About 50% of renters in Canada don't have renter's insurance. And that's bad news if you're the victim of a theft or disaster.
As a renter who value's your property, you're looking into a renter's insurance policy. But there are certain questions you don't know how to answer, like, "What does renter's insurance cover?" and, "How much renters insurance do I need?"
We can help. Keep reading for everything you need to know to buy the right policy for you.
What Is Renter's Insurance?
Renter's insurance is a form of property insurance specifically designed for those who rent a property rather than purchasing it.
Much like regular homeowner's insurance, it provides coverage in case of a loss event, including coverage for your belongings, personal liability, and (in some cases) living expenses if a property is too damaged to be livable.
In the event of a serious incident, it can make all the difference between a salvageable situation and losing all your money. It can also be indirectly beneficial to landlords as well.
What Does Renter's Insurance Cover?
With that in mind, it's important to understand what renter's insurance covers.
At its most basic, renter's insurance covers the contents of your rented property.
Actual renter's insurance is a bit more complicated.
Most of the time, landlords are not liable for damage or theft of your personal property unless negligence can be proven. Renter's insurance is designed to protect you and your property in the event of unforeseeable accidents.
Let's say, for example, that someone broke into your apartment.
This is an event that isn't the result of the landlord's negligence, which means they're not liable for your lost property. But you still need to replace your stolen property--and that may be an expensive undertaking, depending on what the thieves took.
Renter's insurance typically covers you for the replacement of high-priced items, including:
Some items, like art, are only protected if they have a rider, so it's important to double-check your coverage for valuable art.
It's important to understand that your personal property isn't protected against any sort of damage or loss sustained in your rented home.
Renter's insurance generally covers disasters including:
- Smoke damage
- Volcanic eruptions
- Damage from water-heating appliances
- Roof collapse under the weight of snow, ice, or sleet
- Electrical damage
- Damage caused by an aircraft
- Damage caused by a vehicle (NOT your own)
You wouldn't be able to use renter's insurance to replace a work suit if, say, construction workers damaged it while working in your apartment. But you would be able to use renter's insurance if someone deliberately vandalized your personal property in the apartment.
Loss of Use
What happens if a disaster doesn't completely flatten your property?
Renter's insurance can cover that too.
Let's say that your apartment building had a major fire. You saved what you could, but there's no getting around it: you cannot live in the apartment between the smoke damage, water from the sprinklers, and structural damage to the property.
But you still need somewhere to live while the property is repaired.
If something like this happened, renter's insurance would foot the bill for you to stay in a hotel while your apartment was repaired.
This is a good thing for landlords, too--without renter's insurance, a tenant might not be able to afford to live in a hotel for an extended period. They might make other arrangements and not come back to resume tenancy at their old apartment.
However, landlords are most interested in the liability component of renter's insurance.
Let's say a tenant messes up--they leave the water running, or leave the stove on when they leave for work.
The security deposit on the apartment won't cover that sort of damage, which means the landlord would have to cover it. Since the damage is the tenant's fault, the landlord would have to sue the tenant in order to get money out of them.
But if the tenant has renter's insurance, their insurance company will step in and pay for the damages (as long as the damage is covered under the renter's insurance policy).
In addition, renter's insurance covers injuries sustained on the property that were the tenant's fault, such as their dog biting someone. It will cover liability and medical expenses associated with such an injury, which means the landlord doesn't need to worry about legal trouble.
What Is Actual Cash Value vs Replacement Cost?
When you select a renter's insurance policy, you choose whether the payout for your claims comes in the form of actual cash value or replacement cost.
Actual cash value is the value of your property minus depreciation over the time that you've owned it. This does not pay for you to replace what you've lost but rather pays compensates you for the value of the item you've lost.
Replacement cost, as the name implies, provides you a payment equal to what would be required to replace a lost item.
For many renters, replacement cost is superior to actual cash value.
Let's say you paid $1,200 for a laptop. The laptop was stolen two or three years into owning it. The depreciation over time means that the actual cash value of the laptop is only about $600 or so.
If your payout came in the form of actual cash value, you would only get $600, the value of the depreciated laptop. But it will still cost you $1,200 to get a laptop comparable to the one you had. Replacement value, on the other hand, will pay out $1,200, which is what you actually need to buy a new laptop.
What Does Renter's Insurance NOT Cover?
We've talked a lot about what renter's insurance does cover. But it's equally important to understand what renter's insurance doesn't cover.
You see, renter's insurance doesn't cover you for the cost of all perils you might sustain while living in a rented property.
Generally, renter's insurance policies do not cover "acts of God", such as floods or earthquakes. If you're familiar with homeowner's insurance, you know that homeowner's insurance doesn't cover such natural disasters either--you need a separate rider.
Water damage is tricky and mostly depends on the cause. If the damage was caused by a flood, you're out of luck. If, on the other hand, the damage was caused by a burst pipe, renter's insurance will cover it.
The good news about renter's insurance is that it will still cover you for property damage even if it's your fault. So if you fail to take necessary precautions to prevent a house fire and a fire breaks out, your policy will still cover you.
It will also cover more expensive items, but only within certain limits. So if you have more expensive property, like valuable art, you should check the coverage limit--even if the item is covered, it may not be covered for its whole value.
Do I Need Renter's Insurance?
Whether or not you need renter's insurance depends on one simple question: what does your property mean to you?
Chances are, there are certain items with major cash value, like your TV, laptop, phone, or tablet. Other items, like heirloom artwork, have sentimental value.
Your property has real value. And replacing that property is expensive. The average couch, for example, costs about $1,000.
If you're like nearly half of Canadians, you don't have the savings available to handle such a loss. Renter's insurance makes sure that you don't need to worry about it.
How Much Renter's Insurance Do I Need?
Like homeowner's insurance, renter's insurance can be expensive. It's important to get the insurance you need so that you don't wind up with a bigger policy than you can afford.
Fortunately, it's easy enough to figure out how much you need.
Inventory Your Possessions
First, you need to inventory your possessions.
Most people purchase renter's insurance to protect their personal property. But the policy won't protect you for an imaginary value--you want to make sure that you get the total amount right.
The best place to start is to locate receipts for your possessions. Big-ticket items like furniture and electronics should be your primary focus, as well as appliances and any expensive jewelry or art.
Use these receipts in your inventory. Include the exact details of the item, including make, model, age, purchase price, and any other identifying information.
Choose Your Deductible and Assess Your Liability
From there, you need to choose your deductible.
The best way to go about this is to determine the level of liability coverage you want and need.
For example, the typical renter's insurance policy offers around $100,000 in liability costs, which is usually sufficient for most renters. You should also check any extra coverage offered under the plan, such as medical expenses, court costs, and damages.
If you entertain guests frequently, you may benefit from a policy with more damage coverage. If you own expensive art, you may want higher liability coverage.
Finding the Right Renter's Insurance for You
Once you know answers to important questions like, "How much renters insurance do I need?" the real question is, "Why don't you have renters insurance yet?"
If you're looking for a policy, we can help. Click here to look for an insurance agent near you.