Renters Insurance And The Umbrella Policy Above It

I went eleven years without renters insurance. My reasoning, if you can call it that, was that I did not own anything worth insuring. A mattress, a desk from a street corner in Brooklyn, a television I bought used.

Then a pipe let go in the apartment above mine and came through the ceiling at two in the morning. I lost the laptop, a hard drive with four years of photos, and the rug.

The rug I was fine about.

The part that is not about your stuff

Everybody sells renters insurance on the contents. Your things get stolen or soaked, the policy pays to replace them, and if you own a street-corner desk that pitch lands flat.

The liability coverage is the reason to buy it. Liability coverage pays when you are found responsible for hurting someone or damaging their property, and it pays their costs, not yours.

Your dog bites a neighbour. Your bath overflows into the unit below and ruins their floor. A guest slips on your stairs and needs surgery. Those are the claims that produce a number with five digits in it and a lawyer attached.

A renters policy commonly runs somewhere around $15 to $25 a month depending on where you live and what you are covering, and typically carries $100,000 of liability coverage as standard. Call it $240 a year against a $100,000 wall.

Check one more setting while you are in the quote. Contents coverage pays out either actual cash value or replacement cost, and those are very different numbers. Actual cash value pays what your four year old laptop was worth on the day it drowned, which might be $300. Replacement cost pays what a new equivalent costs, which might be $1,400. The premium difference between the two is usually a couple of dollars a month.

What an umbrella policy does

An umbrella policy is liability coverage that sits on top of the policies you already have. When a claim exhausts the liability limit on your auto or renters or home policy, the umbrella picks up from there.

It is priced low because it almost never pays. $1m of umbrella coverage often lands somewhere in the $150 to $300 a year range, which is $12 to $25 a month, and the insurer will usually require you to carry certain minimum liability limits on the underlying policies first.

Here is the arithmetic that makes it obvious. Your auto policy carries $250,000 of bodily injury liability. You cause a wreck and the other driver's medical costs and lost wages come to $700,000. The auto policy pays $250,000 and the remaining $450,000 is a judgment against you personally, against your savings, your brokerage account and in many states a portion of your future wages.

The umbrella that would have absorbed that $450,000 costs less than a phone plan.

Who this is actually urgent for

Anyone with assets worth taking. Anyone who drives. Anyone with a teenage driver on their policy, which is the single biggest liability multiplier most families ever add. Anyone who owns a dog, a pool, a trampoline, or a rental property. Anyone whose job or public profile makes them worth suing.

And anyone renting, because a renters policy is the cheapest liability coverage available and the umbrella often requires an underlying policy before it will attach anyway.

One more thing that gets missed entirely. Most renters and home policies include loss of use coverage, which pays for somewhere to stay while your place is uninhabitable. After my ceiling came down I slept on a friend's sofa for nine days. Nine nights in a hotel in my neighbourhood would have run about $1,800, and the policy I did not have would have covered it without me asking.

Do this

Price a renters policy this week. It takes about ten minutes online, and you will need an estimate of what your contents are worth and the address.

While you are in there, ask the same insurer what an umbrella would cost on top of your auto and renters together. Bundling is usually where the pricing gets good, and they will tell you the minimum underlying limits you need to qualify.

Then look at the total. If two policies covering the events that could take everything come to less than $50 a month, the only real question left is why you waited, and I do not have a good answer for my own eleven years either.