They worry about whether or not they have enough coverage and what it means if they don’t. What happens if a renters insurance claim exceeds policy limits? That depends on the type of claim and the situation. The answer, of course, is never good, but the type of claim impacts who ends up holding the short end of the proverbial stick.
What Happens If A Personal Property Claim Exceeds My Renters Insurance Policy Limits?
If you have renters insurance in Colorado, you have personal property coverage on that policy. That’s just part of the package. But how much coverage do you have? Some companies will sell as little as $5,000 of personal property coverage, designed to be as close to a liability only renters policy as possible while still technically being renters insurance. That’s not enough coverage for anyone.
Some people just don’t add up their things when they buy renters insurance, and they end up underinsured because they’re not sure how much coverage they actually need. Some people add up actual cash value instead of replacement cost. Some people just don’t care how much coverage they have until there’s a loss.
There are a wide variety of reasons for people to have insufficient coverage for their personal property, but most of them boil down to a perception that a small increase in coverage would be expensive. Renters insurance is one of those things that costs a few dollars to get started, but once you have a policy at all it’s generally very affordable to increase the coverage. Pennies a day affordable, in most cases.
So what happens when your personal property claim exceeds the limits on your renters insurance policy?
At most, you would receive the policy limits as settlement of your claim. If you have $5,000 of personal property coverage, is that going to be enough to replace everything you own if it were all to be lost in a fire? Absolutely not. But you’d get no more than the policy limits, because that’s the coverage that you bought.
If there are multiple named insureds on the policy, you have a bigger problem, and this is one of the reasons that each roommate should have their own policy. If you and your roommate are both named insured on the policy, and you have $10,000 of personal property coverage, you’ll have to figure out what belonged to whom and you’ll each get a prorated portion of the policy limit based on that. It will be less than what you need to replace everything.
In that situation, both roommates would have to sign both checks, as well, leading to even more difficulty in getting back to where you were. The idea of insurance is to make sure you’re in the same place you were before the loss. That’s why it’s important to make sure your policy limit is adequate coverage for the things you have.
What Happens If A Liability Claim Exceeds My Renters Insurance Policy Limits?
If you have a liability claim that exceeds your policy limits, there are a few scenarios. None of them are good ones. When the other people who were harmed by the fire come looking for money, there won’t be any. Each of them will get a pro-rated share of the policy limit, based on their share of the total loss.
But that pro-rated amount isn’t enough to make them go away. Not by a long shot. Those people, and their insurance companies, and the landlord, and their insurance company, will sue you for the difference between what was paid and the actual loss in question. That has long-term implications, and your insurance company only has a duty to defend you until the policy limits have been paid in a settlement of some sort. That leaves you without representation for the rest of it.
Don’t forget that if someone goes to the hospital with smoke inhalation as a result of a fire you started, their health insurance company will come after you to recoup what they paid on that claim, as well. Health insurance companies are notorious for working hard to find someone else who should pay for that loss, and subrogating accordingly to get the money back. Don’t assume your neighbor’s company will be any different!
When your policy limits are exceeded, you’re left with nothing and with people still coming after you for money. Did your parents co-sign that apartment? They might well be on the hook for that money, as well, since they’re jointly and severally liable for the lease. You have a very big problem that could have been prevented.
How Can I Prevent Exceeding Policy Limits?
Get higher limits.
No, really, that’s the answer. The good news is that it doesn’t cost nearly as much as you think it does. If you increase your personal property coverage to a reasonable amount for your lifestyle, and max out your liability coverage to $500,000, you might find you’re spending an extra four or five dollars a month. Getting the correct coverage on your renters insurance so you never have to worry about this problem costs literally pocket change.
When you call Effective Coverage for a policy, we’ll always ask you if the coverage we start with is sufficient for you. If you don’t think it is, we’re happy to quote other options that will meet your needs, and it’s just about always worth the couple of dollars to go ahead and bump it up to the next level.
This isn’t just your renters insurance and your current lifestyle we’re talking about here, this is your future. If there’s not enough coverage and someone sues you as a result, that could impact your future for decades to come. Make sure that you have the coverage you need. If you’re not sure, just give Effective Coverage a call and we’ll be happy to do a free review of your policy for you.
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Photo Credit: Kendyl Young master bed full CC BY 2.0