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. Rental property insurance? Let’s unpack what you need to know about rental home insurance.
Rental homes have a couple of potential pitfalls that, if not addressed, can cause significant problems in the event of a claim. The first major pitfall for rental property insurance is occupancy. The second major pitfall is valuing and will be discussed in a separate post.
Rental Property Insurance: Major Pitfall #1 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”. But at the time of the claim, the claims adjustor will look to see occupancy levels when the claim occurred.
Prior to insuring the home, we recommend that the landlords check with their insurance broker to see what their own particular insurance policy accepts and will insure. Some insurance companies want to know how many families occupy the home. Others go even further and ask how many people reside there, whether or not they constitute a family. Knowing what is acceptable to your insurance company is likely one of the most important conversations that you can have.
At Campbell & Haliburton Insurance, we understand that insurance can appear complicated and confusing. Take the time to talk with your agent. Ask all your questions and please make this an ongoing priority. Sit down with your broker at least once per year and do a review. Find out what you have, what you need, and what is available.
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” and talk about it being “occupied” or “vacant.” It is very possible for there to be a lease signed with tenants booked to move in, but there is a gap of a few days or even weeks until they physically move in.
Many landlords would view this as “rented”. After all, it is no longer on the market. Tenants are in place and they will be moving in. But technically, even though the home is “rented” it is still vacant. It becomes occupied only once the tenants physically show up and move into the space.
So what’s the big deal? Is this really that important? Most insurance policies have requirements that they will be notified once a dwelling is vacant. They may require to be notified right away. They may give 30 days grace until they need to be notified. 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? There could potentially be no coverage in the event of a claim. That is not a situation that we want, as an insurance broker. That is certainly not a situation that you want, as a landlord. So please make sure that if you have a rental home you keep your insurance broker informed as to how it is 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 nuclear family occupied by Mom, Dad, and their kids. It could also be a couple of siblings renting the home together, or it could be a couple living in a common-law relationship.
Typically insurance companies deem “family” to be immediate family. If someone is renting a home with cousins or second cousins, or fourth cousins once removed (whatever that actually means) it 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. This would typically be the situation where two friends are renting a home together. Now, not one, but two families occupy the dwelling. For many insurance companies, this does not cause any concern as long as they are 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 with two people occupying the home.
More Than Two Families
What if there are more than two families? What if there are a group of people occupying the dwelling? Suppose you have three or four friends sharing accommodations. There are times when a group of friends occupies a home together. 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? This becomes much more difficult to insure. It is possible but can be difficult and costly. When there are more than two unrelated people living together insurance companies often view this as a rooming house situation.
Wait… What does ‘rooming house’ mean?
My lovely wife enjoys the world of Anne of Green Gables, so being the good husband that I am, I have spent many hours watching this genre along with her. As a result when I hear the words “rooming house,” I think of a large turn of the century house that has a whole bunch of people each 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 what constitutes a rooming house. Many of them view more than two unrelated people living in a house together as a rooming house. And that causes a problem. Many insurance companies specifically state that they do not 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, please, please talk to your broker. Make sure that they know how many people occupy the home.
Okay now. . .
What if we only have one person on the lease?
The number of people on the lease is not the issue. The issue is how many people actually occupy the house.
What if I have two suites?
Having a second suite may be a workaround. The key is that the suites are self-contained. Each suite has its own kitchen, bathroom, and separate entrance. The people from one suite cannot readily go to the other suite and vice versa. Again, communication is key. Speak to your insurance broker about how many people are in the house and how many suites you have. Your broker can best advise you as to how your insurance is impacted.
So where does all this leave you? Call your insurance broker and ask the question: is my rental home properly insured? If it is that’s great! If it’s not, now is the time to fix it.
If you don’t have an insurance broker and want to talk to someone who is truly passionate about your rental dwellings, contact us at Campbell & Haliburton Insurance. We would love to talk to you.
Stay tuned for more on rental property insurance’s second major pitfall – value.
Office Manager & Licensed Insurance Broker
Our Trusted Regina Insurance Agents at Campbell & Haliburton have your best interests and safety in mind and our commitment to customer service is one of the pillars of our business. We also know insurance inside and out, so please contact us for all of your insurance needs and we will be more than happy to help ensure what you value most is protected.
