Anytime you’re renting a home, whether by yourself or with a roommate, we can’t stress enough the importance of having renters (or tenants) insurance in place. And if you live with a roommate, there is double the chance that something could happen.
Why do we need insurance?
“Our landlord has insurance on the property.” Well, landlords do buy insurance for the structure, but not for your personal belongings or your personal liability. Landlords typically buy insurance for the building, any garages or sheds, appliances, window coverings, or other items that they leave in the home for your use, and liability in case someone is injured on the premises and sues. However, you will have no protection under his policy and will need to purchase your own coverage.
Some of the things a tenants policy will cover are:
- Your personal property while at your home for almost any damage; fire, theft, windstorm, water damage, to name a few. In some cases, policies will also cover inland flood and earthquake.
- Your personal property while temporarily away from home, for the same types of loss or damage. For example, if you’re travelling and your luggage is stolen, or you lose your camera, you should be covered by your tenants policy.
- Your personal liability at home. If someone comes to visit, and they injure themselves tripping over the snowboard you left by the front door, you could be facing a lawsuit. Your tenants policy will step up to cover the loss if you’re found negligent, as well as any legal fees.
- Your personal liability away from home. If you’re skiing and you lose control, smashing into another skier, causing an injury, again your tenants insurance can step in to handle any resulting lawsuit.
If neither you nor your roommate has a lot of personal belongings, you may think you don’t need tenant insurance. However:
- When you start adding up what it would cost to replace your clothes, shoes, accessories, as well as the basics in your kitchen and bathroom, you’ll be surprised. Download our simple home inventory worksheet to get a rough idea of what your possessions are worth.
- “As students, we’re covered under our parents’ policies.” Some insurance policies limit the value of belongings covered for students living away from their parents’ home. And most companies require you to be financially dependent on your parents and only temporarily away from their home.
- “Insurance is too expensive.” The cost of insurance varies depending on a number of factors, including the value of your possessions. You can reduce your monthly premium by increasing your deductible – you take on a bit of the risk, and pay a lower premium. When you think insurance is expensive, think about the cost of replacing your laptop and smartphone.
- “Liability? Our friends won’t sue us.” If you decide to have a party and someone is seriously injured tripping over a stack of books on your stairs, they just may decide to sue. Or if you’re playing a recreational sport and accidentally injure someone, you could be held liable. We all like to believe that our friends would never sue us or accidents won’t happen, but are you willing to take that risk?
- Landlords usually require it. Often when you’re trying to rent a place, the landlord will insist that you have a tenant insurance policy in place.
- Most policies give you Replacement Cost coverage on contents. Even if you bought your couch at a garage sale, you might face having to buy a new one after a fire or a water loss. And nothing ever seems to be on sale when you need it. Maybe you don’t think your belongings are worth much, but when you add up the cost to replace all your old stuff with new, you may think differently. Even the cost to just replace your clothes and shoes could surprise you.
- Damage to the unit you’re renting. If you accidentally fall asleep while you’re cooking dinner, you could be looking at significant smoke damage to the apartment. The landlord will be coming after you for the repair costs. A tenant insurance policy can cover you for smoke damage to the apartment you’re renting.
- Theft from your car. Your apartment could be as secure as Fort Knox, but it’s possible that something can get stolen from your car. This will not be covered under your auto insurance but can be covered on a renter’s insurance policy.
- Property in storage. If you’ve got things in storage (maybe you’re waiting for a new home to be built, or maybe your sports equipment won’t fit in your new basement suite), you can get storage insurance on your tenant insurance policy. Some policies may include it automatically.
- Electronics. Computers, iPods, PS4’s, Xbox Ones, and more. We all have them. Your tenant insurance policy can protect them.
Individual or shared?
So you know the importance of getting tenants insurance. But when you have a roommate, you will have a decision to make: you can get one policy and split the cost, or you can each get your own policy. There are advantages and disadvantages to both options.
Sharing a policy
Advantages: The obvious advantage of sharing a policy is the cost saving. Adding a roommate to your policy may only very slightly increase the rate, so your policy would almost cost the same as if you were living alone. And bonus, you can now divide that in two. Tenants policy premiums are based on a number of factors, such as the amount of personal belongings you want to insure, the location and age of the home you’re renting, and your personal loss history. This brings us to the first disadvantage.
- If you take out one policy in both your names, any claim that your roommate makes will affect your loss history. Let’s say she takes her dog out for a walk and it bites someone. This can result in a huge liability suit. The effect of this claim could cause a problem for you once you’re no longer sharing and are looking to get a policy on your own. Depending on the number of claims your roommate made, and the dollar amount of those claims, you could face a higher premium going forward, even though you’ve never had a loss yourself. Even worse, you could be denied insurance, if the loss history is bad enough.
- If you have to put in a claim yourself, the payment will be made out to both of you. That means you’re going to need your roommate’s signature before you can cash a claims cheque for your lost camera. And if some of your property is damaged, as well as some of your roommate’s, you’ll need to know how much each of you will receive out of the claims settlement. Difficult enough if the two of you are still on friendly terms, but what if things have cooled between you? Or worse, your roommate has moved out?
- If your roommate moves out, whether he wanted to, or you asked him to because you couldn’t stand living in the same place for another minute, you will have to track him down to get a signature allowing the insurance company to take his name off of the policy. Otherwise, any future claims would still be payable to both of you. You may not even be able to cancel the policy without getting your old roommate’s signature.
- A 50/50 split on the premium may not be fair. If you’re moving into your friend’s apartment, she may already have a living room suite, tv, kitchen suite, and so on. All you’re bringing in is your bedroom furniture and your clothes. You may both have to sit down and complete individual personal property inventory forms to determine the replacement cost of all of your belongings. Then calculate the percentage you should each pay towards the insurance premium. You’ll then need to decide if you’re going to pay it all up front, or if you want to go on monthly payments. If one tenant moves out, that could leave you holding the bag and paying the full premium yourself. Or worse, you may have to refund his prorated share of the insurance. Be sure to cover this in your roommate agreement.
- You may not have enough coverage. If you had your own tenants policy for $30,000, and you then add your roommate’s name to the policy, you’ll likely have to increase the amount in order to properly cover all of the property belonging to both of you.
- If there are more than 2 or 3 of you sharing a place, it’s highly unlikely that any insurance company will want to issue a policy in that many names. You may each have to take out your own policies whether you like it or not. And many insurance companies are not comfortable taking on this type of risk even if you do want to purchase individual policies.
Whether you decide to purchase a policy together, or to each get your own policies, the important thing is to make sure you’re properly insured. Keep in mind, if your roommate is your spouse or a relative, they may be insured on your policy automatically, and are not considered “roommates” by the insurance company. Talk to an insurance adviser, explain your living situation, and get the type of policy that works best for you. For more information, or to get a quote on your home insurance, contact Square One at 1.855.331.6933.