The Intermediate Guide to Renters Insurance.
What is Renters Insurance?
Renters insurance is the type of home insurance coverage that covers a person’s stuff when renting a home from someone else. In insurance, we call that ‘stuff’ personal property or contents. Renters’ insurance can also be referred to as tenant insurance.
Who Does a Renters Insurance Policy Cover?
In insurance, the person being covered is generally called the named insured or just the insured, and this is the policy owner. There can be multiple insureds on a policy, and usually, they would include whoever lives in the location that is being insured. There are some exceptions to this; for example, if you have roommates, each of you may need your own policy.
Insureds can also include the named insured’s spouse (common-law or legal) and any legal dependents living in the home. Depending on the situation, some policies will also cover dependents who live elsewhere.
What does Renters Insurance Cover?
Renters Insurance will cover the cost to repair or replace the items that the insured owns in the home. Most policies work on a replacement cost basis, which means the insurance company will pay to replace any old items with new ones in a claim.
Clients need to determine an exact amount for their personal property limit, which needs to be determined based on replacement cost, not the current value of the contents. For example, a 10-year-old couch could be valued at $200, but a new couch would need a replacement value of $2000. In this case, the sofa should be insured for $2000, not $200. This rule applies to almost all of the contents of a home.
Additional Living Expenses:
Tenant Insurance usually includes this coverage, covering the out-of-pocket costs resulting from a claim. This could include the price of a hotel or even the cost of eating out if there was a kitchen fire.
All home policies include this coverage. It is there to respond if the Insured is sued and they are found at fault in court. It isn’t limited to the location insured; Liability Insurance can react to an incident that happens anywhere in the world. On a renters policy, the liability is usually restricted to personal liability, so the coverage wouldn’t respond if someone were sued for something to do with a business.
Voluntary Medical Coverage:
This is a type of Liability coverage. It will respond to pay for medical bills if the Insured was at fault, but the person injured isn’t going to sue over it. This could be as simple as paying the ambulance costs for a friend who trips over the Insured’s coffee table.
Voluntary Property Damage:
This is also a type of Liability coverage. It will cover if the Insured damages someone’s property, but the person whose items are damaged isn’t going to sue. It could include replacing a friend’s laptop that the Insured dropped.
Identity Theft is often included in a home policy, and it is there to pay any out-of-pocket costs that the Insured would have if their identity were stolen. Those costs could consist of legal fees that are needed to be paid to clear the Insured’s name.
Endorsements to a Renters Insurance Policy
An endorsement is coverage that is not automatically included in a policy. Usually, endorsements have a cost associated with them.
This endorsement will cover replacing or repairing contents in the event of an earthquake. Keep in mind that the Additional Living Expenses on the policy will only respond to earthquake-related claims if the Earthquake Endorsement is also purchased.
Most markets now have different versions of water coverage, but the main coverage types are as follows:
- Sewer Backup: Response to cover if a sewer backup causes damage to the Insured’s contents.
- Basic Water Damage: Response to cover damage if a sudden and accidental water rupture starts inside the home. For example, if the taps are left running by accident.
- Flood Coverage: Flood coverage is there to cover sudden and accidental water rupture that comes from the outside of the home. This could include water from a creek or lake, and flood coverage almost always excludes salt water, so Tsunami damage is not covered.
Floaters or Schedules:
A Floater or Schedule is extra insurance purchased to cover a specific item. It could be that the policy has a limit on what it will pay to replace some type of item. For example, a policy may only pay $2000 per bike, but the Insured may have a $9000 bike. The bike could be insured using a floater on the Tenant Insurance policy. Sometimes, people choose to schedule an item to lower (or eliminate) a deductible. In these cases, the Insured pays a little more each year to specifically insure an item, but if there were a claim, there would be a smaller deductible.
What is a Deductible?
A deductible is the dollar amount of a claim for which the Insured is responsible. There are often a few different deductibles on a policy:
Standard Policy Deductible:
Generally, this is the lowest of all the deductibles. It would be the dollar amount that the Insured would pay if there were a fire or theft claim. Typically, the higher the deductible, the less the policy would cost. In some cases, an insurance company will require a specific deductible on a policy. This could be if there is a first-time Insured or someone has had multiple claims.
Earthquake deductibles are almost always a percentage amount. If the policy has a 10% earthquake deductible, the Insured would need to pay 10% of the Personal Property limit showing on the policy in a claim. Again, the higher the percentage chosen, the lower the policy would cost. Some insurance companies have minimum deductibles depending on the risk of earthquakes in your area.
As mentioned above, this is the amount that the Insured would pay if there were a water or sewer claim. For some policies, this will be the same as the standard policy deductible, but in some areas, there is a minimum water deductible that would be higher.
How is the cost of Renters Insurance determined?
The yearly cost of a Renters Insurance policy is based on the Content or Personal Property limit chosen. The higher the limit is, the more the insurance policy costs. Different postal codes can have different rates, as can different building types.
After that yearly ‘base’ amount is calculated, discounts are factored in. Then any added Endorsements are included in the final price, known as the insurance premium.
What Discounts apply?
Most discounts will depend on which company the insurance is with, and the discount percentage will also depend on the insurance company. However, there are some standard types of discounts across all markets:
- Claims-Free Discounts: This discount is added to a policy for an Insured who has been claims-free for several years. This discount can often increase as the years without a claim increases.
- Mature Discounts: Most markets offer some form of Mature Discount. This is why the insurance company asks for your date of birth.
- Higher Deductible Discounts: Generally, the higher the deductible, the cheaper the policy. However, there are some situations where this is not the case.
Different insurance policies will offer different types of coverage. It’s always important to read the specific wording for the policy you are looking at; that way, you’ll know exactly what is covered.
If you live in Alberta or British Columbia and are looking for Home Insurance, we are here to answer any questions you may have about our range of home insurance products and services. Contact us at 1.844.544.4663 and see for yourself what makes us Harbord – The Home Insurance People™!