How Much Renters Insurance Do I Need?

If you've recently moved into a rental property, now is the time to consider getting renters insurance. You might think that renters insurance is something that is nice to have but not necessary. Renters insurance, on the other hand, can come in handy if your personal belongings are damaged or stolen. You will have to pay the full cost of replacing your items out of pocket if you do not have insurance.

There are benefits and drawbacks to having renters insurance, and you should weigh all of your options before making a decision. You should think about them when deciding on the best renters insurance policy for you. You may be wondering, "How much renters insurance do I need, and how much will my policy cost?" Here's what you need to know.

What does renters insurance cover?

Renters insurance protects you from a wide range of hazards. It can be used to replace your personal belongings if they are damaged or destroyed in a fire (subject to policy exclusions). It can also protect you from financial losses if a thief breaks into your home and steals your belongings by reimbursing you for the cost of replacing those stolen items.

With a few exceptions, renters insurance will generally protect you against theft and a variety of natural disasters (usually excluding floods and earthquakes). Each policy is unique, so make sure to read the fine print of the policies you're considering to learn about the covered perils.

Most renters policies include coverage for additional living expenses (ALE), also known as loss of use. That means that if you end up staying in a hotel because a covered incident renders your rental unlivable, your renters insurance can help cover the cost, as well as other expenses such as restaurant meals and other costs related to your claim, while you're displaced.

Furthermore, most renters insurance policies include personal liability coverage. If a guest slips and falls at your rental and sues you, for example, your policy may cover the costs of legal defense as well as any settlements that result from the case.

In short, renters insurance provides a lot of protection for a low cost.

How do I calculate how much renters insurance I need?

1. Take an inventory

The first step is to determine what you own and how much it is all worth. Starting by going room to room and noting everything you own is a good way to get started. Your insurer may be able to assist you in this regard: some companies, such as Allstate, have mobile apps that allow you to keep track of your belongings.

Allstate's Digital Locker walks you through the inventory process, but you can also create your own home inventory. If you're looking for a place to start, this guide can help.

Once you've created a basic list, you can add, edit, or delete items, including photos, serial numbers, and receipts, and even record a short video walkthrough of your apartment.

To create your inventory, follow these steps:

1. Create a spreadsheet that includes photos of all of your belongings.
2. Determine how much it will cost to replace each item. When possible, include receipts or credit card statements. This can assist you in the future if you need to file an insurance claim.
3. Take extra care with valuables. Some renters insurance companies require you to buy additional coverage for jewellery, electronics, and other valuables worth more than a certain amount.
4. Don't overlook the issue of liability. The majority of policies begin with a minimum of $100,000 in liability coverage. If you have anything in your apartment (such as a dog) that increases the likelihood of someone getting hurt in your rental, you may want to increase your coverage.

After you've completed your inventory, add up the estimated cost of your belongings and the amount of liability coverage you desire. This will give you a ballpark figure for your coverage. When determining your coverage limits, you should consider including a buffer (for example, purchasing coverage for 20 percent more than the value of your belongings).

You'll also have to choose between actual cash value (ACV) and replacement cost coverage when it comes to your coverage level. ACV takes depreciation into account, so you'll only get what your old couch is worth now if you choose ACV coverage. Replacement cost coverage, on the other hand, will pay for a new couch at a comparable price to your old one when it was new. You'll have to pay a little more for your policy if you want that extra coverage. Also, don't skimp on coverage. Even a comprehensive renters insurance policy should be reasonably priced. According to the Insurance Information Institute (III), renters insurance premiums averaged $180 in 2017 (the most recent year for which data was available). Furthermore, since 2014, their data shows that the cost of renters insurance policies has been decreasing year after year.

2. Determine how much money you're willing to pay out of pocket.

Next, consider your deductible. If you file a claim, this is the amount you will have to pay out of pocket. When you purchase your policy, you will select this amount.

Your premium costs will be lower if you have a higher deductible. However, don't choose a higher deductible than you can afford just to save money on premiums.

The most common deductibles are $500, $1,000, and $2,000. Some insurance companies may allow you to have deductibles as low as $100. It is unlikely that you will be able to find renters insurance with no deductible.

One thing to keep in mind is that your policy has several sections, including personal property coverage, liability coverage, additional living expenses, and other optional coverages. Your deductible applies only to personal property coverage. There is no deductible if you file a claim under your liability or medical expenses coverage.

