When people buy a home, they normally know that they need to get home insurance to protect their largest life investment. The situation, is however, different for those who rent a dwelling. There is some surprising data from British Columbia collected by SquareOne Insurance – almost 60% of those who rent a home don’t have a tenant insurance policy (also called renters’ insurance).
The reasons for not having this type of insurance are quite varied:
- “My landlord already has an insurance policy.” Yes, he or she might already have it, but it doesn’t cover any of your items (contents) nor your liability. Think about flooding your neighbour’s unit, or causing a fire that leads to damages in other units.
- “It’s too expensive.” This is a misinformed excuse for those who have never compared prices for tenant insurance. This type of insurance policy starts at $10 per month, meaning that you can often have a comprehensive protection policy for the price of two Starbucks Frappuccinos.
- “I have nothing to protect.” Well, there’s your clothes, your laptop, TV, personal items and many other items that you need to buy if everything you have gets damaged. Maybe it’s not much, but you definitely have to cover some costs in the case of an accident.
How much does it cost?
The costs of tenant insurance are not high and it’s easy to get cheap online condo insurance quotes – in fact, it is one of the cheapest insurance types out there. On average, Canadians pay $23 per month in tenant insurance, with British Columbia on the higher end ($26 per month) and Ontario on the lower end ($21 per month).
In general, tenant insurance costs are quite manageable, but can go up if you have additional protection needs, such as insurance riders (i.e. additional coverage) for precious items (jewelry, art, wine collection).
What does tenant insurance cover?
Unlike homeowners’ insurance that covers numerous items, protection offered by tenant insurance is very clear – it basically consists of three main elements:
- Contents: Any of the items that might be damaged through a disaster or stolen from the unit or apartment you rent. If you do not have this coverage, you need to pay out of pocket for the items you own if they get damaged or if you become a theft victim. On the low-end you might consider at least $20,000 coverage, but if you have numerous expensive items you need to cover, $50,000 would be a better choice (or, in some cases, even $100,000).
- Third-party liability: Liability covers you in case you are sued for damage to other parties, such as flooding other units or causing a fire that spreads to other apartments. There are many scenarios on how you can hurt others or damage their property. The minimal coverage you should consider is $500,000, but we suggest you get at least $1M (or better, $2M)
- Additional living expenses: Getting a comparable room in a hotel or a similar rental place while your current one is being fixed after a disaster can be costly if you do not have this coverage. Make sure, though, that you understand what costs your insurance will cover. If, for example, your living expenses are capped at $24,000, you would be able to get a condo or a rental apartment for $2,000/month for 12 months.
Pitfalls of tenant insurance
Despite being a relatively simple insurance product, tenant insurance has a few pitfalls that you should know about.
Subletting your place: Short and simple – most policies will not cover you if you sublet your rented unit to somebody else. If that person does not get his/her own tenant insurance, you are carrying the risk since you won’t be covered. This is especially important when it comes to a third-party liability claim.
Actual cash value vs. replacement costs: There two insurance approaches used to calculate the value of your items:
- Replacement costs approach (typically, more favourable) means that an insurer will pay you enough to substitute your damaged item with a similar one in today’s costs.
- Actual value approach (typically, less favourable) would consider what you would pay for that item today, but subtract any depreciation since things lose their value over time. In other words, actual cash value = replacement value – depreciation.
Dealing with valuables: If you have any expensive items such as pieces of art, expensive jewelry, a wine collection, expensive music instruments, etc., you need to let your insurer know about that. Otherwise these items might not be fully covered. It is likely that you will need to demonstrate the value of these items via an appraisal.
We hope that these tenant insurance insights will make you a more responsible renter and will help you avoid any unpleasant surprises with your rented unit.
These insights are offered by InsurEye, a Canadian company that provides independent, innovative online services, such as consumer insurance reviews, and helps Canadians to get better home insurance, cheap automobile insurance quotes, and affordable motorcycle insurance quotes.
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Flickr: Park Van Ness