Why You Should Be Insuring Your Rental Property Properly
A Globe and Mail article caught the eye of one of our founders, who had just bought a house in Vancouver with a basement suite. A lot of people in Vancouver rent out a basement suite, because living there is expensive. Extra rental income is a way of life out west.
The article's best point, from a well-known Canadian real estate investor: get the right insurance.
It describes something of an epidemic in Canada. Many landlords under-insure their rental properties, or don't tell their insurer they have a tenant at all. Where a large share of homeowners rent out a basement suite, that can spell disaster. One example from the article:
Last year Aviva Canada insurance company released statistics that show water damage is the leading home insurance claim, partly due to the high number of basements that are being finished to make livable. Nationwide, B.C. had the highest increase in average claim cost due to water damage, at 205 per cent.
Imagine the couple renting your basement suite has water damage and loses a lot of their things. If you haven't told your insurer that someone lives down there, you could have a serious problem, and if your tenants don't have tenant insurance, a worse one. Renting out a secondary suite is a material change in risk, and not disclosing it can void your policy. The investor's advice: tell your insurer about every rental unit, and get their acknowledgement in writing. If a claim is ever refused, you'll have it.
Three terms every landlord should know:
- Guaranteed replacement cost
- Tenant insurance, which he asks to see before handing over the keys
- Rental income loss insurance, which covers lost rent while a unit can't be lived in
In short, cutting your premium to save a few dollars is one of the worst ideas anyone who rents out a unit can have. Once a year, sit down with your insurance broker and make sure everything is accurate. Tell them everything, and ask about the worst case, like a total loss. It doesn't hurt.
Do you ask for tenant insurance before handing over the keys? Do you review your coverage every year?
Originally published January 10, 2013, as "Why You Should Be Insuring The Hell Out Of Your Rental Property". We've retitled it, removed the names of the people mentioned, and removed links that no longer work and some that had been added without our permission.