A common misconception about home insurance is that a property is covered as long as it has insurance—even if it’s being rented out. This isn’t accurate. When securing insurance, it’s essential to inform your insurance provider about who lives in your home and how the property is being used. Failing to disclose occupancy details could lead to a denied claim if the insurer finds that the use of the property is different from what was initially described. Even if your situation changes after purchasing a policy, it’s important to update your insurance provider before that change happens. Here’s a look at common scenarios where these details matter.
Scenario 1: Renting Out Your Basement
You just bought your first home and, to help with the mortgage, you decide to rent out the basement.
In this case, even if you live in the house, you need to inform your insurer. Many home insurance companies can add coverage for a rented suite to your existing homeowners policy, and may also offer rental income protection. This coverage helps protect your rental income for a specified period if a covered event occurs that prevents you from renting out the space.
Scenario 2: Moving for Work
Congratulations on the promotion! Your new role requires you to relocate from Toronto to Hong Kong, but you decide to keep your Toronto property and rent it out, given the strong real estate market.
In this situation, most standard home insurance providers will not cover the property as a primary residence, as you are no longer living there. Instead, you’ll need a rental property insurance policy, which is specifically designed for properties used as rental income sources. Additionally, it’s wise to hire a property manager or designate someone responsible for maintenance and repairs while you’re abroad.
Scenario 3: Renting to Students
Your home in central Toronto is close to universities, making it ideal for student rentals. With a basement suite that has a separate entrance, three rooms, and a kitchen, you decide to rent it out to students.
Once you rent your property to three unrelated individuals, many insurers classify it as a rooming house, even if you still live in the main part of the house. In this case, you would likely need a commercial policy. This type of coverage is more suitable for rental properties with multiple tenants but usually excludes some personal coverage that a standard homeowners policy would provide, such as personal liability, additional living expenses, and coverage for personal belongings.
Scenario 4: Transitioning from Condo to House
After living in a condo, you buy a new house but decide to keep your condo and rent it out instead of selling it. You then take out a new insurance policy for the house.
In this case, if you’re renting your condo to a single tenant or family, you can often add it as a rental property on your homeowners insurance policy or take out a standalone rental property policy. Either way, it’s essential to inform the insurer of the occupancy change to avoid any potential coverage issues.
Key Takeaway: What’s the Real Difference?
The difference between home insurance and rental property insurance is significant. Rental property policies are designed for landlords and provide coverage tailored to rental income protection and property liabilities. Failing to correctly classify your property’s usage can result in a denied claim, especially in scenarios where tenant-related risks are involved.
If you’re uncertain about your specific needs, it’s best to consult an insurance professional who can tailor a policy to your exact situation. Contact us to ensure your property has the right coverage.
See Also
For more information on landlord responsibilities and rental property management, you might find these articles helpful: