Tenants: Do I need insurance?

Ashleay: Welcome to the “In Your Interest!” podcast. My name is Ashleay and I’m joined by my colleague and Chief Strategist, Sébastien Mc Mahon. Summer is coming and with summer comes a wave of relocations, and with every relocation comes a new life, new opportunities, new freedom, a new environment but also new responsibilities. And it’s often at this exact and critical moment, amplified by our current inflationary economic environment where the cost of rents is strongly increasing, that we look for financial compromises to make ends meet. On this episode we’re looking into tenant insurance. Is it worth it? Is it one of the expenses one can go without? To discuss this, we’ve invited Étienne Trudel, Vice-President of Corporate Strategy at iA Financial Group. Welcome Étienne.

Étienne: Thank you very much, Ashleay. Thank you, Sébastien too. I’m delighted to be invited.

Sébastien: We’re delighted to have you here to discuss a topic that we don’t—I mean, I know nothing about this, which makes it very interesting to me. Insurance for renters: please, enlighten us.

Étienne: Yes. Well, that’s the point today. So I’ll do my best—and ask any questions you have about this, Sébastien. Well, before diving into the topic, let me make an important disclaimer: to make sure you know what your tenant insurance contract covers, take the time to ask your insurance agent or insurance broker questions; they will guide you thoroughly through the world of tenant insurance, as well as offer you personalized advice. Also—and this is of even of more importance if you buy online—please take the time to read your contract. It may be a bit tedious—nobody likes reading contracts—but it’s usually 30 minutes or 1 hour very well spent. So take the time to do it, please.

So, generally, clauses are rather standard among insurers, but it’s possible that certain important elements of their offer will be more critical to you than to other buyers. So, for example, if you’re a passionate cyclist like me and you have a high-end bicycle with carbon parts, there may be a limit in your contract that will only partially reimburse your loss if you make a claim for your bike. So, all in all, take the time to discuss with your insurance agent or broker.

Ashleay: All that said, tenant insurance is a relatively simple. I think it has three main coverages, is that right?

Étienne: Yeah, that’s right. Usually, insurance has the reputation of being very complicated, but it’s not in the case of tenant insurance. There are only three main coverages: content, civil liability and additional living expenses. So, the first coverage is content. Whether it be in your apartment or temporarily out of the apartment, content is covered. If you’re travelling, for example, and you have lots of content with you like luggage you break it for some reason or there’s water and everything gets damaged, it’s still covered when temporarily out of the apartment. This includes furniture, household appliances, clothes, sports equipment, electronic devices. In short, everything that is more and more expensive with recent inflationary trends and that would cost a lot to replace in case of loss or damage.

Sébastien: Yeah, a few things you mention here have been prone to seeing wide swings in prices, especially during the pandemic. You never know when you’re going to need your insurance. For example, you mentioned bicycles. If you remember, during the pandemic, getting a new bicycle was pretty much impossible, you had to buy one second-hand (and prices there also skyrocketed). So, you never know when you’re going to need this insurance and what the market is going to be like. And, depending on your hobbies, there may be even more reason to have good coverage.

Étienne: Yeah, that’s right. And there are so many coverages out there. The main ones are fire, water and theft. But of course, there are also a couple of more minor coverages. If I may reiterate, please take the time to read your contract.

Ashleay: And what’s the second coverage, then?

Étienne: Yeah, the second coverage is usually the most unknown, but potentially, in my opinion, the most important. It’s civil liability, which covers any unintentionally damage caused to others or to their tangible assets. This covers civil liability if someone hurts themselves in your apartment, if you unintentionally cause a large fire to the apartment building because of a cigarette or a stove incident, or even if your washing machine leaks and damages your neighbour’s content one floor down. But the coverage doesn’t stop there; it also covers liability linked to events in your personal life. For example, if you accidentally hurt someone or cause damage to a friend’s home or at the hotel while on vacation. Of course, this must be unintentional and accidental; civil liability doesn’t cover intentional acts.

Sébastien: And, interestingly, I would bet that many people think a lot of the things you’ve mentioned here are insured by the owner of the building or by the hotel or through their friend’s insurance. But that’s not the case.

Étienne: That’s right. Each tenant of the same apartment building is only covered through their own insurance and not under the landlord’s insurance.

Ashleay: Very interesting. And the third coverage, I believe, is additional living expenses?

Étienne: Yes, it is! In short, these are the expenses you incur if you need to be relocated after a loss to your apartment during restoration work. So, we’ve talked about those three main coverages. But they all have exclusions and exceptions. And some insurers will add different coverages here and there to their insurance offer. I’m going to sound like a broken record, but you have to ask your insurance agent or broker questions or read the contract at least once.

