You have purchased a rental property. Fantastic! If managed correctly a rental property can be a great stream of income. So, are you ready to go? Lease? Check. Tenants screened? Done. Property manager secured? Yes. What about rental property insurance? In this blog, we’re going to unpack what you need to know about rental home insurance!
Rental homes have potential pitfalls that, if not addressed, can cause problems in the event of a claim. The first major pitfall for rental property insurance is occupancy.
Rental Property Insurance: Occupancy
The one thing, more than any other, that could cause problems in the event of a claim, is how the rental home was occupied. Many landlords simply refer to their properties as “rentals”. However, at the time of the claim, the claims adjustor will look at the occupancy levels.
Prior to insuring the home, we recommend landlords check in with their insurance broker. Landlords need to know what their particular insurance policy accepts and will insure. For example, some insurance companies want to know how many families occupy the home. Others go even further and ask how many people reside there. Further, whether or not these occupants constitute a family. Therefore, knowing what is acceptable to your insurance company is likely one of the most important things you can do.
At Campbell & Haliburton Insurance, we understand that insurance can appear complicated and confusing. Therefore, take the time to talk with your agent. Further, ask all your questions and make this an ongoing priority! We recommend sitting down with your broker at least once per year to do a review.
Rental Property Insurance: Types of Occupancy
Rented, Occupied, or Vacant
Most landlords talk about a house being rented. At Campbell & Haliburton Insurance, we try to stay away from the word “rented.” We tent to use the words “occupied” or “vacant” instead. For example, while a lease may be signed, there can be gap of a few days or even weeks until tenants physically move in. Therefore, many landlords would view this as “rented”. After all, it is no longer on the market. Tenants are in place and will eventually move in. Technically-speaking, however, even though the home is “rented,” it is still vacant. It becomes occupied only once the tenants physically move into the space.
So what’s the big deal? Is this really that important? Yes, it is! Most insurance policies have requirements and will be notified once a dwelling is vacant. Further, they may require to be notified right away. Or, they may give a 30 days grace period for notification. Therefore, it is important to talk with your broker to see what your policy’s requirements are.
What happens if an insurance company is not aware that a dwelling is vacant? Well, there could potentially be no coverage in the event of a claim. That is not a situation that we want, as an insurance broker. Further, that is certainly not a situation you want, as a landlord. So make sure you keep your insurance broker informed on when your rental home occupied.
Single Family Occupied
Most rental homes are occupied as single-family dwellings. This means that there is one family living in the home. This could be a traditional family occupied by mom, dad, and their kids. However, it could also be a couple of siblings renting the home together. The list goes on…
Insurance companies typically deem “family” to be immediate family. What if you are someone renting a home with cousins or second cousins, or fourth cousins once removed (whatever that actually means)? Well, this would likely not be considered as a single family occupied dwelling.
Two Family Occupied
A two-family occupied dwelling would be a dwelling occupied by, you guessed it, two families! For example, this would be when two friends rent a home together. Now, not one, but two families occupy the dwelling. For many insurance companies, this does not cause any concern. We just need to be aware of it! That is the key. So, as always, we recommend that you speak with your insurance broker to make sure that there are no concerns.
More Than Two Families
What if there are more than two families? What if there is a group of people occupying the dwelling? For example, suppose you have three or four friends sharing accommodations. It is not at all uncommon for university students or young adults to do this. After all, why not split the cost of living accommodations? Well, this becomes much more difficult to insure. It is possible, but it can be difficult and costly.
Two or more unrelated people living together is what insurance companies deem a rooming house situation.
Wait… What does ‘rooming house’ mean?
My lovely wife enjoys the world of Anne of Green Gables. As the good husband that I am, I have spent many hours watching this genre with her. Therefore, I envision something specific when I hear the words “rooming house.” I envision a large turn of the century house. Further, the house has a bunch of people renting a bedroom and sharing supper together at a large table. After all, that is a rooming house, isn’t it?
No, like it or not, most insurance companies do not share my view of a rooming house. Most companies view more than two unrelated people living in a house together as a rooming house. That of which, causes a problem. Many insurance companies will not want to insure rooming houses. This means that if there is a rooming house (by the insurance company’s definition, not by what I think of), they now have the opportunity to not pay a claim. That is a situation we very much want to avoid.
Every company is different, so please, talk to your broker. Make sure that they know how many people occupy the home!