Renters Insurance Costs: Premiums and Deductibles
Since premiums and deductibles both mean money leaving your bank account, it’s important to understand how each one works.
Premium is just a fancy way of saying “cost” or “payment amount” in the insurance industry. It’s the amount you must pay for the coverage you’re purchasing. Premiums are often quoted and collected monthly, but some companies and products allow for annual or biannual premium payments as well.
The basic arrangement works like this:
You request a renters insurance quote from an insurance company for certain levels of coverage.
The insurance company provides a quote that includes details of the proposed policy, how much it will cost, and any other requirements to issue the policy.
You accept the policy and begin making premium payments.
If you experience a covered event, you submit a claim under your policy to the insurance company.
The insurance company pays you the appropriate amounts for valid claims under the policy, minus any applicable deductible.
Premiums typically depend on the level of coverage you purchase (higher coverage amounts = higher cost) and the deductible you’ll be required to pay. We’ll discuss deductibles in more depth below, but generally, choosing a higher deductible decreases your premium and choosing a lower deductible increases it. Fortunately, renters insurance typically costs less per month than a couple of pizzas even if you do choose a lower deductible.
A deductible is the amount you’re required to pay as part of a claim. For example, if a lightning strike ruins $4,000 worth of your property and your deductible is $500, you’ll have to pay $500 toward replacing the property and your insurance will pay $3,500.
Again, higher deductibles tend to mean lower premiums and lower deductibles tend to mean higher premiums. Just be sure you have the money available to pay the deductible, especially if you go with a higher one.