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Why do renters need liability insurance, and how much coverage should we get?

There's no such thing as too much insurance, our experts say. 

Austin Havens-Bowen for Brick Underground/Flickr

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Question:

We were asked by the owners of our new rental to get $1 million in liability insurance coverage—which surprisingly only added $30 to our annual premium. What's the catch here? How are we (or the owners) protected by this? How does liability insurance for a rental work?

Answer:

Renters' insurance policies normally come with liability coverage, and renters should always buy insurance to protect themselves, our experts say. 

"When you buy a renters' policy, it typically already includes liability insurance," says Michael Blumenfeld, principal with the insurance company Mile Square. "The policy comes with three main parts: coverage for your property if it's damaged or lost, coverage in case you have to go live somewhere else if something happens to the apartment, and liability coverage if you are responsible for property damage or injury to others in your apartment." 

Liability insurance most often comes in handy in the event of water damage, like a leak originating in your unit that ends up causing costly damage to your own property or that of a neighbor. 

"It covers if someone falls in the apartment and sues you or, much more typically in New York City, if you are responsible for water damage to the apartment below—for example, if you let your sink or tub overflow, or leave a window open during a cold snap and a pipe ruptures,"  says Jeffrey Schneider, president of Gotham Brokerage (a Brick sponsor). "Your downstairs neighbor's apartment can suffer significant damage from water." 

The property owners should also have their own policy, but most landlords prefer tenants take out their own, so that any claims of negligence can be handled by the tenants' coverage. 

"Some landlords have riders in their leases stating that they're not responsible for the loss or damage of any personal items, and because of that, a tenant needs to buy renters insurance up to a specific dollar amount," says Adam Frisch, senior managing director of leasing at Lee & Associates.  

Fortunately, renters' insurance tends to be affordable and offers extensive protection. That your landlord is asking you to take out $1 million in liability coverage is a bit unusual, as most policies offer $500,000 in protection. But fortunately, it won't add much to your annual costs. 

"The fact that it doesn't cost much is a function of the fact that most of the time, claims are contained in $100,000," Blumenfeld says. "To go from a $100,000 base policy to $300,000 or $500,000 usually only costs $20 more, which means that the underwriters of the policy think the odds of a claim becoming more than $500,000 is unusual." 


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