Landlord Insurance & Rental Income Insurance Programs in Canada
What You Should Know
- Insurance protects a landlord in the event of a disaster. They will not need to pay the total costs of repairing themselves. Instead, they pay a monthly fee known as a premium.
- Standard home insurance won’t protect landlords if they don’t live on the property. They must obtain landlord insurance.
- Although there is no law requiring property insurance, most mortgage lenders require it.
- Tenants can also receive renters insurance to protect themselves from liability and damage to their property.
Always expect the unexpected when it comes to real estate investing. Landlord insurance is one of the many types of insurance policies in Canada. It will also aid with income if your renters cannot occupy the rented property while repairs are completed.
If you own a rental property, you'll want to have this insurance to protect yourself. Learn about the various options available to you below.
What is Landlord Insurance?
Depending on your unique requirements, landlord insurance can protect you against financial losses at your rental property. It usually covers the building, contents that you own on the premises, liability connected to the ownership of the property, and loss of rental income.
Landlord insurance differs from standard home insurance because home insurance is designed with the expectation you’ll be living in your dwelling. In most cases, the landlord won't be protected to the same extent if they don't live in the property. This is why landlords must research coverage options available to them.
Standard Landlord Insurance Coverages
Although there is no legal requirement for landlord insurance, mortgage lenders often demand it. Even without a mortgage, it's a good idea to protect a source of income. Although many factors exist, a landlord can expect to pay about $20-$80 per month on average. Take a look at the typical coverages included in this fee below:
Property Coverage
This component of your insurance covers damage to the rented property, as well as any attached structures.
Depending on the policy selected, the coverage can apply to specific perils (named risks) or all perils (anything that damages or destroys the property). Theft, vandalism, falling objects, and fire are all examples of perils that this coverage would insure. If the property is damaged by one of these hazards, the insurance will reimburse the landlord.
Landlord's BelongingsThis protects the landlord's valuables and equipment. For example, it can cover significant appliances from damage caused by insured hazards such as lightning. It's important to understand that this insurance does not cover the tenant's belongings. That is known as tenant's or renter's insurance and is explained in more detail below.
Liability CoverageThis policy protects landlords from being held liable for harm or injury to another person or their property. Liability coverage, for example, would protect the landlord from being sued for damages after a tenant slipped and fell in the home.
Loss of Rental Income
This policy activates when there are damages that force the tenant to move out. If the rental unit is uninhabitable, landlords can't charge their tenant rent. This coverage will pay the landlord fair rental value for the reasonable time required to complete the insured repairs. This coverage is great for landlords who rely on rental payments each month.
It is worth noting that this policy will only reimburse the landlord for their property’s "fair market rent". This means the landlord may not receive the same amount of rent the tenant was paying. Additionally, it only covers the amount of time required to make the repairs. For example, imagine the damages caused the landlord to make six months of rehabilitation and spend another three months finding a new tenant. The insurance coverage would only protect the landlord for those first six months.
Renters Insurance
Although not mandatory, many landlords now require tenants to obtain renters insurance (also known as tenant's insurance) as part of the lease agreement. This is a smart move for both the landlord and tenant because it decreases the possibility of conflict between the two parties. Renters insurance protects the tenant's belongings, liability, and additional living expenses in the case of unlivable conditions. In general, renters insurance costs between $12-$20 on average per month. Below are the significant coverages included in the insurance:
Tenant's BelongingsWhile the landlord’s insurance policy can cover the building and their belongings, there's typically no protection against the tenant's belongings. This policy will cover the tenant's possessions in the event of fire, theft, vandalism, or water damage.
Third-party Liability CoverageIf a guest injures themselves in the tenant's suite, their renter's insurance will cover ambulance fees and additional medical costs. As the case with property damage coverage, this policy prevents guests from suing the tenant for money.
Additional Living ExpensesThis coverage protects tenants who are required to leave the property due to unlivable conditions. For example, an order to vacate the home due to an unexpected event. If this happens, the insurance company will provide money to cover additional living expenses.
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Additional Landlord Insurance Coverages
Flood InsuranceThe standard flood insurance only covers water damage directly attributed to flooding. It does not cover water damage resulting from a sewer backup or heavy rainfall (unless it causes a flood). For additional coverage, landlords may consider including the following policies in addition to their plan:
- Sewer backup: If water enters the rental property through a sewer, sump, sewage system, or floor drain and causes damage, this policy would cover you. This policy costs about $150-$300 per year on average.
