While a soaring inflation rate is forcing Canadians to contend with a climbing cost of living, prices of groceries, gas and other essentials are on a steady incline. Perhaps the one increase that is leaving many concerned is the increase in rental prices. For those who rent their homes, the rise in inflation is likely to send rent shooting up over the months to come. Tracking spending has never been more important! So, when considering your expenses, how important is renter’s insurance during a recession?
How inflation affects your Renter’s Insurance coverage
High inflation increases the costs of your insurance coverage. As goods, like furniture, electronics, and clothes, become more expensive under inflation, it costs more to replace them. As a renter, that means inflation essentially weakens your insurance coverage. What seemed like adequate coverage five years ago may now leave some of your property unprotected. You should verify if you have enough coverage each year so you aren’t caught underinsured in a worst-case scenario.
Climbing rental prices
According to the 2021 Canadian Housing Survey, Canadians are now less likely to own a home in comparison to a decade ago. Rental households have grown at more than twice the pace of owner households in the past decade, particularly among millennials ages 25 to 40. The current tenant rate is at 40.4% — the highest it’s been since the 1960s. Coupled with a rising trend of condominium construction, these all point to an increased demand for rental dwellings across Canada’s large cities. As reported by Rentals.ca, the average rent for all property types across Canada is $2,043 per month, representing an annual increase of 15.4% and a monthly increase of 4.3% from September to October in 2022.
According to Moshe Lander, an economics professor at Concordia University in Montreal, rent increases are imminent. “It’s perfectly reasonable that if you are a renter, you should be expecting that there’s a big rent increase coming your way in the next six to 12 months if your lease is resetting.” Lander also commented that renters are not the only ones feeling the pinch of rising inflation rates – so are landlords. “All of us are experiencing inflation – landlords are not immune to that,” says Lander. While rent will always increase to a degree, you must now add rising interest rates [and] the out-of-control inflation to the equation. Renting right now is just going through the roof!
Do you need rental/tenant insurance during a recession?
As you weigh up your monthly costs, you may begin to wonder whether renter’s insurance during a recession is a necessary expense to carry right now. Many insurance experts believe that insurers may see a decline in interest for tenant insurance. Tight budgets can often lead to you prioritizing certain bills over others. In Ontario, tenant insurance is not legally mandatory. This means you do not need to take out a tenant insurance policy if you feel it is not necessary or you want to save more money. Renters may forego tenant insurance even more during a recession.
A monthly movie channel subscription, for example, can cost roughly the same amount of money as a tenant insurance policy. Not being able to afford going out has made subscriptions like these seem more necessary than insurance. However, it’s important to note that not carrying renter’s insurance during a recession exposes you to more risk. It’s also important to note that there is nothing stopping a landlord from requiring it in their own lease agreement. Your landlord is allowed to make acquiring tenant insurance a part of the lease terms and therefore, you may not be able to drop rental insurance coverage.
What does renter’s insurance cover?
As a tenant, your landlord is responsible for insuring and taking care of the home and the necessary repairs involved in owning property. However, they are not responsible for what may happen to your personal property in the event of an unexpected accident.
There are three types of coverage in any renter’s insurance policy:
- Contents insurance, which protects your contents if they’re stolen or suffer damage and will cover the cost to repair or replace most household items.
- Liability insurance, which covers you if a guest injures themselves in your space and protects you if you’re responsible for damage to other people’s property.
- Additional living expenses pays for you to live elsewhere if you can’t live in your rental space due to an insured peril. This includes hotel bills, restaurant meals and moving costs.
To learn more about renters or tenant’s insurance, please click here.
5 tips to battle inflation during a recession
You have no control over the inflation rate, but you can control your policy and your choice of insurance provider. Here are five practical steps to ensure that your insurance protects your items for a fair amount:
1. Review your policy limits
How much coverage you need depends on the value of your possessions — and in the insurance world, there are two ways to determine the value. You may hear of Actual Cash Value (ACV) and Replacement Cost Value (RCV). ACV covers the current cost of your personal property after accounting for depreciation, less the deductible. RCV pays you what it will cost to get a similar item brand new.
2. Reach out to your insurance provider at renewal
When your renter’s insurance policy renews, take the time to speak with your insurance provider or isure broker. It’s important to have a professional look at your policy to narrow down you needs, and adjust as necessary. Be sure to ask why your insurance policy is increasing. That way, you’ll know if it’s simply due to insurance inflation, in relation to a claim or increase in property coverage. This information will get you one step closer to reducing your premiums. Ask about available discounts. There may be several ways your isure broker can help you save money if they’re familiar with your particular situation.
To learn more about possible discounts to combat inflation, please click here.
3. Make sure everything’s covered
As things get more expensive to replace, you don’t want to have any blind spots in your coverage. Go through your policy’s terms and conditions to make sure it covers all your property (even the stuff in your shed or your special collectibles.) Also, consider new items you’ve purchased and how much it will cost to replace your valuables. With this in mind, you may need to increase your coverage rather than reduce to save in the event of a claim.
4. Mitigate your risks for a potential discount
Taking measures that protect your property is always a good idea to help you avoid insurance claims in the first place. You can qualify for special discounts on your personal property insurance policy by informing your insurer about steps you’ve taken. For instance, you can use a tracker on your e-bike to reduce the risk of theft or loss. Similarly, you can install a security system to protect against burglary and property damage.
5. Shop around for the best policy
You wouldn’t buy a new vehicle or expensive electronic without comparison shopping – your insurance coverage should be no different. While getting quotes, don’t forget to consider the additional discounts each insurer offers. Those extra perks can add up and tip the scales!
Final thoughts on renter’s insurance during a recession
Although it is likely inflation rates may rise in the short-term, experts foresee the rates eventually levelling off and beginning to decrease by the end of the year. However, a downward trend in inflation does not mean that your rent price will drop as well. Rent prices will most likely increase, but at a slower rate. Inflation can increase your insurance expenses as a result. That’s why it’s important to review your policy and coverage limits yearly to make sure you have adequate coverage. To answer the question of how important renter’s insurance during a recession is; the short answer is very important.
As inflation causes the costs of everything to skyrocket, you want to make sure your purchases are protected. Similarly, should you need to file a claim for loss or damages to your property, it will cost much more to replace items you bought even three years ago. While rental insurance may be at par with a TV subscription, you’ll get much more value and peace of mind in the end while waiting out the recession.
