Reviewed by Daniel Mirkovic and Stefan Tirschler
Updated March 23, 2023
You’re becoming a landlord. Maybe you’ve bought a new home, and you’re going to rent out your old one. Good for you! It’ll be so nice to have that extra income.
But, did you remember to talk to your insurance agent? Insurance providers consider a rented home to be a different risk than an owner-occupied home. And your insurance needs change when you rent out your home.
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Insurance on a rental property can provide you with the following types of coverage:
There are many different ways to cover a rental home. Some companies will only insure a limited number of perils, while others offer full comprehensive coverage. The basis of loss settlement can differ as well, from the depreciated value to guaranteed building replacement. Be sure you have the best coverage possible.
A friend of your tenant falls through a rotten piece of decking and sues you for her injuries. Now what? You’d better have premises liability insurance to protect you against just such claims. Even if you are not found to be negligent, your liability insurance will cover your legal expenses.
This covers property you own in the home that you’re renting out, such as a washer and dryer, or window coverings. If you rent your home furnished, then you’ll need to insure all of the furniture as well. Again, policies differ greatly with this type of coverage. Check to see if your property is insured to its full replacement cost or only to its depreciated value.
Business Dictionary defines rental income as “the amount of money collected by a landlord from a tenant or group of tenants for using a particular space.” As mentioned above, when you become a landlord, it’s nice to have that rent coming in, especially if you’ve got a mortgage to pay off. But what if your rental dwelling suffers loss or damage covered by your policy, and your tenants have to move out while repairs are being completed? If the rental unit is uninhabitable, you can’t charge your tenants rent. If you are relying on the rent, you may want to consider rental income insurance.
Some home insurance policies allow you to apply a percentage of the limit on the house to cover the fair rental value. But if the whole house is destroyed, all of the coverage will likely be needed to rebuild the home. That means there would be no insurance left to cover the lost rent.
“Rental income insurance” can help. If you own a rental property and rent it out for $2,000 a month, you can purchase $24,000 in rental income insurance to cover a full year of lost rent, if it takes that long to completed insured repairs.
This is a great coverage that all landlords should have. As with all types of insurance, though, you need to be aware of the exclusions and conditions. For example:
The policy usually stipulates that the insurance will pay the “fair rental value,” so if you’ve been charging $2,000 a month, but the going rate in your area is only $1,000 a month, you’ll only receive $1,000 a month.
Coverage generally applies only for the reasonable time required to complete insured repairs. So if it takes six months to repair, and another three months to find qualified tenants, you won’t be paid for the full nine months, even if you had enough coverage, but only for the six months it took to repair.
When buying insurance for your rental property, be sure to carry the most comprehensive policy you can. This is a big investment, and in the event of a loss, you want to be sure you’re well protected. And if your rental property is a condo, in order for any of the assessment coverages to apply, the type of loss must be one that is insured by your condo unit policy. For instance, if the loss is as a result of an earthquake, and you don’t carry earthquake on your base policy, there will be no coverage under the assessments portion either.
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Wondering if you need landlord’s insurance for a condo that you’re renting out? Here are some additional insurance needs thto consider:
You’ve installed gorgeous new granite countertops, and spent hours installing upgraded hardwood floors. Even though these are considered part of the building, did you know that none of these things are insured by the condo corporation’s insurance? These are considered building improvements and are your responsibility to insure, even if the improvements were made by a previous owner! And check your condo bylaws. Some buildings have made the unit owners responsible for countertops or floors, even though they were part of the original construction.
As a unit owner, if the building suffers a loss, the condo corporation may assess each unit owner a portion of their insurance deductible. In cases where the loss arises from your unit, you could be responsible for the entire deductible. There may also be times when the condo corporation can’t, or chooses not to, put in a claim with their insurance policy, such as when a loss is below their deductible, it’s not covered by their policy, or it affects only your unit. The costs in these situations will come out of your pocket unless you have the right insurance!
Condo property damage assessments occur when the strata corporation does not have sufficient insurance to repair damage to the condo building. If there is a large loss, any shortfall in the building insurance will be assessed proportionately to the individual unit owners. This is a very important optional coverage to consider!
If a visitor is seriously injured on the common property (slips on the icy sidewalk or the wet floor tiles) and sues the condo, the condo’s insurance will normally respond. If the injured party is awarded an amount higher than the limit of insurance carried by the condo, then assessments will be made against the individual unit owners.
Now, you might be asking “how much is landlord’s insurance?” The general answer is: it depends. Square One gives you the option to insure all condo-specific coverages — including improvements, fixtures, glass and so on — in a single Condo Owner’s Protection option, with you deciding just how far you want your coverage to extend. Depending on your choices, insurance for landlords starts from only $40 per month with Square One.
Adding this coverage also grants access to Condo Concierge Services, through which Square One provides personalized, hands-on assistance reviewing and interpreting your condo corporation’s property insurance — helping you know the right amount of personal property coverage you’ll need to keep your home safe.
Should you find yourself in a conflict with your condo association over repairs or other concerns, this same service also provides you with unlimited access to a helpline offering confidential access to lawyers who can advise on any personal (non-automobile related) legal or tax problem across Canada.
Want to learn more? Visit our Landlord resource centre for more helpful articles about all the topics most important to landlords. Or, get an online quote in under 5 minutes and find out how affordable personalized home insurance can be.
About the expert: Daniel Mirkovic
A co-founder of Square One with 25 years of experience in the insurance industry, Daniel was previously vice president of the insurance and travel divisions at the British Columbia Automobile Association. Daniel has a bachelor of commerce and a Master of Business Administration (MBA) from the Sauder School of Business at the University of British Columbia. He holds a Canadian Accredited Insurance Broker (CAIB) designation and a general insurance license level 3 in BC, Alberta, Saskatchewan, Manitoba and Ontario.
About the expert: Stefan Tirschler
Stefan is responsible for underwriting leadership, market expansion, and product research and development for Square One's operations. Stefan has earned his Fellow Chartered Insurance Professional designation, and maintains a level 2 general insurance license in British Columbia, Alberta, Saskatchewan, Manitoba and Ontario. Stefan is also an Education Committee member and CIP/GIE instructor for the Insurance Institute of Canada.
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