, comfort with risk, and how you prefer to handle out-of-pocket expenses. Remember that choosing a lower deductible means you’ll pay a higher premium for the policy but have lower out-of-pocket expenses if you have a claim and need to replace your belongings. The converse is true: choosing a higher deductible means you pay less for the policy but have to pay more out-of-pocket if you have a claim.
How can you save money on renters insurance?
One of the most effective ways to save money on renters insurance is to shop around for coverage. Another tip is to consider bundling your renters and car insurance with the same company. Many insurance companies offer generous discounts for doing so.
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