Investing in rental properties can be a rewarding business venture for those with a knack for home maintenance and tenant management.

Being a landlord has its pros and cons. On the one hand, you get a sense of fulfillment from providing tenants with a safe and comfortable place to live while earning passive income and enjoying tax deductions on expenses like repairs and upgrades. But on the other hand, you can be liable for tenant injuries or damages.

Protecting your property and assets is vital whether you’re a new or experienced landlord.  That’s where a landlord insurance policy can help: it is your financial backstop for expenses arising from accidents or unanticipated damages and losses.

A woman with keys to a house.

Why Do Landlords Need Insurance?

First, let’s define what landlord insurance is. Landlord insurance protects you, the property owner, from financial losses at your rental properties, including damage to the building, loss of rental income, and liability arising from property ownership.

While saving a few loonies and relying on a private homeowner policy may be tempting, read the fine print of your policy. For example, you might be covered by your homeowner insurance if you’re only renting out a room or basement unit in your own home, but it’s unlikely. And you’ll most certainly need landlord insurance if you’re renting out a separate property other than where you reside.

A landlord insurance policy is not mandatory for rental properties in Canada. Despite no legal requirement, mortgage lenders usually require you to have a homeowner’s policy before a mortgage is issued when purchasing an investment property. 

Purchasing a policy to protect yourself and the property from unexpected damages or third-party claims and lawsuits is highly recommended. You are exposed to significant financial risk if you don’t have a policy to protect your property, and you’ll be on your own to pay the costs if something goes wrong. And let’s be honest, accidents happen, and lawsuits can be expensive.

Do I Need Landlord Insurance to Rent a Room?

You may not have a house or flat to rent, so you believe the need for additional insurance doesn’t apply to you. But are you thinking about renting out a room or taking in boarders? 

Check with your insurance broker first. Failing to inform your broker or insurance provider of changes to your living arrangements could void your policy. Plus, your regular home insurance will not cover your tenant’s liability or belongings. In most cases, it would only protect your property, contents, personal liability, and that of your spouse and dependents.

What if a tenant accidentally starts a fire that destroys the kitchen? Or how will you fund your legal defence after someone gets hurt on your property and sues you for injuries or damages? What happens if you need to mitigate the loss of rental income if a tenant vamooses? Even tenants you know well enough to invite into your home can be wildcards — don’t be caught unprepared!

What Type of Insurance Does a Landlord Need?

It is essential to have landlord insurance to cover financial losses associated with a rental property.

Landlord insurance covers damages caused by various factors, such as natural disasters and tenant-caused damages. It also provides coverage if the landlord is legally responsible for injuries or property damage to a third party.

Landlord insurance includes:

  • Commercial General Liability (CGL) Insurance: protects you against liability claims arising from third-party property damage or bodily injury lawsuits on your rental property. It can cover medical expenses, legal fees, and damages awarded by a court. CGL insurance can also protect landlords from libel, slander, and defamation claims.
  • Commercial Property Insurance: protects rental properties and their belongings from unforeseen incidents such as burglary, vandalism, fire, or wind damage. 
  • Equipment Breakdown Insurance: covers the expenses associated with fixing or replacing equipment, such as the building’s HVAC system and kitchen appliances, in case of damage or failure caused by electrical or mechanical issues. 

What Other Coverages Do Landlords Need?

A few additional coverage areas in a landlord insurance policy prove helpful in specific circumstances. Consider these standard provisions that could come in handy and potentially save you thousands of dollars:

  • Contingent Unit Coverage: covers lost rental income and additional expenses when the property becomes uninhabitable due to a covered loss. 
  • Lost Rental Income or Rental Default Insurance: covers missed rent payments by the tenant.
  • Guaranteed Income Insurance: provides a fixed income if a tenant’s income stream is interrupted due to illness, injury, or job loss.
  • Flood and Sewer Backup Insurance: covers damages from natural disasters or municipal plumbing and keeps the property from going down the drain.
  • Contents Insurance: protects personal property inside the rental unit.
  • Emergency Coverage: helps pay for unexpected repair costs.
  • Additional Construction Expenses: pays for necessary construction or renovation expenses to bring a damaged property up to code.
  • Cyber Liability Insurance: protects landlords from cyber incidents that result in the loss or theft of digital assets.
  • Loss Assessment Coverage: protects against losses exceeding policy limits or not covered by the policy.

