Kennedy, who has El Paso, TX renters insurance, writes in with today’s question. She wants to know,
How much liability do I need on renters insurance? I don’t own much, but I also know that liability coverage is pretty inexpensive. Should I take the most available? Do I only need the $100,000 because my landlord requires liability insurance?
How Much Liability Do I Need On My Renters Insurance?
Very few people give much thought to how much liability coverage they have on their renters insurance. They should because it’s one of the most important coverage’s on your policy. It’s also easy to determine with a simple formula.
How Much Liability Do I Need On Renters Insurance?
Kennedy, that depends on what you have to protect. It’s not just a question of what you have now, but what you might have or might earn one day. There are several formulas to calculate it, but the simplest one we’ve seen goes like this:
- Figure out your net worth, your assets minus liabilities.
- Multiply your annual salary by 3.
- Add the two numbers together.
- Set your liability limit one level higher than that number.
Let’s say Kennedy has been working for only a few years. She has a small 401(k) with maybe $10,000 in it. She’s got a $10,000 car. She rents, so no home to worry about factoring in. Her emergency fund has $5,000 in it, and she keeps about $1,000 in checking most of the time. That gives us $26,000 in assets. She owes $6,000 on the car, and has no other significant secured debt. Her net worth is $20,000.
Now at work she’s on salary, making $40,000 a year. Multiplied by 3, that’s $120,000. Three years of salary plus her net worth is $140,000. As a result, Kennedy can count on needing more liability than that. Most carriers offer $100,000, $300,000, and $500,000 limits, so she needs to select one for at least $300,000.
On the other hand, the simple answer to how much liability do you need on renters insurance is “as much as your carrier will offer.” Why? Liability is cheap. The difference between $100,000 and $500,000 might be 20 dollars a year in many cases. That’s less than two bucks a month for significantly increased protection.
You might not ever need it, but remember that liability coverage on renters insurance isn’t just for if you accidentally start a fire and damage your apartment. Does renters insurance liability cover you outside the apartment? Absolutely. So if you’re carrying an umbrella and accidentally injure another person with it while walking down the street, your liability kicks in for the persons medical bills as a result of the incident, as well as other related expenses.
How much liability do you need on renters insurance? As much as you can get, because it only makes a negligible difference in the cost and protects you far better. Call Effective Coverage at (800)892-4308 to find out how much coverage you need and how little it can cost!