If you’ve recently moved into a rental property, now is the time to start thinking about getting renters insurance. You might assume that renters insurance is one of those things that’s nice to have but not an essential. However, renters insurance can come in handy if your personal belongings get damaged or stolen. Without insurance, you’ll have to pay for the full cost of replacing your items out-of-pocket.
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There are both pros and cons to having renters insurance, and you should have the full picture before making a decision. In this article, we’ll discuss some of the benefits and drawbacks of renters insurance, how to determine how much coverage you’ll need and what you can expect to spend.
How do I calculate how much renters insurance I need?
1. Take an inventory
Your first step is to figure out what you own and how much it’s all worth. A good way to do that is to start by going room-to-room noting everything you own. Your insurer may help you here: some companies, such as Allstate, have mobile apps that allow you to create a record of your belongings.
Allstate’s Digital Locker guides you through the inventory process; once you have a basic list you can add, edit or delete items, include photos, serial numbers and receipts, or even do a short video walkthrough of your apartment.
Once you’ve created your inventory, total up the estimated cost of your belongings and that will give you a rough number to shoot for with your coverage.
2. Estimate how much you’re willing to pay out-of-pocket
Next, think about your deductible. This is the amount you’ll pay out of pocket if you make a claim. You’ll choose this amount when you purchase your policy. Common deductibles are $500, $1,000 or $2,000. The higher your deductible, the lower your premium costs. But be careful not to pick a higher deductible than you can afford to pay just to save money on premiums.
One thing to note: there are several sections to your policy, including personal property coverage, liability coverage, additional living expenses and other optional coverages. Your deductible will only apply to your personal property coverage. If you make a claim on liability or medical expenses coverage, there is no deductible.
3. Determine if you can keep an emergency fund
Whether you have insurance or not, no one ever anticipates their personal belongings getting damaged or stolen. If you’re not sold on the idea of purchasing renters insurance, another option is to create an emergency fund. This can be a separate savings account that you put one lump sum into or deposit money into over time. By having money already set aside, you’ll be prepared should you need to replace some of your belongings unexpectedly.
If you choose this route, reserve that money for emergency purposes only. Don’t get tempted to dip into your account so you can have a few extra dollars to spend on something you don’t need. The point of an emergency fund is to have a backup in case you need money in a pinch. If you end up draining the account and you don’t have renters insurance, you could put yourself 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.
|coverage||What it does||average amount of coverage|
|Personal property coverage||Pays to replace your belongings if they are damaged, destroyed or stolen. This includes furniture, clothing, books and more||$5,000-$50,000|
|Additional living expenses||Pays for hotel costs, meals, laundry, storage and other costs if you have to leave your apartment while it is being repaired||Between 10-20% of your policy’s coverage amount|
|Liability/medical expenses||Protects you from lawsuits and pays for the medical costs if someone is injured while in your apartment.||$100,000|
A careful reading of your policy document will tell you what your coverage consists of and what the maximum amount is that the company will pay out on a claim. Generally, of course, the higher the potential pay-out, the higher your premiums will be.
Although the types of coverage listed above are standard, your policy may differ and may include add-ons, or riders, that offer additional coverage. These add-ons won’t cost more than a few additional dollars per month, probably adding $20-$40 to your annual premium cost. Typical riders include:
- Replacement cost coverage: This does not take depreciation into account. If you have a couch, for example, that is ten years old and looking a little ratty, without replacement cost coverage you won’t receive much on a claim for it. With this optional coverage, however, you’ll receive enough money to buy a comparable couch at today’s prices.
- Valuable items rider: if you own items of particularly high value, such as jewelry, antiques, home electronics or fine art, you may want to get additional coverage for them to ensure you could replace them if they’re destroyed or stolen.
- Personal business property: If you sell on Ebay or Etsy and keep your stock at your apartment, or have another home-based business, you will need additional coverage to ensure that your business items are covered.
Things to consider
- If you bundle your renters insurance coverage with auto, boat or another policy, you may save on your premium. Most major insurers offer a discount that varies from company to company, but doing this will decrease your premium costs and also make it easier for you to manage all your insurance needs with one company.
- Renters insurance can cover you even when you are not at your apartment. For example, items in storage lockers are generally covered, as are items of value in your car or boat or other remote location. For example, let’s say you leave that pricey new laptop at your table while you go get a refill on your coffee at the local Starbucks. If it’s stolen, it should be covered by your renters insurance (if it’s worth more than your deductible).
- You may want to consider renters insurance if you’re at college. You may be covered under your parents’ policy, if you’re listed as a dependent, but it’s worth checking to see if they have full coverage for remote locations. And if you live off-campus, you’ll definitely need a policy of your own.
The bottom line
For most people, having renters insurance is a good idea. It offers protection from unforeseen circumstances, and it can save you a lot of money in the long run. However, renters insurance is beneficial for certain people, and less of a need for others. If you think it’s the right option for you, ask an agent about how to get renters insurance from your current insurance company if you want to bundle policies, and always remember to compare quotes from other companies.
Whatever you decide, have some form of coverage for your personal belongings, whether that’s in the form of an insurance policy or an emergency fund that you manage yourself.