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Renters, by reading on, you will learn how to determine if Renters Insurance is right for you, calculate the amount of liability coverage required, assess the likelihood of property loss (while valuing your possessions), estimate a deductible, and put it all together to determine exactly what you should look for when purchasing renters insurance.

This reading complements other calculation methods by focusing on deductible pricing and a thorough liability assessment. Let’s get this party started.

How Much Should I Pay: Here’s a systematic approach to determining how much an insurance policy is worth to you; from there, you can compare your calculations to the quotes you receive to evaluate the quality of insurance offers.

## Step 1.) Determine your liability risk.

Consider the variables. Tenants who live with family members (especially children), dogs or other animals on the property, close neighbors, frequent visitors (even uninvited visitors), or dangerous property characteristics face higher liability risks (such as pools or heavy equipment on the property).

If you consider your home high-risk, it is an automatic trigger to begin looking for insurance. If not, investigate further and let us assess the value of your property and potential loss.

## Step 2.) Determine the worth of your total possessions and separate the “stealable,” high-value possessions.

“Steal-able,” high-value possessions are items that are likely and available to be stolen in the event of a burglary, such as televisions, DVD players, computers, jewelry, or even cash that is typically kept on hand. This is to assess the potential damage in a quick, hit-and-run burglary. Thieves only steal the “big” or valuable items.
Total possessions include everything in this room, from shoes to hair dryers. Estimates are just that: estimates (correct!). Consider losing everything and the costs of regaining it all. Calculating your loss in a disaster such as a fire is required.
Examine the ratio of “stealable” to total possessions. High ratios indicate a high likelihood of suffering a few thousand dollars in economic loss, as robbery is the most likely risk factor.

## Step 3.) Calculate your loss probability.

Home fires have a nearly.3% chance of being catastrophic across the country – some areas are more suspect than others, arid regions. Fires do not permanently destroy everything, but the risk of total loss in the United States is.3%.
Consider burglary next. Several websites, including NeighborhoodScout, provide accurate information about the possibility of burglary in your area. Georgia, for example, reports 46 burglaries per 1000 people per year (4.6%).
Please keep in mind that probability and risk are not the same things! Risk measurements consider the likelihood of a loss and its estimated value if it occurs. Use the following measurement tool: Risk Factor = Probability x Loss Value.

## Step 4.) Put everything together.

Using Georgia as an example, we now know that the probability of total loss is around.3%, and the probability of burglary is 4.6%. If total possessions are valued at \$15,000, and “stealable” items are valued at \$5,000, calculate the risk of loss (on an annual basis) as follows:

(.003 * \$15,000) + (.046 + \$5,000) = \$275

Essentially, we take 3% of the total \$15,000 in items and multiply it by 4.6% of the \$5,000 “stealable” items… add them together, and we have the financial calculation of the risk of property loss. Also, if your home is considered “risky” in terms of liability, a \$275 annual quote from an insurance company isn’t half bad. We can now determine the amount of liability insurance required and the most appropriate deductible.

SELECTING AN APPROPRIATE DEDUCTIBLE – STEP 5 – includes determining your liability coverage amount and comparing it to the likelihood and cost of potential property loss.

Step 5.) What is the most appropriate deductible for me? Deductibles are available in denominations of \$100, \$250, \$500, and \$1000 (as well as \$2,000, 2,500, and \$5,000).

-You must determine your most significant risk: property loss or liability damages. Liability damages are much more expensive – liability coverage amounts range from \$100,000 to \$300,000 to \$500,000 – Determine how much liability coverage you require, then compare it to the value of your belongings. Here’s how it’s done:

## Step 5A: Determine how much liability coverage you require.

Option A: \$100,000 (low legal liability): few visitors, no family living with you, few hazards on your property, no dog (or other potentially dangerous animals)
Option B: \$300,000 (medium legal liability): small family, regular visitors, some potential hazards on the property, dog in the home
Choice C: \$500,000 (high legal liability) for a more prominent family, frequent visitors, potential hazards on the property, and an aggressive dog (or another aggressive animal). Consider increasing your liability coverage if you have most or all of these factors with higher associated degrees of potential damage.
Liability coverage can also be increased to \$500,000 and \$1,000,000+. If you fall into one of these categories, you should consider higher deductibles ranging from \$2,000 to \$5,000.

Choose one of the three options above that best describes you.

Assess your risk of loss based on the value and quantity of your belongings.

### This is Step 5-b: Determine the worth and likelihood of loss of your “stuff.” Consider the following and select an option:

Choice 1: Possessions with a medium to high value spread across a large number of possessions
Choice 2: Possessions with a medium to high value spread across several valuable possessions. (This means you have a few items that account for much of your total possession value.)
Choice 3: Low Possession Value
—-Select one of the three options above—-

### Now, combine your options from A-C and 1-3 above and analyze the result to calculate your deductible:

A-1: \$100 suggested deductible A-2: \$250-\$500 suggested deductible
A-3: You probably don’t need renters insurance; if you do, choose the lowest deductible available.
B-1: \$500-750 suggested deductible
B-2: \$500 suggested deductible B-3: \$1000 suggested deductible C-1: \$1000 suggested deductible C-2: \$750-\$1,000 suggested deductible C-3: \$1,000-\$2,000 suggested deductible
Explanation of why we recommend a deductible

### A-1: Low liability risk factors combined with medium to high possession value distributed evenly across many possessions.

