Renters insurance covers the cost of replacing your belongings in the event of an accident, theft, or natural disaster. Renter’s insurance also includes liability coverage, which means you are protected from a lawsuit if someone is hurt or injured on your property.
Many landlords require renters insurance from their tenants, so it’s important to know what it is, what it covers, and which one is right for you.
Each insurance company has different options for renters, so selecting a plan can be overwhelming. We’ll provide you with some tips below so you can find the best coverage for you without any confusion.
Choose the Right Amount
According to State Farm, the average renter has about $35,000 in belongings. However, this amount isn’t accurate for everyone. Policies can range from $100,000 to $500,000, and nobody should be paying for more than they need. Figuring out exactly what you need is the first thing you should do.
The best way to decide how much coverage you need is to take inventory of your belongings. The best way to do this is to write down everything you have in your rental, when you bought it, how much you bought it for, and how much it’s worth now. It’s recommended that you total up everything from your mattress, to electronics, to a pair of earrings.
Once you have a final total of what everything is worth now, you’re ready to look at plans and decide what coverage limit is best for you in your current situation.
Know What Is and Isn’t Covered
Personal property coverage is what people usually think of when they hear about renter’s insurance, but it isn’t that simple. Below is an outline of the different types of coverages in a renters insurance policy, what they usually cover, and where you might run into some trouble.
Personal Property:
- What it covers:
- The cost to repair or replace your belongings. Usually covers clothing, furniture, and electronics- up to the limits in your policy.
- Typically does not cover:
- Property loss over your coverage limit.
Liability:
- What it covers:
- The repairs of any accidental damage to someone else’s property and a guest’s medical bills if injured on your property.
- Typically does not cover:
- Liability costs over your coverage limit.
Additional Living Expenses:
- What it covers:
- Costs incurred if the residence you rent is damaged and left uninhabitable.
- Typically does not cover:
- The cost of fixing any damages made to the structure of your rental property.
Please note that in most renter insurance plans, jewelry has limited coverage, so take extra good care of your gems!
While your renters insurance doesn’t cover damage to the physical building, that isn’t something you have to worry about. Your landlord’s insurance will cover this.
It is important to know and understand your personal property coverage, because it is usually subject to a deductible. What this means is you will have to pay a certain amount of money toward the covered item's repair or replacement before your insurer contributes any money towards the loss. This brings me to my next tip!
Get the Higher Deductible
Let's talk deductibles. A deductible for renters insurance policies range from $200 to $1,000. The way these usually work is the lower your premium, the more your deductible will be for each covered loss. (You can find your deductible and premium listed in your policy and you can adjust based on your budget and needs.)
It’s tempting to choose a lower deductible because you won’t have to pay as much upfront when you file a claim.
This isn’t the best choice, and I’ll explain why.
When you choose a higher deductible, you will have to pay more upfront if you have to file a claim. Yet, when you choose a higher deductible, your monthly premiums will be significantly lower. The money you save on premiums is worth the risk because that money could very well be enough to offset your higher deductible, that is, if you ever have to file a claim. If you never have to file a claim, then you save a bunch of money!
Understand the Different Coverage Types
When buying any kind of insurance you can choose between two different kinds of plans. You can choose an actual cash value or replacement value policy. An actual cash value plan saves you money on premiums, but pays for less. A replacement cost plan pays more in case of damage and theft, but will also cost you more on premiums.
The main difference between the plans is in the details. A replacement cost insurance plan will pay for the full cost of replacing your stolen or damaged items, whereas an actual cash value plan will only pay for the current value of your items-which is typically a depreciated value. With an actual cash value plan, you’ll typically have to make up the difference to replace all of your items, but pay less monthly. If you choose a replacement value plan, you’ll be able to replace your items no problem, but pay more monthly. In the end, the choice comes down to preference.
