How Much Renters Coverage Needed and How to Home Inventory

• Do I list each piece of clothing I own separately on a home inventory?

• Is there an app that can help me do a home inventory?

• Do I include items I keep in storage on my home inventory?

You've decided to invest in renters insurance. Congratulations on making a smart money move. Next up for you is another important financial decision: how much coverage to buy.

Fortunately, there's a foolproof way to quantify the personal property coverage you need on a renters policy. It involves doing an inventory of your belongings. Read on to learn how -- and why this is a critical step for anyone who has renters insurance.

How much renters insurance do you need?

Most renters policies have three types of coverage: Personal property protection, additional living expenses (ALE), and personal liability. The carrier will usually suggest coverage levels for ALE and liability, but it should be your job to request a coverage limit on your personal property protection.

As a reminder, personal property coverage reimburses you for damage to your belongings -- that's your clothes, furniture, appliances, etc.

So, consider this question. If a fire burns down your home and everything in it, how much compensation would you expect from your renters policy? You could guess at a number. But the smarter route is to quantify the value of your things by doing a home inventory.

How to do a home inventory

A home inventory is a listing of everything you own, along with estimated values. Ideally, your home inventory file would include photos, receipts, and descriptions plus serial and model numbers for specialty items, jewelry, and electronics.¹

To inventory your belongings, walk through your home, room by room, and document the stuff you find. Take photos as you go. You can use a pad of paper, a spreadsheet, a document on your phone, or even an app to record the information.

Keep these tips in mind:

• Personal property is movable. If you can move it, include it in your inventory.

• You can group similar items together, such as clothes. For example, you can list "10 sweaters" vs. itemizing your blue sweater separately from your gray one.

• List expensive items separately and with more detail. Renters insurance often has lower sub-limits on expensive things like jewelry and collectibles. Plan on reviewing these items with your prospective providers to ensure you have sufficient coverage on them.

• Don't forget any items you have in storage. Your renters policy will also cover belongings you keep in storage, but with a lower coverage limit.

• Have a process for adding to your home inventory. You will buy new things over time. Make it a habit to keep your receipts and add new belongings to your inventory as appropriate.

• Know the difference between actual cash value and replacement value. Standard renters policies insure your belongings at actual cash value. This is what they're worth as used goods, which is less than what you'd spend replacing them with new items. You can estimate actual cash values or replacement values -- but be consistent. If you use replacement value across the board, plan on finding an insurer that offers replacement value coverage.²

How a home inventory helps you set coverage levels and deductibles

Once you have a full home inventory, you can add up your estimated values to determine how much coverage you need. Many renters policies provide $15,000 to $50,000 in personal property coverage -- though you can find more or less coverage if you need it.³

As you start gathering quotes, pay attention to any sub-limits on specific property types. Jewelry is an example. A $30,000 policy might cap jewelry claims at $2,000. Compare your home inventory to the sub-limits carefully.

If the standard policy limits are insufficient, ask the provider about scheduled or itemized coverage for your high-value things.

About those deductibles

Lower deductibles raise your premiums and higher deductibles lower your premiums. But there are other factors to think about when setting your deductible, such as:

Your emergency fund balance. If you live paycheck-to-paycheck with no emergency savings, you probably can't afford a big deductible. And if you can't afford the deductible, you can't file a personal property claim. Set the deductible at an affordable level so you can get value from your coverage if you need to.

The type of protection you want. It's possible that every item you own is individually worth less than $1,000. If you set your deductible at $1,000, your coverage is only useful when you experience damage or loss to multiple items. This is a cost-effective approach -- but only if that's the type of protection you want.

How a home inventory supports your claims

To file a personal property claim against your renters insurance, you must know what you lost and what it was worth. Having a list of your belongings before a loss happens greatly simplifies that process. Rather than trying to remember what you kept in the now-flooded basement, you can check your home inventory.

Because the home inventory includes estimated values, it helps you decide if a claim is worth it and streamlines any claims you do file.

When an incident happens

Sadly, there are some solid reasons why you would not file a claim against your renters insurance after a loss. A common one is that your damages are less than your deductible. Or, perhaps you had another claim recently and you don't want your premiums to spike.

Weighing these competing priorities can be almost as stressful as the loss itself. To keep you sane, here's a walk-through of what to do after a loss.

1. Take photos

Take photos of the damages immediately. If you do file a claim, you'll need documentation of the problem. Recording the damages sooner rather than later lends credibility to your claim.

2. File a police report for theft and vandalism losses

Call the police if there is evidence of a crime.

3. Check your policy

Next, review the perils your policy covers. Perils are different types of incidents that can cause damage or loss -- things like theft, vandalism, hailstorms, and fire. If the cause of your loss aligns with your coverage, then you have a viable claim. If it doesn't, then you will pay for the damages out of your pocket.

3. Do the math

If you've confirmed that your policy should cover the loss, it's time for some quick calculations. You'll need your policy and your home inventory handy.

First, note your deductible. Then, using your home inventory, estimate your total losses. Compare the deductible to your total loss estimate.

• If the deductible is more than your total loss estimate, don't file a claim.

• If the deductible is about the same as your total loss estimate, don't file a claim.

• If the deductible is far less than your total loss estimate, consider filing a claim.

There's also a gray area, where the deductible is less than your loss -- but not by a lot. An example would be a $1,000 deductible with a $1,300 loss. In this case, your previous claim history would be a factor. You may decide to pay for the damages out of pocket, rather than risking a premium increase.

4. File the claim (or not)

If you do file the claim, your carrier will want to see photos of the damage, plus a list of lost items and their estimated values. Because you have a home inventory and you took photos of the damage immediately, you will already have those items on hand.⁴

Know your stuff to manage your renters insurance

A thorough home inventory documents what you own and what it's worth. You need that information to purchase an appropriately sized renters policy, to make informed decisions about claims, and to document your losses when filing a claim.

Your decision to acquire renters insurance is a smart one. Follow it up with another smart money move, by pairing that coverage with a complete and updated home inventory.