3. Determine whether you can maintain an emergency fund.

Nobody ever expects their personal belongings to be damaged or stolen, whether they have insurance or not. If you are not convinced that you need renters insurance, another option is to set up an emergency fund. This can be a separate savings account into which you deposit money in lump sums or over time. You'll be prepared if you have money set aside in case you need to replace some of your belongings unexpectedly.

If you go this route, keep that money only for emergencies. Don't be tempted to withdraw funds from your account just to have a few extra dollars to spend on something you don't need. The purpose of an emergency fund is to have money on hand in case you need it quickly. If you end up draining the account and do not have renters insurance, you may end up in debt.

Renters insurance coverage parts

How do you know what renters insurance to get? To know how much you’ll need, it’s helpful to know a little about the parts of your policy.

A careful reading of your policy document will inform you of the scope of your coverage and the maximum amount that the insurance company will pay out on a claim. Of course, the greater the potential pay-out, the higher your premiums will be.

Do I need additional coverage? 

There is no one-size-fits-all answer to the question, "How much renters insurance do I need?" Different people require different levels of coverage, and you may benefit from additional coverage.

Although the coverage types listed above are standard, you can modify your policy to include add-ons, or riders, that provide additional coverage. These add-ons will most likely cost a few dollars more per month, adding $20-$40 to your annual premium cost. Riders who are typical include:

• Replacement cost coverage: This does not take depreciation into account. If you have a ten-year-old couch that is in disrepair, you won't get much money if you file a claim for it if you don't have replacement cost coverage. However, with this optional coverage, you will receive enough money to purchase a comparable couch at today's prices.
• Valuable items rider: If you own items of particularly high value, such as jewellery, antiques, home electronics, or fine art, you may want to purchase additional coverage to ensure you can replace them if they are destroyed or stolen.
• Personal business property: If you sell on eBay or Etsy and keep your inventory in your apartment, or if you have another home-based business, you will need additional coverage to ensure that your business items are protected.
• Identity theft protection: Some renters insurance policies include the option to add identity theft protection if your identity is stolen. This can assist you with the costs of reclaiming your identity and may include guidance through the process.

In addition to these riders, you may want to consider two separate policies to provide additional protection:

• Flood insurance: Renters insurance, like homeowners insurance, does not include flood coverage. If you live in a flood-prone area, you should think about getting a separate flood insurance policy to protect your belongings if water levels rise.
• Earthquake insurance: Neither homeowners or renters insurance cover earthquakes. If you live in an earthquake-prone area, you may need to purchase a separate earthquake policy.

What is the minimum renters insurance one can have?

If you're wondering, "How much renters insurance do I need?" you might be thinking about the bare minimum.

Unlike auto insurance, states do not require renters to have insurance. However, as a condition of your lease, your landlord may require you to purchase renters insurance. They may require you to have a certain amount of renters insurance coverage. This protects your landlord in the event of building damage — they don't want their tenants attempting to hold them liable.

Renters insurance is probably a good idea, regardless of whether your landlord requires it. Policies are reasonably priced and frequently include a minimum of $2,500 in personal property coverage and $100,000 in liability coverage.

How to make my renters insurance cheaper

According to the III, renters insurance is already extremely affordable, with policies costing an average of $15 per month. However, you may be able to reduce your premiums even further.

• Look around. Even though renters insurance is relatively inexpensive wherever you go, rates can vary from one carrier to the next.
• Bundle your policies. Consider bundling your policies if you already have auto insurance. A multi-policy discount is available from nearly every major insurance company.
• Boost your deductible. In general, as deductibles increase, insurance premiums decrease. If you don't mind a higher deductible, this can be a good way to lower your premiums.
• Install safety equipment. Many insurance companies provide discounts to renters who have security systems, smoke detectors, or sprinklers installed in their apartments. Check with your landlord to see if these features are already present in your building.

Things to consider

• You may be able to save money on your renters insurance premium if you combine it with an auto, boat, or other policy. The majority of major insurers provide a discount for bundling. The amount of the discount varies by company, but doing so will almost always lower your premium costs. Furthermore, it is usually easier to manage all of your insurance needs with a single company.
• Renters insurance can protect you even if you are not present in your apartment. Items in storage lockers, for example, are generally covered, as are valuables in your car, boat, or other remote location. Let's say you leave your expensive new laptop at your table to go get a refill on your coffee at the local Starbucks. If it's stolen, your renters insurance should cover it (if it's worth more than your deductible).
• If you are a college student, you should think about getting renters insurance. If you are listed as a dependent on your parents' policy, you may be covered, but it is worth checking to see if they have full coverage for remote locations. And if you live off-campus, you will undoubtedly require your own policy.