Factors to Consider When Choosing the Right Amount of Renters Insurance

The amount of coverage a renter needs varies depending on their individual situation, including their lifestyle, the amount of personal property they own, and their financial circumstances. There are 44.1 million renter households across the U.S., and 57% of renters reported having renters insurance. Renters insurance can help renters cover the cost of unexpected situations that occur while renting, such as a burglary or fire. 

Understanding how renters insurance works can help renters make informed coverage decisions. Keep reading to learn what each part of a renters insurance policy covers and how to calculate the right level of coverage for your situation.

How Renters Insurance Works

Renters insurance helps provide financial protection for people who rent their residence. A standard renters insurance policy includes these main types of coverage: personal property coverage, personal liability coverage, and loss of use coverage. Each section offers coverage for different losses the tenant could accrue in the event of a claim.

A renters insurance policy could help renters replace personal belongings that are stolen in a burglary or damaged by an unexpected disaster, such as a fire. Renters insurance can also help renters cover the costs of a temporary relocation if their home is damaged by a disaster. It could even help cover legal costs if someone injures themselves on the policyholder’s property and decide to sue.

Understanding Personal Property Coverage

Typical Coverage Amount: $10,000 – $500,000 in $10k increments

Personal property coverage is the part of a renters insurance policy that covers a renter’s belongings. It may help renters pay to replace items that are damaged or destroyed by certain events, such as fires, windstorms or lightning strikes. Personal property coverage may also help renters replace stolen items.

Often, coverage limits for personal property insurance range from $10,000 to $500,000, and renters may choose to buy coverage in $10,000 increments. The actual amount each renter needs depends on the value of their possessions.

Renters may underestimate the value of their belongings. While individual items may have a low value, the sum of your possessions may surprise you. To calculate how much it might cost to replace your personal property after a disaster, take an inventory of your home’s contents. Make a detailed list of your belongings, including:

• Furniture, such as couches, mattresses, and bed frames
• Electronics, such as televisions and computers
• Clothing items, including footwear and fashion accessories
• Decorative items, such as mirrors, paintings, and area rugs
• Kitchen equipment, such as pots, pans, and utensils
• Pantry goods, such as spices and canned goods
• Small appliances, such as humidifiers or hair dryers
• Belongings kept offsite, such as those in a storage unit

Insurance companies may offer home inventory worksheets or checklists to help renters document their possessions. After creating your inventory, estimate the cost of replacing each item in your home. By adding up the value of the items on your list, you can determine how much coverage to buy. For example, if your possessions are worth around $50,000, you may opt for $50,000 in coverage.

What Personal Property Coverage Does Not Include

Personal property coverage could help renters replace their belongings in a variety of situations. However, this insurance may not cover certain items or causes of damages, such as:

• High-value specialized items: Renters insurance policies generally provide some coverage for high-value specialized items, such as jewelry, art, antiques, silver, or collectibles. However, this coverage may be capped at a relatively low level, such as $1,500 or $2,000 per item. Renters could insure these valuables by adding a scheduled personal property rider coverage to their policy.
• Flood or earthquake damage: Renters insurance excludes flood and earthquake damage, which means it doesn’t cover possessions that are damaged by these disasters. This coverage would need to be purchased through a separate flood or earthquake policy. Some insurers may be able to add this coverage as an endorsement to your renters policy.
• Landlord’s property: Renters insurance doesn’t cover things that belong to the landlord, such as appliances that are provided for the tenant’s use. These items fall under the landlord’s property insurance policy.

Understanding Personal Liability Coverage

Typical Coverage Amount: $100,000 – $500,000 in $100k increments

The personal liability portion of a renters insurance policy can help protect a renter’s assets in the event of a lawsuit. It may offer coverage for legal fees, court costs, and lawsuit settlements, subject to the policy’s limits. Personal liability coverage may help cover expenses if a renter is found responsible for causing damages to someone else or their property. This could include situations such as:

• Slip-and-fall injuries, such as a guest slipping on a wet floor or tripping on a loose rug
• Dog-related injuries, such as your dog biting someone or knocking them to the ground
• Damage caused to property, such as a fire that spreads from your kitchen to a neighboring unit

Personal liability coverage may be sold in $100,000 increments from $100,000 to $500,000. In some cases, landlords may require a certain amount of coverage, but tenants could choose to buy more. When deciding how much personal liability coverage to buy, renters can consider the value of assets they want to protect, such as vehicles, bank accounts, and retirement accounts.

Renters may also want to consider lifestyle factors that could affect their chances of causing injuries or damage to others. For example, a person who regularly hosts large social gatherings may face a higher prospect of lawsuits because more guests pass through their home. Similarly, a person who owns a dog may have exposure to liability for dog-related injuries.