- Overland water coverage: This policy covers structural damage caused by freshwater, such as heavy rain, spring runoff, and melting snow, which enters through windows and doors at ground level. This policy costs an additional $120- $360 per year on average, which can be reduced by bundling with sewer backup.
This isn't necessary for most landlords. However, if the property is in a high-risk area, it might be a good idea to get additional insurance. Average premiums range from $15-$514 annually, with a deductible typically between 2-20% of damages.
Extended Contents InsuranceLiability insurance protects high ticket items up to a certain amount. Landlords may consider this policy if they have expensive objects that cost more than what an insurer classifies as "normal." For example, landlords who keep expensive gardening or snow removal equipment on the rental property may want to protect them. The prices for this plan vary on a case-by-case basisdepending on what you want to insure.
Airbnb Coverage
Although AirBnB offers some protection to hosts, it is often not enough. Additionally, standard insurance policies may not cover short-term rentals as they are deemed risky. It's essential to understand the gaps in coverage to determine if additional protection is proper. The platform provides two policies:
- Host guarantee protection: Offers property damage protection up to $1,000,000. This only covers general contents and does not include high-value objects. Additionally, a typical extended contents policy may not cover short-term rentals.
- Host protection liability: Offers liability coverage up to $1,000,000 to hosts. This protects hosts from guests that file lawsuits relating to personal injury or damages.
However, insurance providers are increasingly developing policies to provide additional protection. In general, these policies can cover loss of rental income, increase liability protection, and even cover guests' property. In general, this policy costs about $40 per month. It is worth noting that some of these policies require a bundle with general property coverage, so a landlord would need to switch their core insurance provider.
Non-payment of RentThis protects landlords against tenants who decide not to pay rent. When a tenant does not pay rent, the landlord has to go through a lengthy eviction process that includes many fees. The Ontario eviction process can take up to 60 days. In this circumstance, the insurance would reimburse the landlord for a set period. However, insurance providers will analyze the tenant's job and debt ratios before deciding to insure them.
Rent guarantee insurance may be expensive, costing 5–7% of the yearly rent payments. Some landlords may decide to avoid this insurance if they believe analyzing a tenant's credit score with other factors will decrease the likelihood of default. However, black swan events such as a recession or divorce could restrict the tenant from making payments.
Landlord Insurance in Ontario/BC
| Ontario | British Columbia |
|---|---|
How much does Landlord Insurance Cost
| Includes | Cost | |
|---|---|---|
| Standard Landlord Insurance |
| $20-$80 per month on average. |
| Additional Insurance Coverages | ||
Flood Insurance
| Flood: varies depending on the region. Sewer: Additional $150-$300 per year Overland: Additional $120- $360 per year | |
| Earthquake Insurance | $15-$514 annually on average | |
| Extended contents insurance | Varies on a case-by-case basis. | |
| AirBnb coverage | $40 per month on average. | |
| Loss of rental income | 5%-7% of rent payments |
Frequently Asked Questions
How are landlord insurance fees calculated?The cost of landlord insurance is determined by several factors, including the type of property you're renting out and your personal information. Insurers will consider the amount of coverage you have, the structure type, the property's location, and your prior claims history.
Does homeowners insurance cover a rental property?If you're renting out a separate property from your primary residence, you'll need landlord insurance.
However, things get more complicated if you rent out the basement, bedroom, or separate unit within your primary residence. It is best to talk with your insurance provider to see if you are protected in these circumstances.
Does landlord insurance cover tenants?Landlord insurance does not cover tenants' belongings. Renters must purchase their own policy to protect their clothing, furnishings, and other possessions in the event of a loss.
Are landlords required to have insurance?While there is no legal obligation for landlords to have insurance, most investment mortgage lenders will demand it. Even if you don't have a mortgage, it's a good idea to protect your home and avoid headaches and financial disaster.
Is landlord insurance expensive?Landlord insurance is generally inexpensive, with many packages costing less than $100 per month. If you have multiple properties, you can purchase a bundle deal which further reduces the cost.
What are the benefits of landlord insurance?One of the most significant benefits of having landlord insurance is peace of mind. If anything goes wrong, you can rely on your insurance to cover the costs of repairs and replacement items.