Sébastien: Yeah.

Ashleay: And so all of those coverages, concretely, how do they work in a real-life event?

Étienne: Okay. So I want to make it as concrete to you as possible, so, bear with me here. Imagine this scenario, which most of us can relate to because we’ve all lived something a bit similar. So imagine you’re 22, you live on the fourth floor of a 40-story apartment building with your family of three, including your eight-month-old baby. As usual, for parents of a baby, your energy level is rock bottom. You sleep three scattered hours a night, and your little daughter still wakes up to eat every two hours. You’re just starting out in your new career and your finances are somewhat scarce. And you use every bit of your waking life to be as efficient as possible, to wash the dishes or do some laundry whenever you can. In short, a very typical story of young parents.

Sébastien: Yeah, exactly. I can relate.

Étienne: Haha! So one night, you decide to start the washing machine at 3 am, before going back to sleep, and fail to see that the water entry pipe of the machine is leaking profusely, spilling water everywhere. At 3:51 am, you wake to someone knocking and shouting at your apartment door. You stumble back to your feet and notice there’s water all the way up your ankles. At the door is your downstairs neighbour, still in their PJs, who’s panicking and shouting at you, saying water is leaking from the ceiling directly on his gamer PC, an expensive accessory that cost him $17,000. It’s at this exact moment that you can congratulate yourself for having taken 4 minutes and 37 seconds of your time to make a tenant insurance quote right before moving into your apartment, and you are deeply relieved to have something that will pay for the damage to your downstairs neighbour’s gamer PC and to have them relocated while their apartment is repaired—all without it costing you your entire savings.

Ashleay: Well, Étienne, tenant insurance really does seem useful and relevant for all tenants. Why is it that not everyone buys it? Is it that expensive?

Étienne: I think this is the core of everything we’re discussing today. The main reason every tenant doesn’t buy insurance is that—unlike auto insurance, which is mostly mandatory in all provinces in Canada, or homeowner’s insurance, which is required in the mortgage contract—tenant insurance is not always required by landlords. Did you know that in Canada there are about 5 million renter households and that about a third of all households in Canada are renters? Of that number, between 20 and 40% of renters are not insured through tenant insurance, which means there are between 1 and 2 million renter households that are uninsured in Canada today.

Sébastien: So, is it mostly the cost of insurance that’s at play?

Étienne: Well, this is a good question. It’s either the cost or the knowledge of tenant insurance and how its coverage is understood, etc.

Sébastien: Right, the lack of knowledge. People don’t know that they should call their insurance company.

Étienne: That’s right, and talk to their agent or broker. Because while there are many variables and premiums vary, a tenant insurance contract only costs around $400 per year in Canada, so around $35 a month. When we compare that to the potential loss or damage it covers, we move up to five-digit amounts or even six- or seven-digit amounts when it comes to fire or civil liability losses. I recently came across a public survey that was made available and which shows that about 50% of tenants in Canada would not be able to replace their content in case of a claim.

Sébastien: Yeah.

Étienne: This is massive. I don’t think it’s because of the time it takes to make a quote, since it only takes about five minutes to get a tenant insurance quote online. And there are even ways to decrease premiums by insuring for minimal amounts of content, higher deductibles… So there are many options. And to this I would add that buying tenant insurance could make you eligible for a discount on auto insurance, and vice versa, if purchased from the same insurance company, which again would decrease the total cost.

Ashleay: Based on what you’ve said, it does seem particularly beneficial to buy tenant insurance. Do you have any final advice to give our listeners?

Étienne: Yes, and I’ll get personal for this part. I have four kids at home, including my eldest daughter who’s 18. Soon, they will start their independent life. When they move away from home, they will likely rent and when they do, I will be—let’s say—more than recommending tenant insurance to my children. For me, tenant insurance is a contract of protecting my kids’ lives and future, its insurance that they will start life with all the chances on their side, and it’s ultimately a way to succeed and be happy without being hindered by bad luck. So I have only one piece of advice for you, which is to take the time, if you’re a tenant, to learn and understand tenant insurance. It can take only 30 minutes to an hour and it will ensure you and your close relatives will have peace of mind.

Sébastien: Yeah, and when you start in life it’s worth the effort to ensure you have peace of mind and are avoiding the risk of taking a huge step back in your financial life.

Ashleay: Well, as usual, we’ve learned a lot. Thank you. Sébastien. Thank you, Étienne for sharing all this information on tenant insurance. And for those of you who are listening, don’t hesitate to write to us if you have any questions. See you all next week. Loved this podcast? Want to know more about economic news? Follow our “In Your Interest!” podcast, available on all platforms, visit the economic news page on ia.ca or follow us on social media.