7 Tips for Choosing the Best Rental Property Insurance in Canada
Rental properties are increasingly becoming popular. The tourism sector is thriving. And most travellers are opting to stay in a rental property compared to hotels, making it a worthwhile investment. Young adults are also preferring to rent out their property and generate some income on the side, more so if they want to travel or live closer to work.
Rental properties pose a considerable risk to the owner. While it is a great investment, it can lead to major financial losses. And you can never be too sure when this can occur, hence the need for rental property insurance.
What is rental property insurance?
Rental property insurance is a specialty type of insurance that is tailored specifically for a rental property owner. While it may be similar to homeowners’ insurance to some extent, it is designed for landlords who rent their property.
The coverage provided in rental property insurance varies with different insurance providers as well as the landlord’s needs. However, rental property insurance in Canada provides coverage for the property, injuries sustained where the landlord is at fault and personal property.
Having rental property insurance is important. However, you need to be careful lest you end up paying for insurance that will not be beneficial when you need to make a claim. To help you avoid such instances, we have outlined seven tips that will come in handy as you shop for your rental property insurance.
1. Know what coverage is provided
The importance of any insurance is to safeguard the policyholder in case the insured perils occur. Purchasing rental property insurance without knowing what coverage is provided is only a recipe for disaster when you need to make a claim.
Most rental property insurance policies provide coverage for:
- Property damage- This provides coverage for damage that your property may sustain as a result of natural disasters, vandalism and theft.
- Loss of income- Most rental property insurance providers compensate for lost income if your rental house is rendered inhabitable due to events such as flooding or fire. Most insurers, however, only provide compensation for lost income due to the occurrence of unexpected events and disasters.
- Liability insurance- You may find yourself in a lawsuit. And this can be expensive. For instance, lawsuits about settlement costs, physical injuries, medical and legal fees are common with rental properties. Liability insurance also provides coverage for 3rd party property damage. This will come in handy if you are found liable for damages to another person’s property, whether a tenant or a neighbour.
Now that we have seen what rental property insurance typically provides coverage for, you need to go through your policy’s fine print before you sign the policy. The provisions vary for different insurance. Also, be on the lookout for exclusions and limitations on your policy.
2. Consider the pay-out terms
Generally, rental property insurers offer the choice between two pay-out terms: Replacement value and cash value.
Opting for the replacement value pay-out means that your insurer will only pay the amount to repair or replace the damaged property in the current economy.
The cash value pay-out means that you will be compensated for property damages based on the current value of the insured property and other losses. It also takes into consideration the depreciation cost and the age of the property.
When dealing with rental insurance, you need to consider a pay-out method that will not force you to dig deeper in your pockets just to have the rental property replaced or repaired. As such, it is advisable to opt for the replacement value pay-out. This means you will not need to supplement your claim to repair or even afford to build a new property.
3. Consider an insurance plan that has additional coverage options
To fully safeguard your property against the occurrence of perils, you may need to purchase additional insurance. For instance, you may need to add coverage for furnishings inside the house, equipment breakdowns and even a rent guarantee.
Rental property insurers have varying additional coverage options. As such, go for an insurer that offers the add-on coverage that you need. Most rental insurance providers, however, will not hesitate to tailor your rental property insurance based on your needs.
4. Be keen when choosing between an insurance agent or broker
There are different advantages associated with either insurance agents or brokers. For instance, insurance brokers can represent several insurance providers. As such, they may have a creative way to get a rental property insured, especially one that has difficulties involved.
Whether you opt for an insurance agent or broker, ensure that you get all the additional insurance that you may need. Also, be sure that they are well-versed with the rental property insurance sector before committing to the policy.
5. Check out for the deductible amount
Insurers require a deductible payment every time a claim is made, which aims to limit the number of claims that policyholders make. You may be saving money by remitting lower premiums. However, if you do not have enough money for the deductible amount, your rental property insurance claim cannot be paid. As such, ensure you set a deductible amount that you can pay when making a claim.
6. Be honest with how you intend to use the property
Rental property is exposed to more risks compared to non-rental property. As such, it is more costly. To save some coins, some property owners may try to reduce the insurance costs by being dishonest about how the property is used.
If you claim that the property is non-rental or that it is only rented for two months annually, but instead, it is rented all year out, you may be in for a surprise when making a claim. And you will not be pleased. Most insurers cancel and even blacklist policyholders who provide misleading or false information to benefit from it.
7. Shop around for the best coverage and rates in the market
As we mentioned, rental property insurance can be expensive. And you need to ensure that you get the best coverage at the best price. This will not be achieved without shopping around and comparing quotes from different providers. To reduce the cost of your rental property insurance, consider bundling your policies with one insurer, provided they are credible.
Rental property insurance can protect you against unexpected property losses and ensure you maintain a healthy cash flow from your investment. However, you need to take your time and understand the property insurance that is available in the Canadian market. Also, pick one that works based on your property.