(Guest post by Ratehub.ca)
What if I told you that for about the same price as your Netflix subscription, you could protect your stuff, yourself from liability, and, if something were to happen to your home, it would pay for you to live somewhere else. It’s called renters insurance, also known as tenant’s insurance, and it buys you peace of mind. Here’s how it works.
How renters insurance works
The first thing to know is that your landlord’s insurance won’t protect you or your stuff. You need to have your own renter’s insurance policy in order to be protected. There are three types of coverage that come with a standard renter’s policy:
- Contents insurance protects your belongings. Everything from your laptop to your couch is covered if it’s stolen or damaged. You tell the insurance company how much coverage you need from $5,000 to $50,000 (or more).
- Liability insurance covers you if you’re named in a lawsuit or are deemed responsible for bodily injury to someone visiting your place. It can also provide financial protection if you’re sued for damaging someone else’s property. The standard for liability coverage is $1 million, but you can increase it.
- Additional living expenses pay for you to live elsewhere if your home becomes unlivable following a loss for which you have protection. So, if a fire breaks out, renters insurance will cover any necessary and reasonable living expenses until it’s safe to re-enter your home.
What’s covered and what isn’t
To ensure that you have the coverage you need, take an inventory of your possessions, ideally with photos and receipts of their value. You can even take a video inventory to make it easier. Remember, when selecting your contents insurance amount, you’ll want it to be enough to cover all the possessions you value and would want to replace.
Your insurer will replace your contents with proper evidence up to the specified amount of contents insurance you have on your policy. Understanding how replacement actually happens is really important.
First, you’ll want to understand the difference between actual cash value vs. replacement cost. Actual cash value (ACV) will replace items by accounting for depreciation. So, if you bought a $2,000 laptop, it may only be worth $1,000 five years later and that’s what your insurer would pay – the current actual cash value. To get the full value you need to have a replacement cost policy. It’ll cost you more per month but helps you get back to normalcy faster. The standard for a tenant’s policy is ACV but consider your budget.
Also, know what you’re insured for and not insured for. For example, theft is what’s known as an insured peril. If something is stolen, the insurance company will pay to have it replaced (ACV vs. replacement).
However, not everything is a peril, so read your policy carefully. A burst pipe is another peril, but a sewer backing up into your apartment is not part of the standard coverage. You can get insurance for the different forms of water damage, but they’ll be in addition to your standard policy. If you live near water or in a basement, additional flood insurance is always recommended.
Other additional coverages you might explore include earthquake, identity theft, and extra contents insurance. Contents insurance also has limits on specific items, so if, for example, you have more than $2,500 in jewelry, consider taking out additional coverage. Your content limits are always stated in your policy and can be referenced at any point.
What impacts your rate
As you now know, getting a replacement cost policy or upping your coverage levels will cost more. Here are five other factors that affect your rate:
- Type of property – If you’re renting a whole house, it’ll cost more to insure than a basement apartment because there’s more risk.
- Location – If you’re renting in BC near the water, there’s a higher chance of earthquakes and flood damage than a condo in downtown Toronto, so you’ll have to pay more to offset the increased risk.
- Contents – The more stuff you have, the more it’ll cost. Remember, it’s up to you to select how much content coverage you want.
- Credit score – By law, you don’t have to submit yourself to a credit check, but if you have a good credit score, it can help reduce your premium by as much as 25%. Insurance companies swear by the statistical correlation between lower credit scores and higher risks.
- Claims history – If you have a history of claims, you may be seen as someone who will continue to submit claims, and therefore, you’ll have to pay a higher premium.
If you’re worried all these factors are going to send your rate skyward, here’s how to save money on your next renter’s insurance policy.
How to get cheap renters insurance
If you want cheap tenant insurance, here are eight tips for finding affordable rates.
- Shop and compare – You don’t have to call around to insurance companies anymore to ask for their rates. You can compare insurance quotes online to discover which provider will give you the lowest cost for the best coverage.
- Bundle policies – You can also compare car insurance online too. Bundling your auto insurance with your home insurance can lead to significant savings.
- Increase your deductible – Before your insurance company gives you any money, you have to pay the deductible first. A standard deductible is $500, but increasing it to $1,000 can reduce your premiums.
- Pay annually – Paying once a year reduces administrative costs, and your insurance provider will thank you with cheaper rates.
- Check credit – If you have good credit, suggest to your insurer to check your credit score, if they haven’t already. An excellent score can reduce the cost of insurance.
- Review your policy – It’s important to review your policy annually to ensure you’re not over or under-insured.
- Claims – A clean history, free of claims, yields cheaper insurance rates. Before submitting a claim, think twice. It should grossly outweigh the cost of your deductible.
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