How Much Renters Insurance Should You Have?

When you buy a renters insurance policy from an insurance company, you are buying coverage that covers the cost to replace your personal property in the event that damage to the property you live in causes damage to your belongings.

Many renters believe that their landlord would cover the cost to replace their personal property if it was damaged due to a disaster such as a fire. This is not true. Your landlord will have an insurance policy that will cover the property that you are living in, but not any of your personal belongings.

If you want your personal property to be covered when you are renting, it is a good idea to buy a renters policy. It is also important to understand that the amount of money you would receive depends upon the type of renters policy you have. There are actual cash value policies and replacement cost policies.

Actual cash value coverage - An actual cash value renters policy covers the cost to replace your damaged property minus depreciation. For example, let's say that there was a fire in the apartment you were renting that destroyed some of your personal property including your TV. Let's assume that you bought this TV a couple of years back for $1,000. Let's also assume that the TV went down in value (depreciated) by $100 per year.

Your insurance company would look at the original value of the TV and subtract the depreciation of the TV to find the appropriate pay out. In this case you would receive an $800 payout ($1,000 original cost minus $200 of depreciation over 2 years).

Replacement cost coverage - A replacement cost renters policy covers the cost to replace your damaged item with the current market value of a new item that's identical or similar to the one you lost. Let's use the TV example above. If your 2-year-old TV that is now worth $800 would cost $1,000 to replace with a new model, you would get a check for $1,000.

An actual cash value policy is going to be cheaper than a replacement cost policy as the payout will be lower once the insurance company deducts depreciation. A replacement cost coverage policy will be more expensive but will have a higher payout.

Renters insurance is among the most affordable types of coverage. If you own valuables such as electronics it can be worth it to spend a little bit more each month for replacement cost coverage knowing you will get a higher payout.

Personal property coverage is the main coverage that is associated with renters insurance. It covers all your personal property within the apartment, condo, or home that you are renting. This can include your furniture, clothing, kitchen items, and electronics which are covered up to the limits of your policy. Your renters policy would typically cover your personal property if damage was caused under the following circumstances.

- Fire or lightning

- Smoke

- Windstorms and hail

- Explosions

- Theft

- Vandalism

- Weight of ice, snow, sleet

- Sudden damage from a power surge

- Volcanic eruptions- Falling objects

- Water overflow or discharge from household systems

- Freezing of household systems

- Sudden tearing, cracking or bulging of a hot water, steam, air conditioning or fire protective system

- Riots

- Damage from aircraft or vehicles

Loss of use coverage pays to cover the cost of a temporary place to live if your primary residence becomes uninhabitable due to a covered damage. Loss of use coverage can pay for hotels, rent at a different apartment or home, increases in food costs if you have to eat out from losing your kitchen, and other expenses as a result of not being able to live at your primary residence.

For example, let's say that you were renting a condo and a fire broke out causing damage that made the home uninhabitable. If you had a renters policy you would be able to file a claim and get compensation to temporarily relocate some place else as the damage to your condo was fixed.  

Personal liability coverage protects you if you, a member of your household, or your pet cause damage to another person's property or cause injury to the person themselves. For example, let's say that a guest came over to the home you were renting, tripped on an extension cord and broke their wrist.

This person could sue you for medical expenses since it happened within your home. In this instance, your liability coverage on your renter's policy would help pay for any legal defense and medical bills that your injured guest had.

Like liability coverage, medical payments coverage pays out if someone is injured on your property. Medical payments coverage will pay out no matter who is at fault, whereas personal liability coverage will only pay out if you are at fault. Keep in mind that this coverage does not cover you or members of your household. It only covers other people.

1) Other people's property - Most renters policies will cover other people's property in addition to your own if it is in the residence you rent. For example, lets say that a friend loaned you their laptop and then a fire broke out in your residence, your policy would cover your personal property and your friend's laptop up to the limits of your policy.

2) Items stored elsewhere - Many renters policies will cover your personal property even if it is not directly stored at the residence you are renting. For example, you might keep additional furniture in a storage unit away from your residence. Most renters policies would still cover this furniture even though it is not in your primary residence. Some renters policies will even cover items stolen from your car.

You want to estimate the value of all the things that you own and make sure you have enough personal property coverage for that amount. You can walk through your property and take an inventory of all the items that you own.

Include everything that you can. Take note of all the furniture within each room, your electronics, your clothes, your kitchenware, your decorations, and anything else that you own. Try to estimate what it would cost to replace all of the items that you own.

