Apr 08, 2022
Insurance For Renting – A Complete Guide On What You Need
If you own investment property, finding the right rental property insurance policy is an important piece of a successful management strategy. If you list your rental property on a platform like Airbnb or VRBO, the platform will offer you some coverage (usually USD$1 million), but this coverage is no replacement for a solid rented dwelling insurance policy from your friendly neighbourhood insurance broker.
In part 1 of our guide on insurance for renting, we’ll discuss the different types of coverage, share our insights into the components of a strong furnished rental insurance policy, and discuss the factors affecting the price of rental insurance.
What should my rental insurance policy include?
A comprehensive rental property insurance policy will include the following coverages: (1) occupancy; (2) personal liability; (3) property and structures; (4) personal property covers; and (5) rental income loss.
Note that tenant’s insurance or renter’s insurance covers the personal property of the individuals living in your property. We’ll discuss renter’s insurance in a separate post.
1. Occupancy and Short Term Furnished Rentals
One of the first things your insurance broker or agent will ask you about is how the property is going to be used or occupied. They want to know if your property will be owner-occupied, if it’s a long-term rental, a short-term rental, or if it’s going to be left vacant. The type of occupancy for which a property is insured is a material term of the contract of insurance, which means it’s considered very important – so important that if the occupancy of a property changes after you purchase the policy, failing to notify the insurance company of that change in occupancy can render the policy void. If the policy is rendered void, the insurer can deny claims or even cancel the policy completely.
Most insurance companies define any occupancy of less than 12 continuous months by the same person to be “short term” occupancy. Whether you rent your property on a nightly or weekly basis, or a monthly basis, or even for six months at a time, it’s going to be considered a short term rental. Managing a furnished rental property means understanding and working with multiple and often-conflicting definitions of “short term rental”, so be aware of these differing definitions.
Your insurance broker will ask you about the minimum number of nights the property will be rented. If you’re planning to do nightly rentals, the answer here would be “one night”. If you’re part of HighStreet’s program, the answer will be “one month”.
Separately, the insurance broker will want to know how many weeks per year the property is rented. If you’re renting to a single tenant for a minimum term of one year, the answer here would be “52 weeks”. At HighStreet, we advise our owners to plan for occupancy of around 85% on a trailing 12-month average, plus or minus 10%. This is the occupancy we suggest our owners share with their broker in answering this question.
2. Personal liability (also called landlord’s liability)
The personal liability component of a short term rental property policy protects you from third-party property damage and bodily injury claims. This is the part of the policy that covers things like a tenant’s or occupant’s medical expenses. It also covers repair costs arising from damage to neighbouring property. It covers you no matter where you’re living.
3. Property and Structures
This part of your rented dwelling insurance policy covers damage to your property. Whether it’s a detached single family home, a condo, a laneway home, or similar. It’s very closely related to the personal property covers we discuss below, but think of the property itself – the land, the house or condo, the driveway, the garage, etc. – as being separate from the contents inside the house or condo.
A typical question from your insurance broker is whether you have hired a management company for your property. If the answer is no, the broker will want to know how your management company screens applicants for your property. If the answer is yes, the broker will still probably ask how the management company screens applicants. In British Columbia, both owners and management companies must take care that their screening practices do not contravene or violate human rights legislation.
At HighStreet, we believe in the power of relationships, and to that end, we’ve spent the last two decades carefully curating our relationships in the insurance and corporate housing / relocation industries. The ongoing nature and strength of those relationships mean that everyone has a vested interest in the prudent, careful use of our properties, so that HighStreet’s properties continue to be available to them in the future.
4. Personal Property Covers
Personal property covers is an essential component of a strong short term rental insurance policy because it covers everything you own inside the rental property. This is the part of the policy that covers your furniture, your kitchen appliances, your electronics, your linens and towels, your wall decor, and everything else you provide to your occupants or guests.
Your insurance broker will want to know if the property will be inspected after each occupant. The answer here should be a resounding and unequivocal yes! At HighStreet, we’ll inspect the property during as well as after each occupant, and our inspection practices and reports pay special attention to your personal property – i.e. the furnishings, fixtures, and equipment inside the property that make it a desirable, attractive rental property.
During a guest’s stay, our housekeeping service gives us a valuable opportunity at early intervention if we see any activities in a property that could lead to damage or other problems. And after a guest’s stay, we conduct a very detailed inspection that we use to address any ongoing maintenance and housekeeping needs, so that your property stays in absolutely top-notch condition.
5. Rental Income Loss
No rental property insurance policy is complete without coverage for loss of rental income. Do not purchase a policy without this coverage, especially if your rental property is located in a condo building! What happens if one of your neighbours experiences a fire or flood, or some other form of insured damage or loss that affects your property? Chances are, your condo will be rendered unlivable, and your current guest will need to move out. Who knows when repairs and restoration will be completed – meaning you won’t be able to fulfill future bookings. Save yourself the pain and frustration with rental income loss coverage so that your rental income will be part of your insured loss until your property is ready to welcome guests again.
Your insurance broker will ask you what the rate per night or per month charged is. This information can help determine the policy premiums, since it affects the potential amount claimed in a loss event. At HighStreet, we answer this question with a range that reflects our rental rates, seasonality, length of stay, and other factors that can affect the property’s rents.
