Insurance For Rental Property: How Does it Work?

by | Sep 25, 2023

Investing in rental properties can be a lucrative venture, offering a steady stream of income and the potential for long-term financial growth. However, as a landlord, you know that with great opportunity comes great responsibility. One of the most crucial aspects of safeguarding your investment is understanding how rental property insurance works.

Back by over four decades of experience, the team at D.G. Bevan Insurance Brokers Ltd. understands the unique challenges and risks that come with being a landlord. That’s why we’re here to demystify the world of rental property insurance, guiding you through the intricacies of this essential coverage.

In this blog post, we’ll delve into the fundamentals of rental property insurance, exploring what it is, why you need it, and how it can protect both your financial interests and peace of mind. Whether you’re a seasoned property owner or just dipping your toes into the world of real estate investment, our aim is to provide you with the knowledge and insights you need to make informed decisions about your insurance coverage.

What is rental property insurance?

Rental property insurance, often referred to as landlord insurance, is a type of insurance coverage designed for property owners who rent out residential properties in Canada. This insurance is specifically tailored to protect landlords and their rental investments. Here are the key components and coverages typically included in rental property insurance in Canada:

Building Coverage

This is the primary component of landlord insurance. It covers the physical structure of the income property, including the building itself, roof, walls, floors, and any attached structures like garages or sheds. If the income property is damaged by covered perils such as fire, windstorms, vandalism, or other insured events, building coverage helps pay for repair or reconstruction.

Loss of Rental Income

Suppose a covered event renders the investment property uninhabitable and tenants cannot occupy it. In that case, landlord insurance can compensate for the lost rental income you would have otherwise received from renting the property. This helps landlords manage their financial obligations even when the property is under repair.

Liability Coverage

If a tenant or visitor is injured on the rental property and you are found legally responsible, liability coverage helps pay for legal expenses, medical bills, and potential settlements.

Additional Living Expenses

Some policies may offer coverage for additional living expenses incurred by tenants if they are temporarily displaced from the investment property due to a covered event. This coverage helps tenants cover the cost of temporary accommodation and other necessities.

Optional Coverages

Depending on your specific needs and the insurance provider, you may have the option to add additional coverages to your policy. These can include protection against specific risks like overland flooding, sewer backups, or earthquake damage.

It’s important to note that landlord insurance primarily covers the interests of the landlord, protecting their property, income, and liability exposure. It does not typically cover the personal belongings of tenants. Tenants are encouraged to obtain their renter’s insurance to protect their possessions and provide liability coverage specific to their circumstances.

Is rental property insurance required in Canada?

No, rental property insurance is not legally required by the Canadian government. No federal or provincial laws mandate landlords to have landlord insurance in Canada. However, while it’s not a legal requirement, many landlords choose to purchase landlord insurance as a prudent financial and risk management measure.

Rental property insurance provides valuable protection for property owners by covering the physical structure of the income property, providing liability coverage, and offering compensation for loss of rental income in certain circumstances. It can help landlords mitigate potential financial losses due to property damage, liability claims, or unexpected events that render the rental property uninhabitable.

Additionally, some mortgage lenders or financial institutions may require landlords to have landlord insurance as a condition of their loan or mortgage agreement. Landlords should check with their lenders to understand any insurance requirements associated with their property financing.

While landlord insurance is not legally mandated, it is considered a responsible choice for property owners to safeguard their investment and financial well-being. Moreover, having insurance can offer peace of mind and security in the event of unforeseen circumstances that may disrupt the rental property’s income flow or damage the property itself.

What is the difference between landlord insurance and renters insurance?

Landlord insurance and renters insurance, also known as tenant insurance, are two distinct types of insurance policies that serve different purposes and protect different parties in a rental property situation. Renters insurance is designed to protect tenants and their personal property, while landlord insurance is tailored to protect property owners and their rental properties. Both types of insurance play crucial roles in managing and mitigating risks in a rental property arrangement. Landlords and tenants are encouraged to have the appropriate insurance coverage to address their specific needs and responsibilities.

Should you get homeowners insurance for a rental property?

