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Understanding the Cost of Renters Insurance

Mayra ParisDec 13, 2017

The cost of renters insurance is largely determined by the coverage you choose, the amount of coverage, and your deductible. Most renters insurance policies include loss of use coverage, personal property coverage, and personal liability coverage, but additional coverages for earthquake damages and identity restoration are available for an extra cost. Your location also has a lot to do with how much your insurance company will charge you for your renters insurance policy. Below, we discuss the factors that affect the cost of renters insurance policies.

The Value of Your Personal Property

Under a renters insurance policy, personal property coverage protects your belongings if they are damaged, destroyed, or lost; due to fire, theft, water damage, lightning, and other weather and non-weather-related causes. The value of your personal property will determine the amount of coverage you should choose for this portion of your policy. To decide this, it’s a good idea to prepare an inventory of your belongings and assign a value to each. Then, using the total value as a guide, you can select your coverage limit—the maximum amount your insurer will pay for a loss. This inventory will also come in handy should you ever need to file a claim. Coverage limits range from $5,000 to over $50,000, but the higher your limit is, the more expensive your monthly premium will be. You can also choose to add on extra policy riders for coverage of high-value specialty items, such as jewelry or collectibles. 

Consider whether the loss settlement will be based on the replacement cost value of your belongings or on the actual cash value. The former is calculated by considering how much money it will take to replace the items you’ve lost, while the latter takes into account the cost to replace them minus the depreciation they’ve suffered since you acquired them. If you choose actual cash value, your monthly premium will be lower, but in case of a loss, you will most likely have to put in your own money to replace your items, since the insurance company will pay you less than they are worth in the market at the time.

Remember, also, that your renters insurance policy won’t automatically cover everything inside your rental. Depending on your insurer, high-priced items—like works of art, jewelry, and expensive electronics—may require a separate rider to be covered or may not be covered at all. Take note of what you own and how much money you will need to get back on your feet if the worst happens before deciding which company to go with and how much coverage to select.

The Amount of Liability Coverage

Imagine your dog bites one of your guests at a dinner party in your rented home. With renters insurance, you'd be covered under the liability coverage portion of your policy should your guest decide to sue you, and you're found responsible. Depending on which insurance company you select, this kind of coverage will cover legal fees and other costs associated with someone’s bodily injury or property damage in your home or caused by your actions.

The liability coverage limit usually begins at $100,000 and can reach millions of dollars. The coverage limit you choose is one of the factors that determine how much your renters insurance policy will cost you. Remember, however, that a high liability coverage limit will entail a higher monthly premium.

Some experts recommend your limit should be at least 100/300, which means the insurance company will pay up to $100,000 per person and $300,000 per incident. If your liability coverage includes property damage coverage, your coverage limit should definitely be $100,000 or higher. Consider how damaging a negligence lawsuit could be to your finances. Having liability coverage with a higher limit could save you money and peace of mind in the future if something unfortunate happens.

Your Deductible

An insurance deductible is the amount you must pay out-of-pocket for a loss before you are able to file a claim with the insurance company. For renters insurance, the average is between $500 and $1000. The higher the deductible is, the lower your premium will be. Nevertheless, keep in mind that, if the value of the loss falls below the deductible, you will not be able to file a claim and will be forced to bear the cost of the loss yourself. A home inventory can help you assess what your deductible should be, as well as your coverage limits.

Your Location

Of the factors that determine what the cost of your renters insurance will be, there is one you can’t easily change. The location of your rented house or apartment will ultimately determine how expensive your rental insurance will be. Residences located in high-risk places—such as flood zones, hurricane-prone regions, wildfire areas, and other sites with a history of extreme weather—will pay more for their insurance than other homes. Likewise, if your neighborhood has a history of certain risks, such as crime, the cost of your insurance could be considerably higher than the cost of insurance in safer areas.

Additional Coverages

In addition to personal property coverage and liability coverage, there are many other options available as add-ons to your renters insurance. As mentioned before, there are riders available to cover expensive valuables, like jewelry, electronics, sports memorabilia, and artwork.

You may also add earthquake coverage, hurricane coverage, and flood coverage, since damage caused by these events is not usually covered under the standard renters insurance policy.

Some insurance companies offer identity restoration coverage, which provides a specialist to help you recover from identity theft, as well as with the legal fees and other associated costs.

For a full list of the specific coverages you can add to your standard renters insurance policy, speak with your insurance company.

Discounts

Depending on your insurer, you may have several options available to reduce the cost of your renters insurance premium. One of them, which is available with most insurance companies, is to bundle more than one policy together. For example, if you already have auto insurance or life insurance, you could receive a discount for purchasing renters insurance with the same company. By bundling multiple policies together, you will likely receive a substantial deduction.

You can also lower your costs by installing smoke detectors and security systems in your rented home. These devices will decrease the risk of fire and theft, which are the most common causes of renters insurance claims. As a reward, many insurance companies will lower your premium.

Your personal insurance history may also reduce your premiums. If you have had insurance before but have never filed a claim, you may receive a discount, because the insurance company may view you as a low-risk insured. Lastly, being a non-smoker or over 65 can reduce your insurance risk and lower your premium.