You do not need an exact value of each item, but it is a good idea to try to be as accurate as possible. After doing this process, you may find that you need $25,000 worth of personal property coverage. In other words, you estimate that it would take $25,000 to replace all of the items you own if they were damaged under a covered peril of your policy.

If you come up with a number and are worried that it is not enough coverage, you can always opt to have more than you need. Having substantial personal property coverage is important. You do not want to find yourself on the hook to cover the cost of replacing your belongings because you did not have enough coverage.

It is also a good idea to take videos or photos of everything you own. This will help you later down the line if you ever needed to file a claim. It shows the insurance company that you own the property and will make the claims process easier.

A standard renters policy typically offers $100,000 worth of liability coverage. For many renters, this standard coverage will be sufficient. However, if you find yourself living in a property that increases your chance of liability, you can opt to increase the coverage.

For example, say that you live in an area that snows and live in an apartment on an upper level. The only access to your apartment is from an outside staircase that is exposed to the weather. Say that a delivery driver was dropping a package off at your door and fell down the stairs due to ice.

If the delivery driver sustained substantial injuries, he or she might sue you. Your liability coverage would cover the costs of hiring a legal defense and the medical expenses that the delivery driver incurred. Depending on the severity of the injury the delivery driver sustained, your costs might exceed the standard coverage amount of $100,000.

Your policy will only pay up to the amount of the coverage listed. If your expenses exceed the coverage amount, you will be responsible for covering those additional costs. If you believe that your property or members of your household (including pets) can increase your exposure to liability, it is worth it to buy more liability coverage than the standard amount on your renters policy.  

You should not overlook loss of use coverage on a renters policy. If your primary residence becomes uninhabitable due to a covered damage, loss of use coverage will pay for expenses that you incur by having to temporarily live some place else.

Renters policies will either offer a set amount of loss of use coverage, such as $5,000, or a percentage of your personal property coverage. For example, a renters policy might give you 40% of your personal property coverage as the amount of loss of use coverage you get.

So, if you had $50,000 of personal property coverage, you would have $20,000 of loss of use coverage. In general, it is better to have more loss of use coverage than you need. A good starting place is to obtain loss of use coverage that would protect you for a year.

You want to estimate what additional expense you would incur if your primary residence became uninhabitable. This can include hotels, and increased food costs if you lose the use of your kitchen and had to eat out.

You might estimate that you would incur an additional $2,000 worth of living expenses if you were not able to live in your primary residence. In this scenario, you should have at least $24,000 worth of loss of use coverage to ensure you would have coverage for at least a year as your primary residence is repaired.

Landlords or buildings may impose their own renters insurance requirements for you to live at their property. If you move into a new residence, it is important to check if your landlord or building has specific coverage requirements that you must meet to live at the property.  

Renters insurance is not a legal requirement like car insurance is, so you may be wondering if you even need renters coverage. If your landlord or building requires it, then yes you need renters insurance. However, there are several other reasons that buying renters insurance is worthwhile.

1) Renters insurance is affordable - Renters insurance is among the most affordable types of insurance policies you can buy. Depending on the insurer, coverage amount, and discounts, you can find policies as cheap as $10 per month. It is well worth spending this small amount of money to protect your belongings and yourself as a renter.

2) Your possessions are more valuable than you think - You may think that your possessions are not that valuable, but this is often not true. There is a good chance that what you own is worth thousands of dollars. If your possessions were damaged under a covered peril and you did not have renters insurance, you would be on the hook to replace all of your belongings.

3) Renters insurance covers potential liabilities - If a delivery driver fell down your stairs, he or she might sue you for injury compensation. Having renters insurance protects you from potential liabilities. If you do not have renters insurance, you are exposing yourself to legal and financial nightmares.  

Unless you are listed on your roommate's policy, their renters insurance will not cover you. On the flipside, your renters insurance policy will not cover your roommate unless they are listed on it. It is best to buy your own renters policy to ensure you have proper coverage.

Yes, renters insurance will cover items that are stolen from your car. In order to use your renters coverage in this scenario, the item that is stolen must be a covered personal property item as detailed in your renters policy.

Yes, renters insurance extends to cover personal property that you keep in a storage unit. To get coverage in this scenario, the damage that occurs to your personal property must be caused by a covered peril. This can include theft, fire, and others.

Renters insurance does cover jewelry, but only up to a set limit. For most renters policies, this is typically around $1,500. If you have a valuable piece of jewlery that is worth more than the coverage limits in your policy, you can insure it separately with a personal article policy.  

Renters insurance does cover firearms, but only up to a set limit. If you have valuable firearms that are worth more than the coverage limits in your policy, you can insure them separately with a personal article policy.