The amount of renters insurance you need depends on several factors. These include whether your landlord requires you to have a certain amount, how much it would cost to replace your belongings if they were destroyed or stolen, and how likely it is that you might be held financially liable for another person’s injury or property damage.
Truth is, deciding on a specific amount requires both objective reasoning and subjective judgement. Everyone’s insurance needs are unique, and there’s no single way to figure out what’s right for you. So let’s take a look at renters insurance, and some of the things you should think about when considering how much you need.
What renters insurance is, and why you need it
A renters insurance policy is a selection of coverages for those living in a rented house or apartment. It’s designed to provide financial protection if your personal belongings are damaged or destroyed, you’re held liable (responsible) for another person’s injury or property damage, or you need to pay for temporary lodging if your apartment is being repaired due to a catastrophe such as fire or storm.
Some landlords require their tenants to have renters insurance. But even if yours doesn’t, it’s a good idea to have a policy. Think about the cost to replace your personal items, or consider your financial risk if you’re sued (a lawsuit settlement could run into the hundreds of thousands of dollars). You may not be prepared for these burdens. Renters insurance can come through to help you financially in these situations.
What’s included in a renters policy
A renters insurance policy typically has three primary coverages.
Personal property coverage
This ensures you’re reimbursed if your belongings are stolen or destroyed in a fire, storm, or other covered peril (the insurance company will list its covered perils in their policy contract). The reimbursement may reflect either the replacement cost, or the actual cash value (a depreciated value), of your items. Policies offering replacement cost typically have higher premiums.
If you have some particularly valuable items — for example, expensive jewelry, fine art or antiques — you may also need to purchase scheduled personal property coverage. This is a form of personal property coverage especially for these items.
This provides financial protection if you’re held responsible for another’s injury or property damage. Say you have a party and a guest falls and breaks his wrist. He could hold you responsible for medical costs and other related expenses. Your liability coverage would help you avoid having to pay out of pocket.
Your liability coverage may also come into play if you’re responsible for something that happens outside of your home. Say you accidentally damage some expensive merchandise in a store. Liability may provide reimbursement, helping you avoid paying out of pocket to the store owner.
Loss of use coverage
Sometimes referred to as temporary living coverage, this helps reimburse your living expenses if your rented house or apartment is uninhabitable while being repaired due to a covered peril. This would not only help pay for a hotel room, but for additional expenses such as restaurant meals and laundry services.
Each of these coverages is subject to a limit. The limit is a dollar amount that you choose when you buy the policy, representing the maximum that your insurance company will pay for a claim. Higher limits will cost you more in premium.
Personal property coverage also has a deductible, which you choose when you buy the policy. The deductible is your dollar amount share of the cost to replace your possessions if you file a claim. The higher your deductible, the less your policy will cost in premium — but the more you’ll have to pay to replace your belongings. There’s typically no deductible for liability and loss of use coverage.
Calculate how much renters insurance you need
As stated above, figuring out how much renters coverage you need mixes both objective reasoning and good judgement. Here are a few things you can do to determine your needs.
- Inventory your possessions — Make a list of everything you own and keep in the rented house or apartment. Be sure to include furniture, clothing, electronics, any appliances you own, hobby and sports gear, etc. Do a little research to figure out their value. You might be surprised at how much you have! A common limit for personal property coverage is $30,000. You may want a higher limit based on your inventory.
- Consider your lifestyle — Do you entertain a lot, or are you more of a homebody? Do you have people coming in and out of your home — especially those you don’t know? Do you lead a life where you’re more likely to be held financially liable for others’ injuries or property damage? A common limit for liability coverage is $100,000. Consider upping that if your lifestyle warrants it.
- Consider the extra costs you’d incur if you had to find a temporary home — What would you do if you had to move out for a month (or longer) because your rented house or apartment had to be repaired? Could you stay with family or friends? Would you have to pay for a hotel room? What would it cost to eat most of your meals at restaurants, or to rely on laundry services?
The loss of use coverage limit is often a percentage of the personal property coverage limit. Forty percent is common. Consider if this would provide enough money to cover your extra expenses should you have to move out temporarily.
Average cost of renters insurance — and how to save
For all the financial security it provides, renters insurance is usually quite affordable. According to a 2020 report by the National Association of Insurance Commissioners, an average policy costs $14.9 per month, or $179 per year.
One of the most effective ways to save money on insurance is to bundle your policies. Bundling simply means you have your rental insurance, car insurance, and any other policies with the same company. You may also save by paying for the policy in full — in one lump sum at the start of the annual policy term — instead of in monthly installments.
You should also ask your insurance company about any discounts offered for things such as smoke alarms, sprinkler systems (for fire suppression), burglar alarms and deadbolt locks.
Finally, you can raise your deductible. Just remember, though, that the higher the deductible, the higher your share of the costs to replace your possessions if you file a claim.