Renters Insurance

Why Renters Insurance Is Worth It

Why Renters Insurance Is Worth It

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If you're a tenant, purchasing a renters insurance policy is almost always worth it, even if it's not required by your landlord. For an affordable price, renters insurance will protect you against catastrophic damage to your property and potential legal liabilities. The alternative — insuring yourself with your own funds — may be feasible, but having a renters insurance policy could still save you considerable money in the event of a disaster.

Why is renters insurance worth it?

Renters insurance is worth buying because it will protect you against unexpected catastrophes for an affordable price. With a renters insurance policy, you are paying a reasonable cost now — around $16 a month on average — to protect yourself from large and unpredictable costs in the future.

The benefits of having renters insurance come from its varied coverage, which insures you against the following.

  • Personal property damage: The average renter has possessions ranging in value from $20,000 to $30,000, according to various major insurers. If your personal property is stolen or damaged by a covered peril, such as a fire, renters insurance will cover the loss up to your selected limits.
  • Personal liability: Renters insurance covers the costs if you're held liable for bodily injury or property damage.
  • Additional living expenses: If your rental home or apartment becomes uninhabitable due to a covered peril, a renters insurance policy will cover you for costs above your normal expenses. This ensures your budget will stay the same even as you temporarily live elsewhere.
  • Medical expenses: This feature covers medical costs for guests injured on your property, usually up to a limit of several thousand dollars.

All of these features provide coverage that far outweighs the amount you will pay for a policy each year. For example, a typical renters insurance policy will cover $30,000 in personal property damage and $100,000 in liability costs, and these limits can be adjusted depending on your needs. Your coverage levels are thus much higher than the cost of an average renters insurance policy, which is about $215 per year.

The purpose of renters insurance is to cover you in a variety of unlikely scenarios, and we recommend you purchase a policy even if your landlord does not require renters insurance.

Why get renters insurance over the alternative?

Purchasing renters insurance is always a good idea, whether you can afford to cover unexpected expenses or not. If you're low on savings, you'll need renters insurance as a way to cover the risk of these events for an affordable price. Even if you have enough savings to self-insure and cover disasters in full, the price of renters insurance is minor compared to the amount a policy would cover for property repair, property replacement and liability expenses in a major disaster.

Renters insurance is an affordable way to cover unexpected expenses

Even if you have the necessary savings to replace all of your possessions or pay the uncertain costs of legal liabilities, renters insurance is a smart way to cover the costs of those unexpected expenses. In the event of a major disaster, a renters insurance claim will cover you for damage far in excess of the cost of your premium, even if you've been paying for the policy for years.

For example, say your dog bites someone, and you are found legally liable for the injury. The average cost of a dog bite claim in the U.S. is about $35,000. Without a renters insurance policy covering your liability costs, you could be on the hook for the full $35,000 expense. On the other hand, say you're paying $200 per year for a renters insurance policy with $100,000 in legal liability coverage. In this case, the full cost of your dog bite liability will easily be covered under the $100,000 limit.

Some may argue that in buying renters insurance, you are paying a fee to cover the costs of events that are unlikely to happen, thus paying for a service you're unlikely to use. This is technically true, of course. If you're paying for a renters insurance policy year after year and a disaster never befalls you, you won't reap the benefits of renters insurance.

However, if you do need to file a claim, renters insurance will cover you for property damage and legal liability far in excess of your premium, more than compensating for your premium payments over the years. For instance, in the dog bite scenario above, you would have to pay $200 per year for 175 years for the cost of your policy to equal the reimbursement — $35,000 — you would receive for the average dog bite claim. And this is just one scenario. Tenants could face a variety of unforeseen property damage costs and liabilities over their rental terms.

Annual cost of renters insurance (X)
Hypothetical scenario
Scenario cost (Y)
Cost ratio (Y divided by X)
$200Dog bite liability$35,000175 years
$250A fire destroys your possessions$30,000120 years
$150A water leak from a neighboring tenant destroys all your electronics$10,00067 years
$160Your television and laptop are stolen$3,00019 years

In the table above, we've calculated a cost ratio that shows how many years you would have to pay for a renters insurance policy for the costs of the policy to overcome the reimbursement you would receive from your insurer. The table assumes your property and liability limits are high enough to cover the event.

The examples illustrate how, across a range of hypothetical annual premiums, just one unlikely event can compensate for dozens of years of paying renters insurance premiums. So even if you have the savings to replace your possessions or cover your legal liabilities, it would only take one claim for renters insurance to be worth the investment.

Renters insurance covers you for expenses you can't afford

If your household can't afford to pay for costly, unexpected damage, renters insurance is a way to cover sudden expenses related to property damage or legal liability at a limited additional cost. In the event of a catastrophic fire or legal liability for damages — such as your dog biting a neighbor — emergency expenses could total far in excess of your budget. Renters insurance is worth purchasing for the peace of mind in knowing you'll be covered for these events, and that a random disaster won't force you to repurchase your possessions or live without them.

How to make renters insurance worth it for you

If you're still wary about adding renters insurance costs to your budget, there are a variety of things you can do to find a lower price for a renters insurance policy. These include shopping around, picking appropriate coverage limits, adjusting your deductible and taking advantage of insurer discounts.

Always shop around for your renters insurance policy

When you're looking for a policy, not all renters insurance companies will offer you the same prices or features. It's always a good idea to get quotes from several carriers, as one may offer you a better quote for almost identical coverage. Your renters insurance quote will depend on a variety of factors, including your location and insurance claims history, but not all insurers calculate their rates in the same fashion. Spending a few minutes shopping around could save you several dollars a month.

Pick appropriate coverage limits

People tend to have a mistaken idea of the value of their possessions and, consequently, how much renters insurance they should get. Considering that personal property coverage is one of the main drivers of the cost of a renters insurance policy, try to choose the right coverage limits. This will ensure you're not overpaying for too much coverage, or underpaying and leaving yourself exposed. For personal liability, most tenants will be sufficiently covered by standard coverage limits, though there are exceptions.

Underestimating the value of your possessions may lead you to choose lower property coverage limits than you should. Your policy may be more affordable, but it won't fully cover you in a worst-case scenario. Or you may overestimate the value of your possessions, meaning you'll overpay for unnecessary coverage. The best way to determine your coverage is to add up the value of everything you own, also called taking a personal inventory. This process will help you understand the value of your possessions and estimate how much property coverage is enough for you.

We recommend purchasing at least $100,000 in personal liability coverage, which comes standard with most policies. This is likely enough to cover the liability exposure of most tenants. However, you can typically increase your limit when purchasing a policy to $300,000 or $500,000, and this usually only costs a few extra dollars per month. This might be a consideration for people with a higher-liability lifestyle, such as those who own certain dog breeds.

Adjust your renters insurance deductible

A renters insurance deductible is the amount of money you'll pay out of pocket when making a claim, and choosing a higher deductible will lower the cost of your policy. For example, a policy with a $1,000 deductible might be 20% cheaper than an identical policy with a $250 deductible. If you want to save money now, rather than saving it when you make a claim, it might be worth choosing a higher deductible to lower the premium of your renters insurance.

Take advantage of renters insurance discounts

Many insurers offer a variety of discounts on renters insurance policies, and if these savings apply to you, you should take advantage of them to get the best value possible. Larger insurers with multiple policy options may offer an auto and renters insurance bundle, allowing you to save anywhere from 3% to 10% on your premium. Most insurers also offer discounts for safety features in your apartment, such as central burglary and fire alarm systems. Be sure to investigate whether an insurer provides these discounts to get the best bang for your buck.

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