Other factors affecting the cost of rental property insurance policy premiums
The size location of the property has a significant impact on the cost of rental property insurance policy premiums. A house or condo in the city will cost far less than a seasonal home on a ski hill or a summer cabin on the lake. Your property’s postal code will tell your insurance broker about important details like whether the location is prone to flooding, fires, vandalism, and other risk considerations. Proximity to a fire station or distance to the nearest fire hydrant is a factor too.
The age of the property and its construction – meaning type of building materials used – is essential information that affects the cost of the policy premium. Concrete or wood? Brand-new or 30 years old?
Your personal claims history and credit score will affect your policy premium, too. If you’ve never had a claim, you may be eligible for a discount. Similarly, a soft credit check may net you some savings.
Swimming pools, hot tubs, trampolines, and similar items should be disclosed on the insurance application because they will have an impact on risk factors and therefore affect policy premiums.
What else do I need to know about insurance for renting?
In part 2 of our insurance for renting guide, we’ll discuss how Strata impacts your policy and special considerations for condos. We also talk about the latest news regarding the BC condo insurance crisis. If you have specific questions about real estate management in Vancouver, contact our experienced team. We’re happy to assist.
Special considerations for condos
If your investment property is a condo unit located in a strata corporation, you need to pay special attention to the strata corporation’s insurance policy when selecting a policy for your property. The Strata Property Act of British Columbia requires all strata corporations to obtain property and liability insurance, regardless of size and type. Bare land strata developments and strata-titled duplexes must be insured in accordance with our provincial legislation’s requirements.
The strata corporation’s insurance will cover common property, limited common property, common assets, buildings shown on the strata plan, and fixtures built or installed on or in a strata lot if built or installed by the developer as part of the original construction. The policy must cover full replacement value and insure against major perils like fire, lightning, smoke, windstorms, hail, explosions, water escape, strikes, riots or civil commotion, as well as impact by aircraft and vehicles, vandalism, and malicious acts. Coverage for overland flooding and earthquakes is not required.
Strata corporation insurance policies do not replace or negate an owner’s insurance interest in their strata lot. It’s important to note that although kitchen appliances and laundry machines are usually considered fixtures, in the context of a strata corporation’s insurance policy, these items are excluded from the definition of fixtures.
But perhaps the most important thing to consider is a strata corporation’s deductibles. An event involving insured loss or damage may originate in one strata lot and go on to affect countless neighbours’ strata lots as well as strata corporation common property. In the event of loss or damage involving or affecting strata corporation property, the owner of the strata lot may be required to pay the strata corporation’s insurance deductible. Depending on the type of loss – for example, water and sewer – deductibles can range from $25,000 to $100,000 or more.
If your rental property is a condo or strata lot in a strata corporation, you will want your rented dwelling insurance policy coverage to include the cost of your strata corporation’s insurance deductibles. That way, if it’s determined that you strata lot is responsible for an insurance claim (and keep in mind that you can be responsible for a claim even if you’re not at fault – fault and responsibility are very distinct questions in this context), instead of having to pay that $25,000 deductible out of pocket, your rented dwelling policy will cover it.
Every year, your strata corporation will hold its Annual General Meeting, and your strata corporation’s recently-renewed insurance policy will be an important item on the agenda. After that meeting, you should share your strata corporation’s insurance coverage summary with your insurance broker to ensure that your long- or short-term rented dwelling policy coverage includes coverage for your strata corporation’s deductibles.
The BC Condo Insurance Crisis
Because the BC Strata Property Act requires that a strata corporation’s insurance policy must cover full replacement value of the strata property – meaning the value of all common property, limited common property, common assets, buildings shown on the strata plan, and fixtures built or installed on or in a strata lot if built or installed by the developer as part of the original construction – there are few insurance companies willing and able to underwrite policies of such magnitude. There are perhaps 12 insurance companies available to write these policies. Typically, a strata corporation’s insurance policy is the result of several insurance companies coming together, each writing different parts of the policy.
Catastrophic weather events, decades of frequent and substantial water damage claims, and rising construction costs have come together to negatively impact the cost of strata corporation insurance in British Columbia. In recent years, high costs and reduced competition has resulted in escalating insurance fees, increases in deductibles (even without changes to claims histories), and, in rare cases, buildings being unable to find full coverage (resulting in unavoidable breaches of their statutory obligations). Even if the strata corporation’s operating expense fund is relatively well prepared to handle those increased costs, the increased insurance costs are often passed on to condo owners by raising the monthly strata fees. This is the BC condo insurance crisis.
We’ve seen buildings at the unfortunate intersection of this crisis and their own claims history, with the result being water/sewer loss deductibles in excess of $250,000. The knock-on effect is that homeowners are unable to obtain sufficient deductible coverage for their homeowners’ insurance policies or their short- or long-term rental dwelling policies.
If you already own a strata lot in a strata corporation where this is happening, you’ll need the advice and guidance of a savvy insurance broker to help you navigate the next couple of years. If you’re looking to purchase your next investment property, the most recent insurance coverage summary published in the Minutes of the last Annual General Meeting are worth careful scrutiny – it’s no investment if it comes with a water/sewer deductible of $200,000 and your insurance broker can’t find you good coverage for your rented dwelling insurance policy.
Further reading
Want to learn more? Please check out these links for further information about the condo insurance crisis, insurance requirements for strata corporations, and insurance issues for short term rentals in BC:
https://www.rogersinsurance.ca/blog/can-the-condo-insurance-crisis-be-corrected/
