August 24, 2015 by Canadian Underwriter
About 14% of homeowners across British Columbia, Alberta, Saskatchewan, Manitoba and Ontario rent out a portion of their house to non-family members, according to a survey of more than 4,000 house owners conducted by Square One Insurance.
The Vancouver-based insurer, which offers home insurance in the five provinces, said in a statement on Monday that it has talked to more than 4,000 house owners over the past six months. Besides the 14% average, the study found that B.C. homeowners had the highest rate of renting out a portion of the home at 26%, while Ontario had the second highest, albeit only at 7%. Alberta was 5%, Manitoba was 6% and Saskatchewan was the lowest at 3%.
A portion of a home could be a basement suite or a garage converted to a laneway home, Square One Insurance said in the statement.
“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,” said Daniel Mirkovic, Square One Insurance’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.”
Square One Insurance – which said that it is one of the few providers to automatically include earthquake, sewer backup and broad water protection in its policies – added that while rental income from tenants can be “a great help” in paying off a mortgage, a rental suite may not be allowable under all policy and adjustments may need to be made for the coverage to remain in place. Some considerations include:
• Most insurance policies require the homeowner to advise the insurer within a specific period of time of any improvement over a certain amount, as the rental suite likely increase the value of the property. If the homeowner fails to advise the insurer, they may find themselves underinsured in the event of a loss;
• The home insurance policy likely requires the homeowner to advise the insurance agent of any significant changes to the building, or to how it’s used. The policy was sold on the basis that it was a single-family dwelling and if it becomes a multi-family dwelling and the insurance agent is not advised, the policy could be invalid;
• More people living in the home leads to an increased liability risk. If a tenant or a tenant’s guest trips on a ladder in a backyard or slips on an icy step, for example, the homeowner could be sued for their injuries. One option is to increase liability coverage at a slightly higher premium;
• The homeowner’s policy will not cover tenant’s property, nor will it cover the homeowner’s property in the unit, such as window coverings, appliances, or furniture in a furnished suite. The homeowner may need to add “landlord’s property” insurance to cover anything they own and ensure that tenants carry their own insurance. This will cover their personal property and it may cover the homeowner’s property if the tenant unintentionally damages the home;
• A number of municipalities have changed their bylaws to allow the conversion of a garage to a laneway home. The insurance on a laneway home will need to be upgraded to cover a secondary dwelling to protect it to its full replacement value, or a separate policy may be needed for the laneway home; and
• If a homeowner is counting on that rental income to help pay a mortgage, the homeowner should purchase insurance for protection in case the income is lost. If there is a fire or other insured loss, and tenants move out while the property is being repaired, the insurance can replace the lost income while the property is uninhabitable.