Tenant insurance is the cheapest bill you will be glad you paid

Every few months someone I know finds out the hard way that their landlord’s insurance does not cover them. A pipe bursts upstairs, or a break-in empties the apartment, and the assumption that “the building is insured” turns out to mean exactly that: the building. Not the things in it, and not the tenant.

I think tenant insurance is one of the few money products almost every renter should have. It is not exciting, and nobody posts about it. But for most people it costs less a month than a streaming bundle, and the one time you need it, it matters more than every rewards point you have ever earned.

What it actually covers

Policies vary, but a typical tenant package has three parts. Contents coverage pays to replace your belongings after an insured event such as fire, theft or certain kinds of water damage. Personal liability covers you if you accidentally damage someone else’s property or injure someone, like the overflowing tub that soaks the unit below. And additional living expenses help pay for a hotel and meals if your apartment becomes unliveable while it is repaired.

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The liability coverage is the part renters overlook, and it is the part that protects you from a bill you could never pay.

That liability piece is why I would buy a policy even if I owned almost nothing. Replacing a laptop is painful. Being held responsible for water damage to two floors of someone else’s apartments is a different scale of problem.

Your landlord may require it anyway

No province requires tenants to carry insurance by law, but in many provinces a landlord can make it a condition of the lease, and plenty do. Some ask for proof each year. If yours does, read the clause: it may specify a minimum amount of liability coverage.

Before you buy, check five things

1. Replacement cost or actual cash value

   Replacement cost pays what it costs to buy the item new today; actual cash value deducts for age and wear. The difference on a five-year-old sofa is large.

2. Water damage and sewer backup

   These are often separate, and sewer backup in particular is frequently an add-on. Basement apartments should ask about it directly.

3. Limits on valuables

   Jewellery, bikes, cameras and computers often have per-item or per-category caps unless you add them separately.

4. The deductible

   A higher deductible lowers the premium, but make sure it is an amount you could actually pay out of pocket.

5. Roommates

   Many insurers will not cover unrelated roommates on one policy. Each person usually needs their own.

Does it pay to bundle?

Insurers often discount tenant insurance when it is bundled with car insurance. That can be worthwhile, but compare the bundle against separate quotes rather than assuming. And a few premium credit cards include some purchase protection or extended warranty coverage. These are useful, but they are not a substitute for contents and liability insurance. If you are weighing card perks, our piece on cash back versus travel points for renters covers what those benefits are really worth.

The Insurance Bureau of Canada publishes plain-language guides to home and tenant policies, and the Financial Consumer Agency of Canada is a good starting point for understanding financial products more broadly.

If you are building a budget for a new place, put tenant insurance on the list next to hydro and internet. Our renter budget guide has a template that already includes it.