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You might be surprised to learn that there are other reasons, apart from insuring the things you own, to consider when purchasing tenant insurance. For instance, your landlord may require you to have insurance as a condition of your lease. The most significant reason, however, is that as a tenant, you may be legally liable for any damage that you cause to the place you rent, to the building as a whole (if you’re in a condo or apartment), or any harm you cause to anyone. Tenant insurance can provide financial protection in the event that you are found liable for damage or if someone accidentally gets hurt because of something you did unintentionally.

Tenant insurance can also go by a couple of different names – like contents insurance, or renter’s insurance. No matter what it’s called, however, it’s insurance for people who rent, not own, the place where they live.

Here’s a breakdown of how to think about tenant insurance, and its place in your personal financial plan.

What’s included in tenant insurance?

The three components of a tenant insurance plan include contents insurance, additional living expense insurance, and liability insurance. Let’s look at these one by one.

1. Contents insurance covers the cost to repair or replace the things you own, if they become lost, stolen, or damaged.

Let’s say there is a flood in the apartment or condo unit above you, or a neighbour’s forgotten candle causes a fire and some of your personal items are damaged by the resulting smoke. Contents insurance will allow you to repair or replace those items.

Even if you don’t think your belongings are worth much, if you had to suddenly replace some or all of them, the costs add up! Here’s a challenge, do a quick survey of your place and jot down how much you think it would cost to buy back each and everything you own from clothes, your laptop and furniture, to your cell phone, camera and more. The list can go on.

You can choose from two different types of contents insurance.

• The first type covers almost every risk you might face, and it’s called all risks insurance, or comprehensive. “All risks” coverage protects you from anything that might damage your property, except any specific risks that are excluded from your policy. Those exclusions are written down in your policy, so if you don’t see them, ask an advisor to point them out – or if you’re in the process of buying insurance, ask an advisor to tell you about them up front. Also check for any special limits that might be involved. For example, an all-risks policy may not provide coverage for damage caused by normal wear and tear (like the keys starting to fall off the laptop you’ve had for years).
• The other kind of contents insurance only protects you from risks that are specifically listed in your insurance policy, and it’s called named perils insurance. For example, if your policy doesn’t say you’re covered for damage resulting from theft, you aren’t covered.
• Not surprisingly, all-risks coverage is more expensive than named-perils coverage, because it’s more comprehensive.

You also have two options for covering the cost of your belongings: actual cash value, or replacement cost.

• Actual cash value will pay you for the current value of your belongings (similar to a car depreciating), while replacement cost will cover the cost to replace the item with a new one – that is, it gives you money to go buy that item for how much it currently costs in stores.
• Because your possessions typically lose value over time, as they wear out and age (remember your trusty laptop), cash-value insurance usually pays out less than replacement-value coverage for the same item.

2. Additional living expense coverage covers your extra expenses, as a result of a covered claim, if your rented accommodation becomes unlivable and you need somewhere else to stay temporarily.

This coverage can include hotel or other rental accommodation, moving expenses, and meals while you’re away from your home – up to the maximum limits listed in your policy.

3. Liability coverage covers the costs that you’d have to pay someone who sues you for any damage or bodily injury you cause to their property or themselves unintentionally.

For example, someone might trip over your laptop cord as you are charging it in Starbucks, breaking their wrist as they fall; your unattended bathtub might overflow while you are watching that last YouTube video, causing water damage to an apartment below you – or your dog might bite an overly curious “pup petter.”

If you cause harm or damage to another person or their property, your tenant insurance policy will cover your costs, including defense costs, if they successfully sue you.

A standard policy usually includes coverage of up to $1 million, although you can opt to increase this amount.

How much will tenant insurance cost?

The cost of a tenant insurance policy will depend on many different variables, such as where you’re living and the type of accommodation you’re renting – house, condo, or apartment. It will also depend on:

• the insurance company you’re working with, as different companies may charge different amounts for the same coverage,
• your years of home insurance experience and any history of home insurance claims you’ve made in the past; and
• the value of the possessions you’re insuring. For example, you might feel your stuff should be insured for $10,000 while someone else might need $75,000 worth of coverage or more.

If you’re a renter, tenant insurance can be an effective way to help protect the stuff you own and any mishaps that could happen. Start building your insurance experience with tenant insurance and make it a part of your growing financial plan.

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