Rental (Income) Property Insurance
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Do you own a rental income property? If so, there’s special home insurance you’ll need to purchase. It’ll protect not only your home and property from damage but also your stream of rental income.
What is rental income property insurance? Do I need it?
Some Canadians own another property in addition to their principal residence. These properties are rented out to tenants in order to generate income. Rental income property insurance is designed for these kinds of homes. If you own this type of property, you’ll want to have this insurance in order to protect yourself.
Rental income property insurance is similar to traditional home insurance in many respects. For one thing, it comes with the same basic coverages, such as:
- Property coverage This aspect of your policy protects against damage to any structures on the property, as well as any contents of the owner. Coverage applies to either specified perils (specific risks) or all perils (anything that damages or destroys the home). Common perils that are covered by this kind of policy include theft, vandalism, falling objects, and fire. For instance, if your furniture is destroyed by one of these risks, your insurance will cover you.
- Liability coverage This part of the policy insures you if you’re responsible for damage or injury to someone else or their property. For example, if a tenant slips and falls while in your rental property, liability coverage would protect you if you get sued for damages.
Things I need to know as a rental property owner
Rental income property insurance differs from traditional property insurance. As a rental income property owner, you need the home to be in good condition so you can rent it out and earn money. However, if something happens to the rental unit, it may be unliveable and thus can’t be rented to a tenant. For this reason, insurance companies offer protection against the possibility that you’ll lose rental income for a period of time. This is very important as many landlords will have mortgages on their income properties. Not receiving rent for a period of time could otherwise affect their ability to make their mortgage payments.
If your home is damaged or destroyed by something covered under your policy, you’ll qualify for rental income protection. Generally speaking, insurers will compensate you for lost rent for the shortest period of time it takes to reasonable repair the rental property. For instance, if you rent your property for $3,000 a month and the repairs take two months, you’ll be covered for up to $6,000 in lost rent.
If you’re renting out a home, chances are some of your property will be in the unit alongside those of your tenant. It’s imperative that you keep a detailed list showing what belongs to you and what they cost. That way, you can quickly establish what property was yours and not your tenant’s. It’ll make the claims process much faster and stress-free.
Do insurers require a credit check?
Most insurers won’t require a credit check before selling you rental income property insurance. But it’s actually a good idea to voluntarily grant them the right to do a check on your credit history, particularly if you have a solid credit history. If you have a high credit score, insurers will assume you won’t make many claims and may reduce your premiums as a result.
Where am I not covered with my insurance?
As with home insurance generally, there are a number of situations in which you cannot make a claim. These include:
- Damage as a result of pipes or indoor plumbing freezing
- General wear and tear
- Damage caused by termites, insects, or rodents
- Damage caused by earth movements, such as landslides
- Any damage or destruction due to an intentional or criminal act
Do my tenants need their own insurance? Why should I make it mandatory in the lease?
Even if you have rental income property insurance, your tenants still need to purchase their own renter’s insurance. The insurance you buy doesn’t cover them from either personal liability or damage/loss of their personal property.
Legally, your tenants aren’t required to have insurance. However, depending on the province your rental property is located in, you may be able to make it a condition of the lease. That said, once you’ve signed the lease, you can’t retroactively make having renter’s insurance a condition of their tenancy.