If you own an investment property, you’re probably aware of how much earning potential your asset offers — especially in today’s housing market. But if you’re thinking of leveraging your property to make a profit, you will need to acquire the appropriate home insurance coverage to make your investment as safe and secure as possible.
The more information you can share with your insurance provider about your investment property and your intentions for it, the better. But, before getting a home insurance quote, it can help to understand the different kinds of insurance you may need — and how the premiums for each may differ — when using your property to generate income.
Whether you’re renting out the whole home or part of it, your home insurance company needs to know. And in either case, you need a policy that protects the dwelling for exactly how it’s being used.
Landlord Insurance vs. Short-Term Rental Insurance
The type of home insurance policy you require will depend on how often you rent out your investment property. But it’s really the annual cost and the extent of coverage available to the property owner that sets landlord and short-term rental insurance policies apart.
“What distinguishes a long-term landlord from a short-term is typically the premium that you pay,” says Anne Marie Thomas, director of consumer and industry relations at the Insurance Bureau of Canada. “The risk of damage and liability is reduced when you have a long-term lease.”
If there is less risk involved for the company insuring the property, you could see that reflected in your premium. For example, if you have a home or condo that you consistently rent out to the same tenant(s) on a lease, your insurance provider may offer you a lower premium than if you were to rent to different occupants every month who could treat the property differently.
And while most landlord and short-term rental policies both cover things like damage to your property, third-party injury, and lost rental income if the tenant must vacate the unit after you make a covered claim, coverage limits may differ. “Some companies may offer you less coverage if you’re doing short-term leases to limit their liability,” says Thomas.
So, if you’re choosing between renting long term or short term, you may decide long term is for you just based on the risk you’re taking on and the extent of coverage you have accessible to you.
Home-Sharing With Renters As a Landlord
Regardless of whether you rent on a long-term or short-term basis, the number of tenants living in the home will also likely affect the premium you can expect to pay.
“If you have a basement apartment and somebody lives there, there would probably be an increase in your premium for liability because it’s no longer a single-family home,” says Thomas.
However, having a separate-entry basement unit can still be lower risk than what is referred to as a boarding house. In this case, your tenants would be sharing common areas of the house, like the kitchen, living room, and bathrooms.
“If you have a four-bedroom home, but you rent out three of your bedrooms with three different boarders, the premium might be more because the risk is greater,” says Thomas.
Therefore, keeping boarders in mind when living in a dwelling with your renters is also important when considering which part of your home to rent out and how much you’re willing to pay for your premium.
Home-Sharing Through a Third-Party Service Like Airbnb
These policies often only include coverage for damage caused or injuries experienced by a guest. They don’t necessarily cover the broader unexpected perils like a burst pipe that may cause water damage, a fire the guest had nothing to do with, or wind-related damage.
While these policies are nice to have to provide reimbursement for unexpected cleaning fees, for example, the property itself can benefit from much more extensive coverage than what an accommodation service can provide.
If you spontaneously decide to rent your property out on Airbnb to make some extra money halfway through your single-family home insurance policy, let your current provider know.
“If your insurance company doesn’t know that the use of your home is for business, in the event of a claim, you could be denied,” says Thomas. Bringing in new occupants under your personal coverage increases risk and “violates the conditions of your policy.”
If you’re unsure of which policy works best for your unique coverage needs, ask your insurance professional to walk you through your options and help you protect your investment property.
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