What affects the price of renter’s insurance?

Compared to other types of insurance policies, renter’s insurance premiums are very low. The price depends on several factors which include the type and location of the rental unit, its existing risks or safety measures, the value of possessions to be covered, the amount of the deductible, the amount of liability insurance, and the renter’s insurance history.

Insurance premiums for larger rental units are higher than for smaller rental units. Renter’s insurance for rental units in areas with high crime rates will cost more than equivalent rental units in areas with lower crime rates. Sprinklers, fire extinguishers, alarm systems, and other safety devices can reduce the cost of the policy by about 10-20%.

Most insurance providers have standard renter’s insurance policies which adequately cover possessions deemed to be owned by an average renter. Declaring a higher total cost-value of possessions increases the premium, while asking for less total cost coverage decreases the premium. Why pay to insure $500,000 worth of property value when all your apartment possessions could be replaced for less than $10,000?

The amount of liability insurance also determines the premium. The higher the liability insurance, the higher is the premium. Renters who often have guests over may want higher liability insurance, while renters who don’t may not need as much liability insurance. Some rental units include outdoor spaces, in which case liability insurance should also cover the chances of outdoor injury by guests and passers-by.

Some renter’s insurance policies pay the replacement cost of the item. Others only pay its cash value. The difference can be quite large, especially for electronic items such as computers, which quickly become outdated and lose their cash value. The cash value of an item is usually based on its original purchase cost minus depreciation. Renter’s insurance which offers replacement cost coverage is more expensive than renter’s insurance which offers cash-value cost coverage.

The loss payment for certain types of personal property, such as computers or cash on hand, is usually capped. To insure items whose value exceeds the cap may require additional coverage. This is known as an insurance ‘rider’ or ‘floater.’

Most renter’s insurance has a deductible. This means that each time a claim is made, the amount paid by the insurance company is the cash value or replacement cost of the item minus the policy’s deductible. The higher the deductible, the lower the insurance premium. Some renter’s insurance policies decrease the amount of the deductible every year in which no claim is made.

The claim history of a renter will affect the cost of renter’s insurance. The more often a renter makes insurance claims, the higher future premiums will be. Each separate claim is also subject to a separate deductible. You can save a great deal of money by reserving insurance claims only for the big-ticket losses.

Some types of losses may not be insured under standard renter’s insurance. For example, earthquake damage is not included under standard coverage in earthquake-prone regions. Many policies exclude flood and other water damage. These types of losses may still be insurable, but may require special, more expensive coverage in addition to standard renter’s insurance.