What Personal Liability Coverage Does Not Include

Personal liability coverage may not cover some injuries or damages that occur in and around your home. Some exclusions to be aware of include:

• A renter’s own injuries: Personal liability coverage may pay for medical bills and other costs if a guest is injured, but it doesn’t cover injuries to the renter or members of the household. If you’re injured in your home, your health insurance policy may provide coverage.
• Damages caused by a vehicle: While renters insurance can help cover damages caused by a renter, that doesn’t include damages caused by the renter’s car. This falls under the scope of the renter’s auto insurance policy.
• Damages related to business activities: If you’re running a business out of your home, personal liability insurance may not provide coverage for injuries or damages suffered by clients or customers. Business-related activities are covered by business liability insurance policies. Some insurance companies may be able to add a business endorsement to cover these possible exposures.

Understanding Loss of Use Coverage

Typical Coverage Amount: Flat amount or percentage of your personal property coverage

Loss of use coverage can help renters pay for the additional living expenses they incur if their home becomes uninhabitable due to a covered event. For example, it could help a renter pay for the cost of staying at a hotel if their apartment is damaged in a fire.

The amount of coverage may be expressed as a flat rate, such as $3,000 or $5,000, or as a percentage of the policy’s personal property limit, such as 30%. To choose a renters insurance amount, renters can estimate the costs of maintaining their normal standard of living if they were displaced from their home for weeks or months. 

Some examples of additional living expenses that renters could be reimbursed for include:

• Temporary accommodations, such as a hotel stay or short-term rental
• Increased mileage if they have to live further from work
• Pet boarding fees if their temporary rental isn’t pet-friendly
• Restaurant meals if they don’t have access to a kitchen
• Laundry costs if they need to use a laundromat
• Furniture rentals if their temporary rental is unfurnished
• Fees to store possessions in a storage unit
• Parking fees if their temporary rental charges for parking

The specific expenses that fall under loss of use coverage may vary between policies. Contact your insurer for details. 

What Loss of Use Coverage Does Not Include

Some types of additional expenses and reasons for leaving your home may be excluded from loss of use coverage. These exclusions may vary depending on the insurer, but could include:

• Typical monthly expenses: Loss of use coverage helps renters pay for additional expenses related to their relocation, not their regular monthly bills. Renters remain responsible for normal monthly expenses, such as rent and utilities.
• Unreasonable additional expenses: This coverage helps renters pay for expenses the insurer deems necessary and reasonable. So if a renter stays in a hotel, loss of use may cover the cost of the room rate, but may not cover extras like drinks from the minibar or in-room entertainment.
• Loss of use due to flood or earthquake: Standard renters insurance policies exclude flood or earthquake damages, including loss of use resulting from those disasters. Insurers offer separate flood or earthquake policies that may provide loss of use coverage.

Other Types of Coverage to Consider

The main parts of a standard renters insurance policy offer coverage for a variety of situations, but some renters may want additional coverage. Depending on your situation, other types of coverage to consider include:

• Scheduled Personal Property: Also known as a floater, this optional coverage helps renters insure valuable specialized items that exceed their policy’s limits. For example, if a renter owns an heirloom ring worth $10,000 and their policy caps jewelry coverage at $1,500 per item, they could schedule the ring to insure it at $10,000. Note that the insurer may require a professional appraisal for scheduled items.
• Flood or Earthquake Insurance: Standard renters insurance policies don’t cover flood or earthquake damages. Renters who live in areas that are at risk for these types of disasters may consider purchasing flood and/or earthquake coverage or adding an endorsement for this coverage.
• Umbrella Insurance: Personal umbrella policies offer supplementary liability protection . They may help renters pay for legal costs and judgments that exceed the policy limit in their renters insurance policy. It may also cover situations that are beyond the scope of renters insurance, such as libel or slander. 

Contact your renters insurance company to find out what types of additional coverage are available.

What Are Policy Limits?

The policy limit is the cap on how much an insurance company will pay for a covered claim. Each part of a renters insurance policy — personal property, personal liability, and loss of use — may have its own policy limit. Renters can choose these limits when they buy a policy.

For example, a renter may choose to buy a policy that offers $100,000 of personal property coverage, $200,000 of personal liability coverage, and $5,000 of loss of use coverage. Damages above and beyond the policy limits are the renter’s responsibility.

How to Calculate Your Renters Insurance Coverage Amount

When deciding how much renters insurance coverage to buy, consider the value of your personal possessions, your potential exposure to lawsuits for property damages and bodily injuries, and the additional expenses you might incur if your home became temporarily unlivable. Consider the cost of the coverage, too. Americans paid an average of $174 a year for renters insurance premiums in 2019, but higher levels of coverage may translate to higher premiums.