Over the past six months, Vancouver-based Square One Insurance has talked to over 4,000 house owners across Canada and has found over 14 per cent of them rent out a portion of their home to non-family members. B.C. has the highest rate at 25 per cent while the Prairie Provinces have the lowest at 5 per cent. This could be a basement suite in the home, or a garage converted to a laneway home.
“The high percentage of people renting out a portion of their houses is understandable given today’s economy and the rising price of real estate across the province,” says Daniel Mirkovic, Square One’s president and CEO. “In fact, we suspect the actual percentage is considerably higher. Some people may be reluctant to disclose this information to their home insurance provider if they haven’t secured necessary municipal approvals and permits.”
A rental suite may or may not be allowable under the type of policy a homeowner haa, and adjustments may need to be made in order for coverage to remain in place. Here are some things to keep in mind when you’re considering renting out a portion of your home:
- If you built a rental suite in your home, you’ve likely increased the value of the property. Most insurance policies require you to advise them within a certain period of time of any improvements over a certain amount. If you fail to do this, you may find yourself underinsured in the event of a loss. Your insurance agent can help you determine the new replacement cost of your home.
- Your home insurance policy likely requires you to advise your insurance agent if you are going to make any significant changes to the building, or to how it’s used. Your policy was sold to you based on the fact that it was a single-family dwelling. If it becomes a multi-family dwelling, and if you neglect to advise your insurance agent, your policy could be invalid.
- More people living in the home leads to an increased liability risk. If your tenant, or a guest of your tenant, trips on a ladder in your backyard, or slips on an icy step, you can be sued for their injuries. You may want to increase your liability coverage, and may pay a slightly higher premium due to the increased risk.
- Your homeowner’s policy will not cover your tenant’s property, nor will it cover your own property in the unit, such as window coverings, appliances, or furniture in a furnished suite. You may need to add “landlord’s property” insurance to cover anything you own. And make sure your tenants carry their own insurance. This will cover their personal property, and it may cover your property, if they unintentionally damage your home.
- A number of municipalities have changed their bylaws to allow the conversion of a garage to a laneway home. The insurance on your laneway home will need to be upgraded to cover a secondary dwelling to protect it to its full replacement value, or you will need to purchase a separate policy for the laneway home.
- If you’re counting on that rental income to help pay your mortgage, you should purchase insurance to protect you in the event that income is lost. If there is a fire or other insured loss, and your tenants move out while the property is being repaired, your insurance can replace the income you’ll lose while the property is uninhabitable.