According to the National Multifamily Housing Council, renters account for more than one-third of all U.S. households. Renting can be less expensive than buying since you’re not shelling out money for things like maintenance, repairs, property taxes or homeowner’s insurance. The downside is that if something happens to your rental property, your landlord isn’t responsible if your personal possessions are damaged or lost. Having renters insurance gives you the protection you need but there are a few things you to keep in mind when buying a policy. You should also consider working with a financial advisor when thinking about renting versus buying and which might be best for you.
1. Choose the Right Coverage Amount
Renters insurance is designed to cover the cost of replacing your belongings in the event of an accident, theft or natural disaster. According to State Farm, the average renter has over $35,000 worth of belongings but the amount of coverage you’ll actually need depends on several factors.
When you’re trying to decide on a policy amount, creating a complete inventory of your possessions can give you a more accurate idea of what you need. Make note of what the item is, when you bought it, what you paid for it and how much you think it’s worth now. Once you’re done adding it up, you should have a good estimate of how much coverage to get.
Keep in mind that renters insurance doesn’t just cover your personal property. Your policy should also include liability coverage, which protects you if someone is injured or their property is damaged while they’re at your home. The limits range from $100,000 to $500,000 so you’ll have to decide what amount of coverage you’re comfortable with.
2. Know What Isn’t Covered
Generally, renters insurance covers a wide range of circumstances but there are certain situations where you may be out of luck if you need to file a claim. Some policies, for instance, don’t include coverage for damage caused by earthquakes or floods.
You may have the option of purchasing a separate policy to cover these events, depending on your insurer. When you’re shopping around for quotes, be sure to ask for a complete explanation of what is and isn’t covered before making your final choice.
3. Understand the Different Coverage Types
When you’re buying renters insurance, you need to decide whether to get an Actual Cash Value policy or a Replacement Value policy. An Actual Cash Value policy takes into account things like depreciation and everyday use when determining the value of the damaged property. Your premiums are usually much lower with this type of policy but you won’t get as much bang for your buck if you need to file a claim.
With a Replacement Value policy, depreciation and wear and tear aren’t a factor in determining an item’s worth. The insurance company pays the claim based on what it would cost you to buy a similar item at its current market value. You’ll pay more for this type of policy but it may be worth it if you have something pricey that needs to be replaced.
4. Bundle Your Renters Insurance Policy
Bundling your renter’s insurance with your other insurance policies can be an easy way to save on the cost of coverage. Check with your car insurance company to see if they offer renters insurance and what the rates are. You could save anywhere from 10 to 20 percent off the cost if your insurer offers a discount for bundling services.
5. Consider a Higher Deductible
A deductible is an amount you have to pay out-of-pocket before your insurance company picks up the tab. Depending on your insurance company, deductible options for a renters policy may range anywhere from $200 to $1000. It may be tempting to go with a lower deductible since you won’t have to fork over as much cash when you file a claim but it’s not always the right move.
Choosing a higher deductible means you’ll have to pay more upfront if something happens to your stuff but your monthly premiums will be lower. In the long run, the money you save on premiums could be enough to offset the expense if you do end up having to file a claim. Just make sure you have $1,000 in an emergency fund in case you need it for a deductible.
One of the biggest mistakes that renters make when it comes to renters insurance is thinking they can’t afford it. The National Association of Insurance Commissioners estimates that the average monthly cost ranges from $15 to $30 per month. Keeping these helpful tips in mind can help you find the policy that fits your needs and your budget.
The Bottom Line
Renting can save a lot of money over buying a house, especially if you don’t plan on living in that home for more than a few years. However, renting is risky without renters insurance because your landlord isn’t responsible for your possessions. Making sure you approach renters insurance the right way can help you save money while lowering any potential risks that come with renting.
Tips for Insurance Planning
- As you plan out your potential financial risk and how you can mitigate it with the right insurance, consider speaking with a financial advisor. The right advisor can help you plan appropriately for all of your financial needs. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Whenever you’re considering any type of insurance, make sure you understand how much coverage you need so that you don’t end up overpaying.
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