Factors that affect tenant insurance

By: Arshi Hossain on October 19, 2023
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In the world of insurance, while home insurance is high on the list of priorities for homeowners, tenant insurance is often an afterthought for renters. Yet, it serves as vital of a financial safeguard for people renting apartments and houses in Canada.  

In this comprehensive guide, we’ll shine a spotlight on the significance of tenant insurance, offering valuable insights customized for the specific needs of Canadian renters. 

What is tenant insurance? 

Tenant insurance, also known as renters' insurance, is a type of insurance policy that provides coverage and protection for individuals who are renting or leasing an apartment, house, or condominium. Tenant insurance provides liability coverage, and offers financial protection for the tenant’s personal belongings and temporary shelter in case of unforeseen events or accidents. For the security that you receive, tenant insurance is relatively affordable, generally starting at $15 per month for a basic policy. 

Related: Short-term rental insurance: how it works, and which insurance companies offer it 

Is tenant insurance legally required in Canada? 

Tenant insurance is not a legal requirement anywhere in the country. It is not federally mandated, and no province or territory legally obligates renters to purchase tenant insurance. 

However, some landlords, particularly in multi-unit buildings, may include a clause in their lease agreements that requires tenants to obtain tenant insurance. While this is not a legal requirement, these clauses are legally enforceable, which is why it's important to read your lease carefully to understand your responsibilities. 

Types of coverage 

Just like most other forms of insurance, there’s no one-size-fits-all policy for tenant insurance. It helps to understand the various coverage options included in a policy. Here are the primary types of coverage you should consider: 

Contents: In the case of a fire or a robbery, tenant insurance will compensate you for damage to your personal belongings, including furniture, clothes, and any items of value. You will be responsible for tallying up the full cost of your contents to decide how much coverage you need. If you have items of outsized value, like a fine jewelry or artwork collection, you may need to take out additional insurance to cover those items. Be sure to discuss this with your insurance company. 

Liability coverage: Liability coverage protects you from financial responsibility in case someone is injured in your rental. It is also one of the most important coverages that landlords ask for – if a guest or the tenant is injured in the unit through no fault of the landlord, it absolves them of the responsibility of having to pay for any legal fees.  

Loss of use: If your house or unit is rendered uninhabitable – say your roof collapses, or a fire tears through your unit — your insurance company can pay for you to stay at a hotel until you’re able to safely return home. This coverage can be a lifesaver, particularly for renters who haven’t built up an emergency fund.   

Additional coverages: Beyond the basics, you can add optional coverages like water damage, sewer backup, and earthquake coverage to make sure you’re fully protected. While these may not be standard in most policies, they may be useful, depending on your location and home type. Discussing them with your insurer can lead to added peace of mind.  

How your insurance premiums are calculated 

Premiums can fluctuate from one renter to another based on multiple factors, including: 

Location: High-risk postal codes, in areas prone to natural disasters or high crime rates, often result in higher premiums.   

Coverage limits: The general rule of thumb is to select coverage limits that adequately protect your personal belongings. However, it's important to note that overestimating these limits can lead to higher premiums, while underestimating can result in insufficient coverage. Take inventory of your possessions and consult your insurer to make an informed decision. 

Deductibles: Your deductible, which is the amount you agree to pay out of pocket in the event of a claim, can have a substantial impact on your insurance premiums. Higher deductibles generally result in lower premiums.  

Number of occupants: The number of people living in your rental place can affect your tenant insurance, as having more occupants may lead to higher risks. Insurers might consider the number of residents when calculating your premium. Be truthful to your insurance company when it comes to the number of people living in the rented place to ensure you have the appropriate coverage, as an inconsistency could void any claim later on. 

Related: Can you share renters' insurance with a roommate? 

Personal factors 

Credit score: A higher credit score may lead to lower premiums. To improve your credit score, you can take steps such as paying bills on time and reducing outstanding debts, which will translate to cost savings on your insurance. 

Whether you bundle: If you own a car, it makes financial sense to take out both tenant insurance and car insurance policies with the same provider, as insurance companies often offer discounts for bundling.  

Previous claims history: Some insurers often reward policyholders who maintain a claims-free record with lower rates. 

Security measures: Installing safety features like smoke detectors, alarm systems, or enhanced locks can make you eligible for discounts on your tenant insurance. Not only does this increase your personal safety, but it can also lower your financial risk. 

Related: Factor in the cost of tenant insurance on your apartment hunt 

What tenant insurance covers 

When it comes to tenant insurance, understanding the difference between actual cash value and replacement costs is crucial. These terms can significantly impact the coverage and financial outcomes in the event of a claim. 

Actual cash value (ACV) 

Actual cash value is a method of determining the value of your personal belongings in tenant insurance. It takes into account the current market value of your possessions, factoring in depreciation. In other words, the payout you receive in the event of a claim is based on what your items are worth at the time of the loss. 

While ACV coverage tends to result in lower premiums, it may not fully cover the cost of replacing your belongings. You may, for example, receive a reduced amount compared to the original purchase price of an item. This can be a significant consideration if you have valuable or high-end possessions. 

Replacement costs 

On the other hand, replacement costs coverage is designed to reimburse you for the actual cost of replacing your lost or damaged items at the current market price. This type of coverage ensures that you can replace your possessions without a significant financial burden. 

For example, if your television was stolen, replacement cost coverage would provide the funds necessary to purchase the same, or a similar TV at retail price. 

Choosing the right coverage 

The choice between actual cash value and replacement costs coverage depends on your individual circumstances, the value of your belongings, and your willingness to pay higher premiums for more comprehensive coverage. ACV coverage is more budget-friendly, but replacement costs coverage allows you to fully replace your possessions without compromising on price and quality. 

When selecting your coverage, carefully evaluate the value of your belongings, your budget, and your overall financial risk tolerance. Making an informed decision ensures that you have the right type of coverage that best suits your needs. 

What tenant insurance doesn’t cover 

While tenant insurance is a valuable safeguard, it has its limitations. Tenant insurance typically doesn't cover certain situations and items, including: 

Damage to the building: Damage to the building, such as from a fire or floods, is typically the landlord's responsibility and may be covered under their insurance. 

Specific high-value items: Certain high-value items, like fine jewelry, rare collectibles, and expensive art, may not be fully covered by a standard tenant insurance policy. You may need to purchase additional coverage, known as a rider or endorsement, to protect these valuable possessions. 

Subletting: Subletting can introduce complexities, as your policy may not extend to cover the subletter's personal belongings. It may also introduce more risk into your home. In such cases, the subletter should consider obtaining their own tenant insurance to ensure they are adequately protected. 

Pet liability: While tenant insurance includes personal liability coverage, it might exclude specific liabilities related to pets. If you have a pet, especially one considered high-risk, you should inquire about coverage options to ensure you are adequately protected. 

Read next: Are you being asked to pay for tenant insurance? Here’s what to do