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I carry the minimum amount ($10,000 coverage for possessions) of renter's insurance my landlord requires (due to the $100,000 of personal liability coverage that comes with it). Every expert resource I've come across recommends everyone not just carrying renter's insurance, but covering enough to cover all of one's possessions, and at replacement value at that. (And don't forget about riders, earthquake insurance, flood insurance…)

But the general concept of insurance is to cover major unexpected expenses you couldn't afford to relatively easily absorb. I have ~$130k in liquid investments—and ~$750k more in retirement accounts—and the contents of my apartment are only worth ~$30k. (I could afford to buy a house, but I choose to rent for personal reasons.)

Rationally speaking, should I increase my renter's insurance to cover the full value of all the possessions in my apartment? And at their replacement cost? If so, I should take the time to inventory my possessions to ensure that I'm neither over-insuring or under-insuring, even if that takes many, many hours of my time, right?

Or wouldn't it make more sense for me to just use the $130k in investments as self-insurance (and save my time for more valuable pursuits)? Obviously I'd hate to lose $30k, but I'm not that risk averse, and insurers obviously exist to make money. (This is why experts don't recommend extended warranties or insurance for small-ticket items.)

I'm trying to understand whether I'm missing something…or all the expert recommendations are based on an inflexible conventional wisdom that presumes that all renters are relatively resource-poor. My personal finance advisor just replies, "Renter's insurance isn't that expensive. It's worth covering all your stuff." Is it?

@TTT nailed it: Note that this question is distinct from the question, "Should I get renter's insurance (at all)?" I definitely want renter's insurance (which includes personal property coverage, liability coverage, and coverage for expenses incurred due to the apartment being uninhabitable). I'm inquiring specifically about how much personal property coverage I should maintain and whether it should be more than the minimum offering and/or as much as my possessions are actually worth.

  • Possible duplicate of Should I get renter's insurance? – D Stanley Jul 3 '17 at 18:42
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    @DStanley - the main difference in this question is that it's not asking if he should have renters insurance, but how much, and also adds the wrinkle that the amount of stuff to be insured is a small portion of his net worth. – TTT Jul 3 '17 at 20:24
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    See related question here: money.stackexchange.com/a/77570/44232. In short, only insure something that would cause you financial hardship if you were to lose it. Insuring small electronics totaling $10k would not add a lot of value if it was likely you'd only lose some of them in a disaster. If you had a single item worth $10k, then you might be approaching the level of getting insurance. Depends on your assets and risk tolerance. With the personal liability insurance already covered, then there are perhaps few 'big incidents' that might occur that you would want insurance against. – Grade 'Eh' Bacon Jul 4 '17 at 12:47
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I believe your statement is mostly correct:

...all the expert recommendations are based on an inflexible conventional wisdom that presumes that all renters are relatively resource-poor.

When you purchase a $50 electronic item at the store and are offered an extended warranty for $3, most people turn it down, not only because they don't think it's worth it, but also because in the event that the item fails between say years 1 and 3, they don't worry enough about that $50 to care if they have to buy a new one, or live without it.

The percentage of your net worth also matters. For example, if you had an entire loss tomorrow, you'd be out $20K if you needed to re-purchase your possessions. (30K minus 10K in current coverage.) $20K is approximately 1/44 or 2.3% of your net worth. If a catastrophe occurs and you only lose 2.3% of your net worth, some might consider that lucky, so from that point of view it isn't really a big deal.

But on the flip side, if the extra insurance only costs you $50 more per year, you may not even notice that dent in your net worth either. I think for most people, the value of items in their home may be their net worth, or at least a much larger percentage of it, in which case the insurance makes more sense. For someone in your position, it probably doesn't make much difference either way. If you had $300K in valuables in your house, perhaps your point of view would be different.

  • This is a good answer. The only thing I'd add is that whether you should have enough insurance for all your stuff and whether you should spend a lot of time getting the exact value of all your stuff are two different questions. If you're not sure if you have 25k or 35k worth of belongings, and it's $10 a year difference between the two, then just err on the side you're more comfortable with. It's obviously not worth spending even ten hours to potentially save ten dollars. – Kat Jul 7 '17 at 16:15
  • @Kat - right on. When the price difference is negligible, it's better to have too much than too little. When I was purchasing Liability Insurance for my small business, I was quoted $400 even. I asked if that was a coincidence or was $400 some sort of magic number. Turned out that was the minimum price a policy could be. I then asked how much more coverage would be and sure enough it was $400. They wouldn't tell me the cutoff point so I had to figure it out manually, so I kept asking for more until the price increased, backed it off a bit and maxed out the coverage at the same price of $400. – TTT Jul 7 '17 at 21:01

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