When you buy a house, most mortgage lenders require you to purchase homeowners insurance to cover any losses. If you're a renter, there's no legal requirement to have renters insurance—but getting it can save you significant sums should your belongings get stolen or damaged in a disaster.
Renters insurance not only reimburses you for these items, but it usually offers personal liability coverage. It might even cover temporary living expenses if you can't stay at the house following an emergency.
The average monthly premium for renters insurance is around $15, according to Experian data. However, rates can vary a bit; according to Progressive, their monthly renters insurance rates range from $14 to $30. But what causes your rate to be on the higher or lower end? Here are seven factors that impact how much you'll pay for renters insurance.
1. Your Coverage Limits
The more you want your renters insurance to cover, the more you have to pay. Your policy should be enough to cover the costs of replacing all of your personal belongings, from clothing to electronics to furniture.
You'll need to inventory and estimate the total cost of your possessions, and it's possible you'll have to pay a higher rate to insure everything. If you're on a tight budget, you can go for a smaller policy; you just might not receive enough money to replace everything in a disaster.
It's important to know that high-value items, such as fine jewelry, artwork, musical instruments and collectibles, are not typically covered in a basic renters insurance policy. If you want coverage for these costlier items, you may need to add a floater or rider to your policy for an additional fee.
2. Your Deductible
If you've ever had to select a health insurance plan, you'll be familiar with how insurance deductibles work in tandem with premiums. It's the same concept when you get renters insurance: the lower your premium, the higher your deductible. That's because you're paying less into your policy, so when you do make a claim, you have to pay a sizable amount first (your deductible) before the insurer pays up.
On the other hand, you may have the option to pay a higher premium in exchange for a lower deductible. This means you spend more monthly (or annually), not knowing if you'll get it back. But if you do file a claim, you won't owe as much out-of-pocket for the deductible before getting your insurance money.
As you compare renters insurance plans, make sure to pay attention to the deductible, and know that adjusting it can impact your rates. Ultimately, your choice will depend on whether your budget is best set up to pay more over time, or at once when a claim is filed.
3. Where You Live
Insurance is all about risk, so customers that live in areas with higher risks of claims usually have to pay more for coverage. Some location-based factors that impact renters insurance rates can include:
- The rate of crimes, especially theft, in your ZIP code
- The weather and climate in your area, since locations prone to fires, storms and hurricanes are riskier
- The age and condition of the property you live in
Renters insurance tends to be more expensive in Southern states—such as Louisiana and Mississippi—as the risk of costly hurricane claims is higher. In states with fewer natural disasters, such as New Hampshire, Maine and South Dakota, premiums are often lower.
4. Your Insurer
Just like any other industry, different insurance companies charge different rates for the same types of policies. Some businesses offer low prices to be competitive, though others charge more but include better coverage.
Since the cost of your renters insurance can vary depending on the current rates charged by an insurance company, it pays off to get quotes with a variety of insurers and compare costs.
5. The Type of Coverage
There are actually two different types of renters insurance coverage: actual cash value and replacement cost. As you shop around, it's important to understand the differences between these coverage types so you can choose the best one for you.
- Actual cash value: This pays out the current market value of the item, including depreciation, meaning it accounts for the item losing value over time.
- Replacement cost: This pays out the cost of replacing the item with a new item that is comparable.
Actual cash value policies usually offer cheaper coverage, but they don't pay out as much when a claim is filed since it's replacing items with what the used one is worth—not what it would cost to replace it with a new one.
6. Your Other Insurance Coverage
To cultivate loyalty and gain more business, most insurance companies offer multipolicy discounts, providing a discount for "bundling." For example, if you already have car insurance or life insurance with one company and add renters insurance, you'll usually score a discount.
7. Safety Features
Insurance companies may offer reduced rates on renters insurance policies if the property has features that reduce risk (and, therefore, your chances of filing a claim). These might include:
- Gated or secured community
- Security/alarm system
- Smoke detectors
- Deadbolt locks
- Video cameras
- Sprinkler system
The Bottom Line
While the cost of renters insurance may be something you never recoup, you'll sure be thankful you have it if your belongings are stolen or destroyed in a natural disaster. Since policy rates can vary quite a bit, make sure to shop around to find the best deal for your budget.
A convenient way to do this is to use Gabi®, a part of Experian, to quickly compare renters insurance quotes in one place. If you already have renters insurance, the Gabi platform makes it easy to connect your current policy and compare it with others that might have a better price.
As an insurance expert with a deep understanding of the industry, I can provide valuable insights into the factors that influence renters insurance rates. My expertise is rooted in a comprehensive knowledge of insurance policies, industry trends, and the intricacies of risk assessment. Let's delve into the concepts discussed in the article you provided.
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Coverage Limits: Renters insurance rates are directly affected by the coverage limits you choose. The more comprehensive coverage you opt for—encompassing a wide range of personal belongings—the higher your premium will be. It's crucial to assess the value of your possessions and select coverage that adequately protects your assets.
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Deductible: The deductible is a critical aspect of any insurance policy, including renters insurance. A higher deductible typically results in a lower premium, but it means you'll have to pay more out-of-pocket in the event of a claim. Conversely, a lower deductible leads to a higher premium. This balancing act requires careful consideration based on your budget and risk tolerance.
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Location: Geographic location plays a pivotal role in determining renters insurance rates. Areas with higher crime rates, susceptibility to natural disasters, or adverse weather conditions pose greater risks. Insurers adjust rates accordingly, with Southern states facing higher premiums due to increased hurricane risks, while states with fewer natural disasters enjoy lower rates.
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Insurer Variability: Different insurance companies offer varied rates for similar policies. This discrepancy may arise from competitive pricing strategies, coverage variations, or customer service quality. To secure the best deal, consumers should obtain quotes from multiple insurers, considering both cost and coverage details.
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Type of Coverage: Renters can choose between actual cash value and replacement cost coverage. The former provides reimbursem*nt based on the depreciated value of items, while the latter covers the cost of replacing items with new equivalents. The choice between these coverage types impacts premium rates, with actual cash value policies generally being more affordable but offering lower payouts.
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Multipolicy Discounts: Insurance companies often incentivize policyholders to bundle multiple insurance products, such as renters, auto, or life insurance. This bundling, known as multipolicy discounts, results in cost savings for the consumer. Exploring these options can lead to significant reductions in overall insurance expenses.
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Safety Features: Properties equipped with safety features like security systems, smoke detectors, and deadbolt locks may qualify for reduced renters insurance rates. Insurers view these features as risk mitigating, lowering the likelihood of claims and subsequently lowering premiums.
Understanding these factors empowers renters to make informed decisions when selecting insurance coverage. It's evident that renters insurance is a crucial financial safeguard, and being aware of the variables influencing rates allows individuals to optimize coverage based on their specific needs and circ*mstances.