What Is Not Covered by Landlord Insurance?

Understanding what is and is not covered under a landlord insurance policy is crucial to protect you fully.

Landlord insurance typically covers damages caused by specific perils, such as severe weather or accidental tenant damage. For example, it may cover repairing or replacing damaged items and structures and lost rental income during repairs. However, it’s important to note that intentional damages caused by tenants are not covered.

You are responsible for the upkeep and maintenance of the property. Bear in mind that landlord insurance policies also do not cover the following:

  • Maintenance-related issues or household equipment breakdowns, or general wear and tear.
  • Indoor plumbing issues or freezing pipes.
  • Pest damage and other natural events and disasters (earthquakes).
  • Hail, sewer backup, and overland water flood damage.
  • The legal costs of non-injury legal claims (for example, wrongful eviction or unsanitary housekeeping).
  • Personal liability protection for tenants or their belongings (more on this below).

Additional riders may need to be purchased to ensure full coverage for specific situations.

Another solid argument for carefully reviewing your landlord insurance policy to ensure you have the necessary coverage for your rental property. Understanding what is and is not covered can help you make informed decisions about additional coverage and protect your investments.

Will Landlord Insurance Cover an Airbnb or VRBO Rental?

Renting out your home or part thereof via home-sharing services can be lucrative, especially if you’re in a desirable location or during major events nearby, but it can also be complicated. 

Listing your property with Airbnb and other home-sharing services (VRBO, HomeAway) turns your private residence into a business property. 

Some insurance providers will allow short-term rentals under your homeowner policy if you notify them beforehand. Others will only permit it if you’re renting out a room or unit in the home you currently reside in, or they might impose certain coverage restrictions. And some may not allow it at all and would not cover any damages or losses resulting from renting out your property. Before doing so, talk to a Zensurance broker to determine how it can affect your coverage.

Airbnb and other home-sharing services offer some host protection insurance and host guarantee protection for limited liability coverage and property damage. However, these coverages have limits and restrictions and may not adequately account for your potential risks.

Therefore, if you’re offering short-term rentals of your home or seasonal property, look into insurance for Airbnb and VRBO rentals. A comprehensive insurance policy for short-term home-sharing rental properties includes general liability and commercial property coverage. In addition, it typically protects your rental income, a loss assessment, a contingent unit, and cyber liability insurance.

To minimize risks as a landlord, ensure compliance with all federal, provincial, and municipal regulations, abide by condo policies if applicable, charge a security deposit, furnish with durable items, and remove expensive items. While profitable, renting your property requires understanding and protecting against potential risks and liabilities.

Does Landlord Insurance Protect My Tenants?

You may wonder if your landlord insurance also protects your tenants or if they need renters’ insurance. They do.

It’s wise to encourage your renters to purchase tenant insurance to cover their clothing, furniture, and other items if something happens. Plus, their liability coverage will help pay for any damage they cause to your property. A landlord insurance policy covers your appliances, fixtures, and maintenance equipment but not your tenants’ belongings. 

While tenant insurance isn’t mandatory in most provinces, many landlords now require it as a condition of the lease to protect themselves and their tenants financially. Your rental agreement can have insurance as a stipulation (as well as layout rules and address sublet conditions). Remember that tenant insurance does not cover damages caused by floods, earthquakes, or subletters.

That’s one less thing to worry about in your round-the-clock job as a landlord!

How to Get Landlord Insurance in Canada

Renting out your property can be a great way to earn money but also comes with added risks and responsibilities.  

Property owners must review their home insurance policy for exclusions and don’t assume it will cover damages and liabilities while renting the property. That’s where landlord insurance comes in — it’s a must-have to protect your property and its contents from unexpected costs.

Also, remember that landlord insurance is tax deductible. For more information about deducting landlord insurance from your income, visit the Canada Revenue Agency website.

Talk to a Zensurance broker. They can help ensure that you wind up with an insurance package that provides coverage to account for your unique circumstances, whether you are in the market to modify your existing homeowner insurance for a renter living in the home you reside in or if you have separate properties you want to protect with landlord insurance.

Getting landlord insurance has never been easier! For peace of mind knowing your property is protected, complete our five-minute online application for a free quote.

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About the Author: Brandon Bowie

Brandon Bowie is a Team Lead, Professional Lines at Zensurance.