You worked a lot of hours to save up the down payment on your first home. But things change and now you’re embarking on the next adventure in your life. Still you like the idea of owning and renting out the property so you design a plan to keep your first house or condo and renting it out. What do you need to know?
The first lesson to learn is that there’s more to being a responsible and successful landlord than picking the right tenants. As you proceed towards rental property ownership and management you need to develop a maintenance plan and determine key ways to protect your investment.
For instance, what do you do if you get a call in the middle of the night alerting you to the presence of the fire department at your rental home? Perhaps your tenant was gone for the night when a faulty coffee maker plug sparked a kitchen fire. With the apartment vacant the fire would grow quickly which prompted neighbours to call the fire department. After the blaze was extinguished all that’s left are the charred remains of the house. Thank goodness you decided to call your independent insurance broker before you rented out the unit to ask what you needed to protect your investment.
Landlord Insurance Coverage
Condo or home rental insurance is specifically designed to protect landlords. Not only does it protect you from the catastrophic cost of having to repair or replace the building if it’s damaged or destroyed but it also protects the loss of rental income and helps you deal with legal liabilities. For instance, if your tenant’s guest injures themselves on the stairs of your rental building this person could sue and as the landlord you are held responsible even if you weren’t present. Thankfully with rental insurance you’re protected. The insurance you pay for will help defray any expenses that may arise from expensive lawsuits and medical bills.
But the insurance coverage doesn’t stop there. Rental income protection helps cover the loss of rental income—your business income—in the event the suite or whole parts of your building can’t be safely inhabited. Rental income insurance will bridge the gap until the unit is safe to rent again.
Not only that but landlord rental insurance will also help cut the cost of having to replace appliances that were destroyed in rental units as well as other items you may own and keep on the premises.
What it covers and why your tenants need their own insurance
While you the landlord get all this protection it should be noted that a landlord policy can differ quite drastically from a standard homeowner’s policy coverage when it comes to what it actually covers in the building.
Landlord policies provide property insurance coverage for physical damage to the structure of the home caused by fire lightning wind hail ice snow and other covered perils. It also offers coverage for any personal property you may leave on-site for maintenance or tenant use like appliances lawnmowers and snowblowers. But it will provide little coverage for your belongings. For instance a landlord policy from Aviva or Intact may only offer 10% coverage for your personal belongings in a rental unit. This is typically enough to cover the cost of replacing appliances and tools kept on site for building maintenance but little else. Consider this insurance protection for the structure itself and your financial interest in it. It is not intended to cover your tenant’s personal property.
Renters insurance on the other hand will protect your tenant’s personal possessions—items that are not covered under your policy. To avoid disputes that may arise from the damage or destruction of your renter’s belongings it’s a good idea to require a tenant to buy renter’s insurance before signing a lease.
One last way landlord insurance protects you and your investment is through liability coverage. As a landlord you assume liability. You are responsible for keeping your property safe and in good operating condition. In addition, you can be held responsible for any injuries or accidents that happen on your property. The liability portion of your landlord insurance is coverage to help protect you in cases where you can be found financially responsible for another person’s injuries or damages. Liability coverage will help cover legal costs including court costs as well as settlement claims. To ensure you’re properly covered make sure you talk to your independent insurance broker.
