Tenant insurance, also known as renter’s insurance, is one of the most affordable policies that can save you millions of dollars. It usually covers three categories: liability, contents, and additional living costs.
Liability coverage means if you’re sued, your insurance covers legal fees and damage award costs. So, if you leave the stove on and it burns your apartment building down, your tenant insurance can usually take care of it.
Contents insurance, also known as personal property coverage, can provide compensation if the stuff in your home is damaged or stolen, and additional living expense coverage provides money for a hotel or Airbnb if your unit becomes unliveable for any reason.
Tenant insurance is essential as a renter. Some landlords make it mandatory as part of the lease agreement.
If you’re searching for a policy at the moment, here are a number of the finer details to look out for and ask about when shopping for renter’s insurance.
Your policy’s monetary limits
Tenant insurance has a monetary limit for each coverage category (i.e., liability, contents, and additional living). For example, your liability coverage might have a limit of one or two million dollars, while your contents coverage might have a cap at $10,000.
You want to ensure that you have enough coverage. This is particularly important for contents coverage, as tenants commonly don’t realize how much they own. As a result, their stuff might be stolen or destroyed, and they realize that their tenant insurance isn’t enough to cover everything.
To mitigate this scenario, take an inventory of your assets and assess how much it would cost to replace it all.
The events insured by your policy
You’re usually able to claim your insurance for destroyed contents and additional living costs if a fire trashes your home. But tenant insurance excludes some events like earthquakes, large-scale floods, and other “Acts of God.” You need to understand what circumstances the policy might exclude so you can prepare in other ways.
Some insurers might sell additional insurance products to cover damage left by an earthquake or other events excluded by a standard policy.
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Whether you can afford your deductible if you make a claim
A deductible is an amount of money you pay towards an insured loss. For example, if you lose $5,000 of insured items in a flood, you first have to pay your deductible to claim the remaining losses.
Choosing a higher deductible means a lower monthly premium. But if you’re stuck with an insured loss, there’s a more significant barrier to claiming your insurance. Whatever deductible you choose, you should ensure you’re prepared to pay it in an emergency.
Replacement cost versus actual cash value
The contents portion of renter’s insurance includes a replacement cost coverage or actual cash value option. Replacement cost coverage means that your policy provides enough to purchase a new replacement in case of a loss.
For example, suppose someone burglarizes your home and steals your mattress and bed frame. The mattress and bed frame originally cost $3,000 when you bought it new five years ago. Replacement cost coverage provides $3,000 of compensation in such a scenario.
In contrast, actual cash value considers the effects of depreciation. A policy that opted for actual cash value might provide significantly less than $3,000 because the mattress and bed frame were five years old.
Replacement cost coverage is more expensive than actual cash coverage. However, the actual cash option may not provide enough compensation to replace all your belongings and leave you to pay out of pocket for a new mattress and bed frame.
Items that your contents coverage specifically excludes
Contents insurance doesn’t cover every item under the sun, even if it’s within your insurance’s coverage amount. Tenant insurance generally excludes expensive items like artwork or jewellery due to the high replacement value. However, similar to excluded insurable events, your insurance company likely offers a separate policy to insure your paintings or diamond necklace.
Business assets and equipment are usually not covered by conventional tenant insurance policies either. That means if you have a home-operated business, your renter’s insurance may not cover the cost of the items you use to run said business.
Instead, you need to purchase a separate business contents insurance policy. Business insurance policies come with professional and general liability insurance, as well. These are crucial tools that mitigate significant risks for small businesses.
What additional living expense coverage actually includes
Additional living expenses can be tricky. You’re not only dealing with the amount of costs you can claim. You also have to consider what types of expenses your insurance covers.
For example, most renter’s insurance includes the cost of staying at a hotel or Airbnb. But policies may further include the cost of meals, laundry, and even entertainment.
It’s important to clarify what your policy covers. Suppose your living accommodation doesn’t have a kitchen and your tenant insurance doesn’t cover meals. This might force you to eat out daily, which is an unanticipated extra expense.
Insurance riders and floaters
The additional coverage mentioned prior in this article is often referred to as an insurance rider or floater. For an additional fee, it can increase your policy’s coverage or make it more flexible.
For example, a tenant insurance policy might offer an earthquake insurance rider instead of making it a completely separate policy. This way, you can easily add earthquake coverage to your tenant insurance.
Other riders your insurer may offer include:
- Scheduled property rider: Covers personal property not fully covered by regular tenant insurance policies. This way, your diamond necklace or expensive painting are also protected.
- At-home business rider: Extends your contents coverage to your at-home business equipment.
- Pet damage rider: Tenant insurance usually won’t cover liability if the lawsuit was due to your pet causing property damage or bodily harm. However, a pet damage rider can extend liability coverage here. So, if your dog runs into your neighbour’s house and chews up their sofa, you’re protected.
- Identity theft coverage: Although it’s not directly related to your home, many renter’s insurance issuers also offer identity theft protection as a rider to your tenant insurance policy.
If an insurer sells renter’s insurance, they often also sell business insurance or car and life insurance. Suppose you need multiple kinds of insurance. In this case, you might be able to get a discount by purchasing everything from the same insurer.
Purchasing all your policies with one insurance company can further streamline your purchase process, as you only have to deal with one company.
Shopping for tenant insurance isn’t easy. There are a plethora of options, exclusions, and coverages to consider.
NEXUS Insurance makes buying tenant insurance easier. Our expert advisors are also available to help you every step of the way.
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