Do you rent out your home? here’s why you need “landlord insurance”
Renting a part of your house or another property you own out to tenants is a great way to earn additional income. For many, owning and renting properties is a unique way to invest in real estate that can reap some serious ROI. If you are considering becoming a landlord, or already are one, you’re well aware about the challenges that this position presents. There’s maintenance, finding potential tenants, and ensuring that those tenants are honest, reputable, and will make payments on time. Real estate can be a considerable investment, and you wouldn’t want that to go to waste.
Enter landlord insurance. No, it’s not the same as home insurance, and it isn’t an extension of home insurance either. Home insurance, by definition, protects a home with the expectation that you – the homeowner – will be living there and looking after it regularly. It covers you and your live-ins’ personal liability, the physical property, and any contents inside. Unfortunately, this won’t extend to a property that you don’t live in – i.e, a place you’re using to rent out.
What is landlord insurance?
Landlord insurance is a type of insurance policy that, while it can differ depending on what you need covered and your exact provider, insures property owners against financial losses to do with their rental properties. It will generally insure items that look very similar to home insurance, from the physical property, the contents inside (that you own – not the tenant), and any liability that may arise due to the ownership of the property. Some policies will also cover loss of rental income.
In essence, a landlord insurance policy may cover:
- Replacement for rental income in the event your tenants are required to evacuate due to an insurable loss.
- Insures your property for physical damages, including its fixtures, floors, walls, HVAC systems, furniture, etc. – all subject to the terms of your individual policy. Different policies insure against different risks and will contain certain limits.
- Your legal liability, if someone holds you liable for property damage or bodily injury as a result of your ownership of the rental property.
Landlord insurance may exclude items you’d expect, like any belongings of your tenant (they’ll need their own tenant insurance for that) and your tenant’s liability. It also may exclude things like acts of war, civil unrest, flooding (without an overland water endorsement), infestation, and so forth.
What if I only rent out a part of my home?
Depending on your rental – say, if you rent out a basement, or a room of your home and not the entire property (and you are living in the other part of the home) then you may be able to suffice with just a home insurance policy. You’ll still need to check with your provider to see if your policy’s terms contain any restrictions on this front, however. Landlord insurance may only be necessary if you own a separate property and do not live in it. Note also that while landlord insurance isn’t mandatory, if you have a mortgage on your rental property, you will likely be required to obtain coverage.
Do tenants need to carry their own renter’s insurance?
Renters may not be required by law to carry tenant or renter’s insurance but know that your landlord insurance will not protect your tenants’ belongings nor will it protect their personal liability, if someone files a lawsuit against them for damages their actions have caused. Renter’s insurance can cover the tenant’s clothing, electronics, furniture (that isn’t original to the rental property) and their personal liability if something should happen. It is recommended they carry it, and you can even include a clause in your lease agreement that states they must purchase it. Renter’s insurance can be cheaper than a couple of coffees per month.
How much does landlord insurance cost?
Like with any insurance policy, the price of landlord insurance varies depending on the coverage you choose, your provider, and a range of other factors. Premiums may be calculated based on:
- Where you are located in Canada
- The size of the property
- If the property is near any major risk factors
- Previous claims
- Renting history
- Personal info
Note that landlord insurance will generally cost you more than your average home insurance. This is because it is typically much riskier to run and operate a rental property than it is to live in a home, as you won’t be there day-in and day-out to monitor it, and some renters are much less inclined to look after a rental unit than something they own.
To keep your insurance premiums affordable, it’s highly advisable that you do your due diligence when it comes to tenants and perform background checks. Request that your tenants carry renter’s insurance and be selective of who you approve. It’s one thing to deal with non-payments, and another to deal with potential physical damage to your rental property.
Panda7 can walk you through whether landlord insurance may be of benefit to you and your circumstances. If you own a property and only rent out a floor or room, discuss coverage options with our expert and friendly brokers today.
