Investment Property: Do I Need to Get Home Insurance?
Buying a new home can be overwhelming, with a checklist that just will not seem to end. From finding a perfect property to securing your mortgage to winning a bidding war, it can be an exciting, yet overwhelming process. One of the items often overlooked is home insurance, especially when the buyer does not plan to live in the space.
Is home insurance is necessary for investment properties?
The answer: absolutely! Overlooking getting an insurance policy for any investment property is simply too risky. While insurance on its own can be quite complicated, there are unique differences between the likely requirements between condominiums when compared to single-family detached investments. Nevertheless, both condominium and single-family detached properties will require some level of insurance when purchased as investments and occupied by tenants.
What insurance covers in an investment property.
In the case of condominiums, the strata corporation will have an overarching insurance policy which covers the building itself. In addition, the strata’s policy will include coverage for things like sewer backup, water damage, earthquake, fire, and even things like cyber liability in some cases.
While the strata’s insurance policy holds plenty of coverage, it does not cover any of your personal items (think furnished rental), and most importantly will only include the originally installed fixtures by the developer. As an example, following the renovation of a condominium, newly installed appliances, and flooring would not be covered by the strata’s insurance policy. So, in the event your suite flooded or was damaged by fire, the insurance policy would cover only what was originally installed and again, not personal items. In this case, any improvements to the suite, following the developer’s original appointments should be covered by insurance to cover building improvements.
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Examples where insurance is beneficial.
In the cases of a new condominium with no required upgrades, would insurance still be recommended – still, yes! Most importantly, purchasing liability insurance will protect you from the financial hardship of any potential legal action by a guest of a tenant should they become injured while on the premises. Imagine a guest of your tenant slipped on your bathroom tile floor, injuring themselves in the process. In the event they took legal action against you, a liability policy would cover you.
An easily overlooked insurance coverage is condo deductible insurance, which protects you from the deductible on a strata’s insurance policy. For the sake of an example, imagine your tenant left their bathtub running, or hung clothes on the sprinkler head, resulting in a fire hydrants worth of water, eventually making its way to the suite below, and perhaps the suite below that one too. Soon enough, many neighbours have extensive and expensive damage on their hands. While the strata’s insurance as discussed above may cover some of the original improvements, the deductible on the policy must be paid by you (the landlord of the suite at fault). In some cases, this deductible through strata’s insurance policy can be upwards of $100,000! For those holding a condo deductible insurance policy, only their personal insurance policy deductible would need to be paid, which would cover the larger strata corporation’s policy deductible.
Finally, rental income insurance can also be a wise consideration. This insurance would cover your rental income in the event the suite became damaged or uninhabitable, requiring the tenants to move out while repairs are underway. If you rely heavily on the rental income to cover the mortgage, strata and property taxes, rental income insurance will be worthwhile.
Of course, you will not need to have many separate insurance policies. A reputable insurance broker can help incorporate the insurance specific to your situation into one comprehensive policy.
Keep in mind, we are not in the insurance business, and therefore strongly suggest you defer to insurance professionals to make any of your insurance related decisions. Should you be looking for home insurance, we would be pleased to refer an insurance broker to you. Contact us at firstname.lastname@example.org.