When you shop around and get some bids for renters insurance, they might come in with different coverage amounts and different premiums. It can seem challenging to read and understand the basics of the policy to ensure you have the proper coverage, but it’s actually easier than you may think. Learn how to dissect your policy so that you can make the best decision for your circumstances.
How much coverage you need is actually a multi-pronged question because in your policy, you get several different types of coverage. Those types cover different situations and perils (or losses) that could occur and cost you money. Here are the general categories of coverage that are included in a standard renter’s policy.
- Personal Property. This covers the cost to replace your clothes, furniture, electronics, and all your other personal property items.
- Loss of Use. This covers your living expenses if your rental unit is uninhabitable. This includes items like hotel costs, food, and other costs incurred as a result of your being displaced from your rental unit.
- Liability. This covers if you are sued by another party that is financially injured as a result of the peril that occurred related to your home.
- Medical of Others. This covers the medical costs of others who were on your property with your permission.
Each one of the above categories will have a maximum amount of coverage that the policy will pay in case there is a loss, so let’s discuss how much coverage you may need for all of them.
Personal Property – A typical renter may have $15,000 to $25,000 in personal property, but of course, that depends on the renter. For example, if you are a management consultant renting a second residence in New York City, and you have expensive clothing, extensive electronics, high end furniture, and so on, you could easily have $50,000 to $100,000 worth of personal property in your rental unit. This means you need to think through how much coverage you really need in case a fire destroys all your belongings. And if you have expensive artwork or antiques with high values and want them to be covered, you need to discuss that with your agent to make sure you are paying for the appropriate amount of insurance. If you don’t have the right insurance, you’ll be out of luck if there is a loss.
Loss of Use – This is pretty straightforward to determine because if there is a loss, your insurance agent and/or an adjuster will review your current rental amount and lifestyle and that will form the basis for what coverage you need. The insurance agent can go over this with you as well as any other options you may have for extra coverage.
Liability – This is a more important one to think through and consider because there are some important options here. A normal renters insurance policy might have $25,000 of liability coverage, according to the Texas Department of Insurance , but that might not be near enough. As you get wealthier and/or if you have a higher paying job, that increases the risk that you might be sued if, for example, someone slips and falls while visiting your home.
If you do get sued, $25,000 is not enough coverage. That won’t even cover your own lawyer's bills at $350 an hour! A typical homeowners policy has $100,000 to $300,000 in liability coverage. Many people get an excess liability policy, called an Umbrella Policy, that bumps that coverage to over $1,000,000. And this is only about $250 per year, so if you have some assets and/or a good job, it'd be in your best interest to get an Umbrella Policy.
Medical of Others – This is usually governed by a standard amount of coverage that the insurance carrier offers. And that standard amount is probably fine because they’ve looked at their past claims and determined the most sufficient amount to cover most situations. Talk to your agent about this issue and make the best choice for yourself.
In thinking through how much coverage you need, the most important items are to make sure you have enough coverage in place for your personal property and for liability protection in case you get sued. It’s really not very expensive on an annual basis to have a little extra protection to ensure you are properly covered. So review your existing policy, your situation and belongings, and get the right coverage that fits for your life's circumstances.