When you arrange to rent a home, your landlord might inform you that they will require you to buy renters insurance. At this time, they will likely tell you what coverage you need, and how much to buy. Usually, they will require you to buy renters insurance. Some landlords might require $100,000 or more in liability limits. Should you buy only the required limits? Or is it better to buy more coverage?
What is liability coverage?
Liability insurance protects you, a renter, in case you cause harm to other parties.
A common definition of a liability is a state of being responsible for something, especially by law. Put more simply, if you are responsible for something, then you must take responsibility for it.
So, in the insurance world, if you were to accidentally harm someone or something else, then you might have to pick up the pieces (and cover the costs). It is renters liability insurance that will help you cover these costs.
Most renters liability policies can cover property damage and bodily injuries. So, if a friend falls in your home and injures themselves, then their injuries might be your fault. Liability insurance can help you compensate them for their losses, up to your policy limits. And, if the injured person decides to sue you, then this coverage can help you cover your legal costs.
Landlords often require this coverage because it reassures them that you can take care of problems occurring on their property. That helps free them from a potential risk themselves. Plus, if you cause damage to the rental property itself, then liability insurance might compensate your landlord for the repairs.
When to Increase Liability Limits
You must buy as much liability insurance as your landlord requires. However, can you benefit more? How do you know when to raise your limits?
Liability insurance is supposed to help you secure your personal assets. By having coverage, you don’t lose those assets (thus, money) when you have to compensate someone else. You therefore are smart to carry enough liability coverage to cover your net worth and your income.
First, calculate your net worth. Then, add on a multiple of your salary, say four-years-worth. If you make $50,000, that’s $200,000. Add the $200,000 onto the value of your net worth, and that’s at least the amount of liability insurance you need.
In many cases, regardless of how much liability insurance you need, you can often benefit by carrying a bit more than necessary. This can help you be prepared for any eventuality.
The great thing about this coverage is that even if you significantly raise your liability limits, you will still usually pay an affordable premium. Therefore, your agent can assist you in choosing the best policy.
Also Read: Preventing Fire Risks in Rental Homes