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The difference between homeowner, landlord and tenant insurance

You know the real estate drill: Months of open houses, figuring out your maximum price point, making an offer (or 10), signing the papers and, finally, buying home insurance. But when you’ve outgrown your starter pad and decide to rent it out as an income property, the insurance policy needs to be updated.

Homeowners’ insurance covers the physical house or condo, any separate buildings on the property such as garages and sheds, all the furniture, appliances and other contents kept in the house, and steps in if liability issues arise. If you have a mortgage on the house, the bank may require you to buy insurance. Your neighbours will probably appreciate the coverage, too. If disaster strikes and your home is destroyed, an empty lot won’t help their property values.

But once you rent out your property, you need landlords’ (also known as rental property insurance). That policy will most likely cost more than a homeowners’ policy, and will cover fewer perils. That’s because the insurer is assuming risks for multiple unknown people. Like homeowners’ insurance, however, landlords’ policies cover the home, any additional buildings on the property, and the owner’s possessions—but not the renter’s. Landlords’ policies include liability coverage as well, in case the tenant, their guests, or another party is injured on the property, and may also include coverage for lost rental income. That is, if your property is so badly damaged by an insured peril that your tenants can no longer live there, you’ll be reimbursed for the income you’re missing out on.

If you’re renting out a condo, make sure your landlords’ policy includes coverage for building improvements. If you installed new oak cabinets or upgraded the humdrum fridge and stove to state-of-the-art appliances, those improvements won’t be included in the condo corporation’s insurance. It’s also helpful to have insurance for condo deductible assessments. It’ll kick in if damage from your unit affects the building as a whole (if a leaky sink floods the floor below you) and the condo corporation bills you for what its insurer won’t pay, which is, at the very least, the deductible.

Whatever type of home you’re renting out, it’s a good idea to require tenants to buy and show proof of renters’ insurance. The policies will protect their possessions and provide extra liability coverage in case the tenant is responsible for the damage. That is, if the property burns down because of a problem with the wiring, landlords’ insurance would kick in. But if the fire were started because the tenant forgot to turn off the stove, their tenants’ policy would respond.

Homeowners, landlords, and tenants need to decide what type of replacement policy to buy. Insuring for replacement costs will be more expensive, but it covers the cost of buying new possessions at the time of the loss. So even if your washing machine is 10 years old and a little leaky, the insurance company will pay for a brand new washer. Buying a cash value insurance policy is cheaper, but it’ll only cover the cost of a 10-year-old machine.

To estimate your insurance costs, get a home insurance quote.

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