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Renters Insurance Deductible Explained

September 5, 2018
Renters

One of the most common questions that springs up when we’re discussing a new renters insurance policy with someone is “What is a renters insurance deductible?”. It’s a subject that often leads to a lot of confusion, so we’re going to explain in simple terms what renters insurance deductibles are, how they work, who they’re paid to and what is a good deductible.

What is a renters insurance deductible?

The renters insurance deductible is the portion of a property loss that you, the policy holder, will be responsible for when you have a claim. The most common deductible chosen by policyholders is $500.  Higher deductibles lower renters insurance cost, but increase the amount of a covered loss you must bear.

Who is the deductible paid to?

With any insurance policy, the deductible isn’t actually paid to anyone.  It is the portion of the claim that you take responsibility for. When you are looking at the cost of your insurance, you will want to be sure to have some money set aside in case you do have a claim.  For example, let’s say you have some stuff stolen out of your storage locker that is worth $5000. The most your insurance company will compensate you will be up to $4500 (the total amount of the claim less your deductible).

Why does renters insurance have a deductible?

A factor of any insurance policy is that the policyholder (you in this case) has some financial participation in resolving a claim. Otherwise, we would all put in claims for every little thing rather than using our insurance as its intended - to help protect you financially from loss.

When policyholders participate in sharing in the cost of the claim, insurance premiums stay lower for everyone.  Insurance is intended to help cover off the costs of major losses, not to provide replacement of items that most consumers can afford to look after themselves.  By reducing the frequency of small claims, insurance companies can keep insurance costs lower and be there to cover the big losses, as intended.  

In insurance speak, this is a bit of a study of risk tolerance versus risk transfer.  Without insurance, you are putting a lot of your hard earned dollars and your financial well being at “risk”.  Purchasing a renters insurance policy will transfer that risk to your insurance company, except for the amount of your deductible.  This is where your “risk tolerance” comes in - what amount can you tolerate to pay as your participation on a claim? For most renters insurance policyholders, $500 is the common amount chosen.

Your deductible and claims-free discounts

The other factor to consider when choosing your deductible is claims free discounts.  If you are claims free for a length of time, usually three years, you will receive a claims free discount on the cost of your insurance.  This is one of the factors when considering making a claim and will influence the deductible you might choose.  

For example, if you have a $1000 deductible and you submit a claim that is worth $1500, you are really only getting coverage for $500.  This could cause you to lose your claims free discount, which can be as much as 10% of the cost of your policy.  On smaller claims, its always worthwhile to talk it through with your MIG broker to make sure you aren’t losing your long term claims free discount for limited benefit now.  

In this same scenario, if you had chosen a $500 deductible, you would receive $1000 in coverage which may well be worth forgoing your claims free discount.  Talk to your broker to know how your policy deductible will work in the event of a larger claim and even those smaller claims that you need some help with.

What is a good deductible for renters insurance?

We recommend a $500 deductible as a starting point. If you can afford the added out of pocket spend if you should have a claim, then a $1000 deductible might be right for you and you can save some insurance premium dollars. It’s truly up to you to decide.

So there is the tipping point. What can you financially afford to pay when you have to put in a claim? If $500 is already a stretch of your budget, then you will want to keep your deductible at that lower limit. Then when there is a claim, for less than the cost of the latest iteration of a new smartphone, you can be back in action quickly with the least out of pocket expense.

But if you think you can stand to take on a deductible of $1000, you will save on average over 8% on your renters insurance premium. That might not seem like a lot at the time but over the years this will add up. You will basically get one year of insurance for free over ten years of purchasing. (As long as you are prepared to take on a bit more risk because you will need to come up with that extra cash if you do have a claim.)

How does a deductible work for renters insurance?

When you submit a claim to your insurance company to replace or repair something covered by your policy, you will be paying the amount you agreed to as a deductible out of your own pocket.

Let’s say your $2000 bicycle is stolen. You will receive the value to replace that bicycle less your renters insurance deductible of say $500. But let’s say your apartment catches fire and you lose all your belongings except your cat.You will be out of pocket $500 (or your chosen deductible). So you see? Regardless of the value of the claim, your cash on the line will be the deductible you choose when you purchase your insurance.

The secret here is to make sure you always have that money set aside to be able to come up with your deductible at any time.  A key premise of insurance is that it covers “sudden and accidental” losses - we never plan to have an insurance claim.  So its important planning on your part to make sure you have a little “reserve” fund to cover off your deductible.  

How can I get renters insurance with a low deductible?

Our buy online renters insurance program lets you choose the coverage you need by customizing contents coverage, liability limits and your deductible.  Choose what’s right for you, keeping in mind that, should you ever need to submit a claim, you will need that cash on hand to cover off the first part of the loss, whether that be $500 or $1000 which are the most common options.  

Get started with renters insurance

Check out our buyer friendly renters insurance hub and play with the coverage amounts with our renters insurance calculator. You can build a policy that will work best for you. And we’re always here to help at online@miginsurance.ca.

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