-If you fall into this category, you are most likely purchasing the insurance to protect against the loss of your property; if you have few possessions you are concerned about losing, renters insurance is not for you. On the other hand, those with valuable possessions must consider not only the total value of possessions but also the value of individual controls. Those with a high dollar value of total possessions who do not have many personal possessions that are very valuable on their own are not at risk of a significant dollar-value loss due to the loss of just one control. To put it another way, robbers are unlikely to cause substantial economic harm to you with a quick raid (they would have to steal a lot). Furthermore, fires must be highly destructive to cause significant economic damage. If this describes you, you should pay a low deductible because your losses may be limited to a few hundred dollars (for example, if a robbery results in losses of \$700, renters insurance provides little value if the deductible you must pay is \$500).

## A-2: Low and medium liability risk factors

### -High possession value distributed among a few valuable items

-Those in this category are not at risk of significant economic loss due to liability damages but are concerned about losing a few valuable items. The loss of just one of these items could cost thousands of dollars. Because of the low liability, insurance buyers can choose a higher deductible. Still, you probably fear losing a valuable possession due to a simple robbery – the odds of incurring costs from theft are higher than those of incurring liability costs, so this factor puts downward pressure on the deductible you should choose. The two elements should balance out to form a suggested deductible of \$250-\$500. (For example, your primary concern is losing one or more of your five \$3,000 gold bracelets, and you are unconcerned about your potential liability to others. If only one bracelet is stolen, a \$500 deductible is reasonable, reducing your losses by \$2500).

If you fall into this category, your primary concern is a liability to others. However, you still want to protect yourself from losing all your possessions in a disaster. Both factors have a low probability of occurring, resulting in a high-value loss. Insurance Buyers in this category can choose a higher deductible to offset the monthly premium costs. However, don’t go too far in raising your deductible. If you still have some individually valuable possessions you want to protect against, choose the lower deductible option to ensure your coverage will cover you in case of a loss on that property.

B-2: There is a medium risk of liability loss and the risk of losing valuable items. Remember that those valuable items are the most likely to cause economic harm, so the higher probability lowers your estimated deductible, while concern for liability loss raises it. It is up to you to determine what is most important to you. Still, the risk of lost items puts a comparable downward pressure on the deductible than the provisions for liability damages do upward.

B-3: Your only concern in this category is the possibility of liability loss from your “Medium” liability risk factors. Because there is a low probability of a significant dollar loss, a high deductible is insignificant for damages up to \$300,000 – a loss unlikely to occur. In addition, a lower deductible will help to lower your monthly payments.

C-1: The risk of significant liability damages should necessitate the purchase of renters insurance, but buyers should be willing to offset the higher associated insurance costs with a high deductible. Furthermore, your primary property loss concern is limited to the risk of catastrophic property loss (like from a fire or hurricane). Because both risk factors are unlikely to occur, buyers should offset monthly costs with a high deductible.

C-2: The risk of property loss from a single item is high, lowering the deductible you should be willing to pay. However, this will be costly because you also risk a significant monetary loss due to your liability risks. Buyers in this area are torn between lowering the additional costs of higher liability coverage with a high deductible and protecting those valuable items in the home (that insurance buyers are more likely to see loss from). A reasonable balance would suggest a \$750 deductible, which could be increased to \$1,000 if the individual possessions of concern are worth significantly more than \$1,000.

C-3:Buyers in this case, are only concerned with a high-cost, low-probability risk of loss. Certain factors, such as having multiple children or owning various dogs, increase the likelihood of experiencing some loss, but this is still unlikely. If you fall into this category, you must purchase insurance, but the high level of protection will be expensive every month. You are free to reduce this cost by selecting a high deductible. Those who may opt for the most increased deductible are concerned about a danger to their property that will be costly if it causes damage. Buyers should choose the lower deductible option if they purchase more liability coverage simply because there are several potential liabilities, none of which have a significant associated loss. (For example, if you need more coverage because you have 15 dogs on your property, you should choose the lower deductible because an average dog bite costs about \$24,000, and the number of dogs increases the likelihood that you will be aware of the risk of a dog bite. In contrast, if you buy a higher deductible because you have one dangerous piece of equipment that, if misused, could cause significant bodily injury to a human, you can feel free to do so because the probability of realizing the risk is low. Still, if the risk is discovered, the costs will undoubtedly be high (up to \$500,000).

Calculate your risk of property loss, including the likelihood of losing those items and the value of your “stuff” at risk. Next, decide how much liability insurance you need. Then, compare the two to determine your deductible. Finally, add up all of the factors to determine how much renters insurance is worth to you. Depending on your insurance company and state regulations, you may not be able to find the exact plan that fits you, but this model should help you get as close as possible if you decide to purchase renters insurance.

Tony is the Director of Business Development at RentPost, an online property management software company that uses its software to help with the issues Tony discusses. To see how Tony and RentPost make the world a better place,