If you own a home that you plan to rent out to tenants, it is strongly recommended that you purchase rental property insurance for the home. Landlord insurance is specifically designed to protect property owners (landlords) and their rental properties. While it’s not legally required by the Canadian government, having landlord insurance offers several important benefits.

Rental property insurance offers comprehensive protection for landlords. It covers the physical structure of the income property, including attached structures and landlord-owned appliances or furnishings, facilitating repair or reconstruction in case of damage from covered perils like fire or vandalism. Additionally, it includes rental income loss coverage, compensating landlords for rental income lost during property repairs due to events such as fire or storms. Furthermore, it provides liability protection, helping landlords with legal expenses and medical bills if a tenant or visitor sustains injuries on the income property for which the landlord is held responsible.

While you, as the landlord, are responsible for insuring the income property, it’s essential to communicate to your tenants that your insurance does not cover their personal belongings. Encourage your tenants to obtain their own renter’s insurance to protect their possessions and provide them with liability coverage.

Does rental insurance cover flood damage in Canada?

Yes, rental insurance in Canada typically covers flood damage, but it’s essential to review your specific policy to understand the extent of coverage and any limitations or exclusions. Many standard rental property insurance policies in Canada do include coverage for certain types of water damage, including some types of flooding. This coverage typically applies to sudden and accidental water damage, such as that caused by a burst pipe or a malfunctioning appliance.

In addition to basic coverage, insurance providers in Canada may also offer the following add-ons.

Overland Flood Coverage

In recent years, some insurance providers in Canada have started offering overland flood coverage as an optional add-on to landlord insurance policies. Overland flood coverage specifically protects against damage caused by water overflowing from bodies of water (e.g., rivers, lakes) and excessive rainfall. It is designed to address the growing concern of flood risks in certain regions.

Sewer Backup Coverage

Some landlord insurance policies may include or offer sewer backup coverage as an add-on. This coverage can help protect against damage caused by sewage backup into your income property.

Does landlord insurance cover wildfires in Canada?

Yes. Most standard rental property insurance policies in Canada provide coverage for damage caused by wildfires, as well as other perils like fire, lightning, and smoke. This coverage includes repairing or replacing the structure of the income property itself, as well as any landlord-owned appliances or furnishings that may be damaged by a wildfire. 

In the event that your rental property becomes uninhabitable due to a covered peril like a wildfire, landlord insurance may also include coverage for additional living expenses. This can help cover the cost of temporary accommodation, meals, and other necessary expenses while your income property is being repaired or rebuilt.

Given the increasing frequency of wildfires in certain parts of Canada, it’s essential to ensure that your landlord insurance adequately addresses the risks associated with wildfires if you live in an area prone to such events.

Does rental property insurance in Ontario cover tornadoes?

Yes, tornadoes are typically covered by landlord insurance in Ontario, Canada. Landlord insurance can include coverage for various perils, including windstorms, tornadoes, and other types of severe weather events, to help repair or replace the structure if damaged. Additionally, it often includes income loss compensation and assists in managing expenses related to temporary accommodation and other essential needs while your rental property undergoes repairs or reconstruction.

Final thoughts

Landlords must always be aware of any exclusions or conditions in their rental property insurance policy. For example, coverage for flooding may not apply if the damage results from neglect or failure to maintain the property properly. For tornadoes, there may be specific conditions or deductibles. For wildfires, there may be specific conditions, such as coverage not applying if the property was vacant for an extended period or if the wildfire was a result of arson.

Furthermore, the availability of certain coverages, like overland flood protection, may vary depending on your location and the insurance provider. Therefore, when purchasing landlord insurance, landlords should carefully review policy terms, coverage limits, and any exclusions or deductibles to ensure that the insurance aligns with their specific needs and the risks associated with their rental property. Partnering with a licenced insurance brokerage such as D.G. Bevan Insurance Brokers Ltd. can help you tailor your landlord insurance policy to your unique needs, especially if you are concerned about the risk of extreme weather in your area.

Written by Nathan Stansfield

With a career spanning over 5 years in the dynamic realm of digital marketing, I am dedicated to crafting compelling narratives and working with licensed experts in the insurance field, to ensure we deliver for you.

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