Renters Insurance 201-The Intermediate Guide

What is Renters Insurance?

Renters insurance is the type of home insurance coverage that covers a persons stuff when they are renting a home from someone else. In insurance, we call that ‘stuff’ personal property or contents. Renters insurance can also be referred to as tenants insurance.

Who Does a Renters Insurance Policy Cover?

In insurance the person who is being covered is generally called the named insured, or just the insured. This is the owner of the policy. There can be multiple insured’s 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.

Insured’s can also include named insured’s spouse (common-law or legal) and any legal dependents living in the home. Some policies will also cover dependents who live elsewhere, depending on the situation.

What does Renters Insurance Cover?

Personal Property/Contents:

Renters Insurance will cover the cost to repair or replace the items that the insured owns in the home. Most policies work on replacement cost basis, which  means in a claim the insurance company will pay to replace any old items with new items.

It’s important for clients to come up with an accurate amount for their personal property limit. The amount 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 couch should be insured for $2000, not $200.  This rule applies to almost all of the contents in a home.

Additional Living Expenses:

Tenant Insurance usually includes this coverage, which will cover the out of pocket costs that result due to a claim. This could include the cost of a hotel or even the cost to eat out if there was a kitchen fire.

Personal Liability:

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 respond 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 was 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 the cost to replace a friend’s laptop that the Insured dropped.

Identity Theft:

Identity Theft is often included in a home policy. It is there to pay any out of pocket costs that the Insured would have if their identity was stolen. Those costs could include legal fees that are needed to be paid to clear the Insured’s name.

Endorsements to a Renters Insurance Policy

An endorsement is a coverage that is not automatically included in a policy. Usually endorsements have a cost associated with them.

Earthquake Endorsement:

This endorsement will cover to replace or repair contents in the event of an earthquake. Keep in mind that the Additional Living Expenses on the policy will only respond for earthquake related claims if the Earthquake Endorsement is also purchased.

Water Coverage:

Most markets now have different versions of water coverage, but the main coverage types are as follows:

  • Sewer Backup: Responds to cover if there is a sewer backup that causes damage to the Insured’s contents.
  • Basic Water Damage: Responds to cover damage if there is a sudden and accidental water rupture that starts from 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 is coming from the outside of the home in. This could include water from a creek or lake. Flood coverage almost always excludes salt water, so Tsunami damage is not covered

Floaters or Schedules:

A Floater or Schedule is extra insurance that is purchased to cover a specific item.  It could be that the policy has a limit that it will pay to replace some type 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.  In some cases 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 was a claim there would be a smaller deductible.

What is a Deductible?

A deductible is the dollar amount of a claim that the Insured is responsible for. 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 was a fire or theft claim.  Normally, the higher a 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 if someone has had multiple claims.

Earthquake Deductible:

Earthquake deductibles are almost always a percentage amount. If the policy has a 10% earthquake deductible, it means 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 Earthquake in your area.

Water/Sewer Deductible:

As above, this is the amount that the Insured would pay if there was a water or sewer claim.  For some policies this will be the same as the standard policy deductible, but in some areas there is 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. Obviously, 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, which can be known as the insurance premium.

What Discounts apply?

Most discounts will depend on which company the insurance is with. 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 wordings for the policy you are looking at. That way you’ll know exactly what is covered.

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