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What insurance should Canadian landlords consider?

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April 13, 2022

Regardless of how you feel about the current state of residential real estate in Canada, the fact is that we are (not so slowly) becoming a nation of landlords. Approximately 1 in 6 Canadian homeowners own multiple properties. According to a recent report by Statistics Canada, in Canada’s largest province, Ontario, multiple-property owners own 31% of all residential real estate. In Nova Scotia this sits at a staggering 41%. Surprisingly, this doesn’t include institutional or professional landlords, but is primarily made up of owners who own two properties - most commonly two detached homes. With so many Canadians treating real estate as an investment, it is important for landlords to consider how they protect their assets against loss. After all, you wouldn’t run a business without proper insurance, so why would you treat your rental property any differently?

Rental properties, whether a condo or a detached home, actually present much different risks than a typical owner-occupied residence. You do not have eyes on the property at all times and even the most diligent landlords (or their property managers) can run into troublesome tenants who create additional liability exposures. Also, you may hold your property within a holding company which means this is actually a commercial insurance policy rather than personal insurance policy.

Below are 3 coverages you should seriously consider as a landlord, which will protect your financial interests in the property.

Rental Income Coverage:

This coverage is not available for an owner-occupied property, so unless it’s clear to the insurer that you are renting your property out, you are unlikely to qualify for this extension of coverage. In the event of a loss (ex. fire), your tenant will likely have to move out of the property until the repairs are complete or the resident is rebuilt. Often tenants will dispute their obligation to pay rent during the restoration period considering they must find alternative accommodations. This coverage will provide payments up to the designated policy limit for what you would have collected in rents during this period. This can be quite substantial during a significant loss and may be the difference between you being forced to sell your property or not. With interest rates going up and increasing mortgage payments, the last thing any landlord needs is an unforeseen event resulting in 6 months of lost rents.

Loss Assessment Coverage:

This coverage applies to properties which are part of a strata or condo corporation, most commonly condos or townhomes. Loss assessment coverage can help condo owners pay their share of expenses if the condo association's insurance limits can't cover certain bills. When purchasing an investment property, owners typically do due diligence on the meeting minutes for any condo association to make sure they have proper insurance and capital reserves. Even with proper due diligence, unforeseen events can result in losses that require a special assessment to all unit owners. There are many scenarios in which this can occur, for example the condo association may not have coverage for a specific cause of loss (peril), may not have purchased enough coverage, or may have breached a policy condition which means their insurance will not be sufficient. In this scenario, your individual policy can cover the special assessment which falls on you as a unit-owner. After all, as the savvy investor you are, you thought ahead and purchased Loss Assessment Coverage for your investment property.

Require your tenant buy Renters Insurance:

Let’s not forget you have a resident who is living in the unit, they may be working from home, cooking three meals, and doing multiple loads of laundry each day. What happens when they accidentally leave the stove on, or the bathtub running? Well, if you contractually require that they carry liability (renters) insurance within the lease, you can feel more confident they have the financial position to pay for the damages they are liable for. Institutional landlords almost always require that their residents carry a minimum limit of liability insurance, typically $1,000,000 or more. If the big professionals are doing this, why wouldn’t you? 

Almost 50% of tenants in Canada are uninsured, most of which are renting from small landlords who don’t know that their residents should be carrying liability insurance. Do not assume your insurance covers the exposures of your tenant. In a worst case scenario, the tenant may burn down your detached home which could cost hundreds of thousands, or millions to replace. If they are uninsured and damaged property of others in the building, they will never be able to afford to pay for these and the repairs will fall on you as the landlord. Do you really want to make a claim on your insurance policy and have trouble buying insurance forever because your resident left the stove on while they fell asleep watching Netflix? I think not.

Conclusion

There are millions of Canadian condo and homeowners who treat their property like a business by renting it out. Just like businesses require specialized insurance policies to fit their operations, landlords need a customized policy too. This is why it is important for landlords to consult with a broker who understands the residential rental market, and can advise them on coverages, highlighting which are optional and which are must-haves. With interest rates going up, the margins are getting thinner and thinner for Canadian landlords. The last thing any real estate investor wants is to have to refinance their primary residence to pay for the repairs on their rental property. Or worse, be forced to sell it at a loss. After all, you invested in that rental property to make money, not lose it.

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