Whether your lease requires it, or you’re looking at all your stuff and asking, “what happens if it’s damaged or stolen?” know that renters insurance buys you peace of mind at an affordable price.
Knowing how it works and what it covers will help you get the best price with the right level of protection. Let’s break it down.
What is renters insurance, anyway?
Renters insurance, also referred to as tenant insurance, protects your valuables, possessions, and contents – from your couch to your TV, your laptop, and clothing. The common misconception is that coverage stops there. But wait, there’s more.
Tenant insurance also provides protection for you. If a visitor injures themselves in your apartment and sues, the liability portion of your policy kicks in to cover the costs. Liability insurance also covers damage you cause to other people’s property.
The last piece of your policy is called additional living expenses. In other words, if your space becomes uninhabitable, this portion of your policy pays for you to live elsewhere. So, if you have to live in a hotel during renovations, your room and board are paid for by your insurer.
What factors affect your rate
Property type - A small basement apartment will be cheaper than a two-storey house because it has fewer risks and less space to store contents.
Credit score - Insurance companies insist there is a direct correlation between lower credit scores and a higher risk of claims, cancellations, and non-payments. When applying for tenants insurance you have the option of submitting a credit check. Know that a good credit score can save you money (more on that later).
Your stuff - Your stuff is protected by what’s called contents insurance. The more contents you own and want to insure, the higher the price for this portion of your policy.
Location - There’s a higher propensity for theft living in urban city centres, which means higher rates to offset the risk. If you live outside these densely populated zones, your monthly premiums will generally be cheaper.
Previous insurance history - If you’ve filed a number of claims, missed payments or had your insurance outright cancelled, insurers will view you as a higher risk, and therefore you’ll pay more.
What tenant insurance actually covers (and doesn't)
Generally speaking, most renters’ insurance policies cover most risks. Fire, theft, and vandalism, for example, are covered. Your liability insurance will even cover you if your dog bites someone - if you inform your insurer of your pet ownership prior to the incident.
So, if you’re covered by most perils (risks), where does your coverage lack? What about the loopholes? Here are some examples of the limitations of tenants insurances:
If a pipe bursts you’re covered by your tenant insurance unless you leave the heat off in winter and the pipes freeze. Your insurer views that as negligence. However, a basic policy won’t cover damages caused by a sewer back up or water seeping through the foundation of a house from rising lakes or quickly thawing snow. If your apartment is a basement or near water, consider adding flood insurance endorsements to your policy.
There are limits to reimbursement values. So, if you have a precious collection of jewellery, art, or even a fancy bike, you may only get back $2,500 to replace those items. So, speak with your insurance provider or broker about adding on additional coverage endorsements. For an added monthly fee, you can have your items appraised and insured.
Also, know the difference between actual cash value (ACV) vs. replacement cost. A standard policy will pay out claims based on ACV, which includes depreciation. So, the 5-year-old laptop you bought for $2,000, might only be worth an insurance payout of $1,000 now. You can switch to a replacement-cost policy to get the full value for your contents. It raises your monthly premium, but depending on the value of your contents, it may be a savvy financial decision.
How to get the best rate
We briefly touched on how your personal credit score can impact the price you receive from an insurer. A credit score is a number that reflects your creditworthiness and in the eyes of the insurer your risk level. A good credit score ranges between 690-719 and an excellent score is between 720-850. A great credit score can save you up to 25%, so putting in the work to improve your credit saves you money.
You can rebuild a bad credit score by always paying bills on time and only opening new credit accounts/cards as needed. Know if you opt-out of a credit check you’re usually shown a higher rate, as you won’t qualify for any credit-related discounts.
More ways to save
● Maintain a clean claims history - Before submitting a claim, always ask yourself if it’s worth it. The value of the claim should grossly outweigh your deductible - think at least 2 to 1. The deductible is the price you pay before your insurance company pays the rest. Therefore, a higher deductible will reduce your chances of submitting a claim, and they’ll reward you with a lower rate.
● If you can afford it, pay your premiums annually.
● If you’re already paying for car insurance, bundling with your same provider could save you 10-20%
● Don’t forget to ask about additional discounts - e.g. groups, employment, alarms, non-smoker, etc.
Most importantly, we always recommend shopping online and comparing quotes from other top providers. Add a reminder in your phone to compare rates every year before renewal. The market is constantly changing and so are the rates. Comparing the market annually can cut costs.
You can get renters insurance for about $20 per month, depending on the factors we listed above. Renters insurance is worth it, especially with the right level of protection for you and your stuff.
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The blog posts on this website are for the purpose of general introductory information. They can’t serve as an opinion or professional advice. Speak to a professional before making decisions related to your circumstances.