How Much Renters Insurance Do I Need to Buy?

Renters insurance isn't one size fits all. Income, lifestyle and what you own decide how much renters insurance you need.

You should have enough renters insurance to cover all of your possessions in case disaster strikes. While there are usually some standard limits that come with a renters insurance policy, you don't want to just go with the basic limits without considering your needs. Factors such as your finances, risk for accidents and standard of living can be the difference between whether you underpay or overpay for renters insurance coverage.

The amounts of personal property, liability and additional living expenses you need in order to have adequate renters insurance takes some calculating. But once you know the basics, figuring out the amount of renters insurance you need only takes a little bit of work. You'll want to buy at least enough personal property coverage to replace all your stuff. Also, you'll want enough additional living expenses coverage to handle you and your family's standard lifestyle during relocation. This article includes:

What does renters insurance cover?

A standard renters insurance policy has three main coverage points:

Personal property: Also known as contents coverage, the personal property section of your renters insurance policy covers your belongings such as your clothes, furniture, electronics and other stuff.

Liability: This section of your renters insurance helps cover legal and medical costs in the event of an accident that is your responsibility.

Additional living expenses (ALE): If the covered damage in your rental home is extreme to the point that you need to move out, ALE will cover the difference in living costs above your standard lifestyle.

Renters insurance doesn't provide coverage for the structure of your rental home. The people you rent from should have landlord insurance in place to cover damage to the building. They're responsible for coverage of the structure of the building because they own it, not you.

The average cost of renters insurance

The average cost of renters insurance is $180 a year. While there may be some price differences depending on factors such as where you live, you're still probably looking at somewhere between $10 to $22 a month. How you adjust your personal property, liability and ALE to your personal needs will increase or reduce your final yearly cost.

Calculating how much personal property coverage you need

Contents coverage will take care of a wide range of your belongings should they be stolen, damaged or destroyed by a covered peril. The average limit for personal property in a standard renters insurance policy is $30,000 per claim.

This may be enough for you, but it's in your best interest to make sure you're not underinsured. Any damaged or stolen belongings that go over your personal property limit will not be covered, leaving you to pay the difference for replacements. By the same token, having a higher contents coverage limit than you need probably means paying a more expensive premium than you need to.

Renters insurance policies cover some types of possessions, such as jewelry and antiques, at lower payout limits than your standard property coverage. Jewelry, for example, usually has a limit of $1,000 to $1,500 per item. In order to get full coverage for your expensive belongings, consider getting an add-on endorsement for your renters insurance policy. Renters insurance endorsements usually run about $40 to $50 a year.

You will want to base the personal property limits of your renters insurance off of how much it would cost to replace all of your belongings. The best way to get an accurate dollar figure of your total replacement cost is to create a home inventory list. Create a list of your belongings along with important information such as make, model, serial number and replacement cost for each item.

This may take a while to compile, but having an inventory list will not only make sure you have the right amount of contents coverage, it may also make filing a claim simpler and possibly speed up your claim payout.

It's important to know that some natural disasters, such as floods and earthquakes, are not covered by policies from any renters insurance company. This means that if your apartment gets caught in a flood and your stuff is ruined, your policy wouldn't cover any of it. In areas where such disasters are a risk, you can probably find add-on renters insurance coverage for flood or other disasters that aren't covered by your standard policy.

Finding the right renters insurance liability coverage

In the event that you are the cause of injury or property damage to someone else, the personal liability portion of your renters insurance assists with medical and legal expenses. Standard renters insurance usually comes with a default liability limit of $100,000 per claim. If you're dealing with someone spraining an ankle, this amount is probably fine. However, if you wind up in a long court case or a long hospital stay is involved, you can reach that liability limit quickly. This leaves you to pay the remainder out of pocket.

We recommend that you purchase at least $300,000 in liability coverage, and go with $500,000 in liability if you can work it into your budget. The cost difference between $300,000 and $500,000 in liability is usually negligible, and should provide you with sufficient coverage.

How much ALE do I need?

If your rental home is damaged to the point that you have to move out, the ALE coverage portion of your renters insurance will help cover extra costs including:

  • Hotel expenses while you find a new home.
  • Restaurant meals.
  • Storage.
  • Laundry.
  • Extra commuting costs.

ALE usually covers 10% to 30% of your total renters insurance coverage per claim. For example, if you have a policy for $30,000 in renters insurance, your ALE coverage for a claim would be somewhere between $3,000 and $9,000.

This may not sound like a lot, but keep in mind that ALE is only meant to cover costs outside your standard living expenses. For example if your normal rent is $1,000 a month and the cost of living for a month in a hotel is $1,300, your ALE coverage will reimburse you for the additional $300, not the whole $1,300. This gives you some decent breathing room while you look for a new place. Most renters insurance providers offer use of ALE for 12 months for a single claim, but it could be longer.

Especially if you're living in a rental home with your family, you'll want to make sure your additional living expenses can take up the financial slack while you find a new place. If your renters insurance policy ALE coverage seems like it might be too low, talk with your renters insurance company about your options to increase it.

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