Landlord Insurance Guide for First-Time Rental Property Owners

You’ve decided to embrace rental ownership and provide tenants with a comfortable living place while earning a passive income. Congratulations! You’re now a business owner. 

And now’s a good time to be a landlord. The Rentals.ca National Rent Report for October 2023 shows the average rent in Canada is up by 11.1% from a year ago to an average of $2,149. 

However, whether you own a second or investment property or have a basement apartment to rent to help pay the mortgage, first-time and experienced landlords need to know their responsibilities and liabilities. 

The following is a guide to help you understand the risks you face, and how landlord insurance can protect your property and finances to help ensure your success. Let’s dive in: 

 

Understanding How Landlord Insurance Protects Your Rental Property 

 

Landlord insurance protects property owners from financial losses at their rental properties, including damage to the building, loss of rental income, and third-party liabilities. 

 

Think of landlord insurance as financial support for expenses arising from accidents or unanticipated damages and losses at your property. In other words, it protects your economic interests. 

 

Types of Insurance Coverage for Landlords 

 

A typical landlord insurance policy includes the following types of coverages: 

 

• General Liability Insurance: General liability insurance covers third-party bodily injury and property damage claims on your rental property. Suppose a tenant or one of their visitors slips, falls and is injured on your property’s driveway because it has yet to be cleared of ice and snow. In that case, general liability insurance would pay for the injured person’s medical expenses, and if they sue you, it provides funds for your legal defence and settlement costs. 

• Commercial Property Insurance: Commercial property insurance is what protects your building and property if damaged by fire, water, wind, a natural disaster, vandalism or theft. It also covers the abode’s contents that aren’t permanently attached to the building, like kitchen appliances. Furthermore, commercial property insurance protects your lost income (rent payments) if the home is uninhabitable following an insurable loss, such as a fire. 

• Equipment Breakdown Insurance: The kitchen appliances, laundry machines, and HVAC system at your rental property can suddenly cease to work because of a mechanical or electrical failure. Equipment breakdown insurance pays to repair or replace these things if such a scenario unfolds. 

 

You can add optional coverages to your policy to enhance your overall protection. Some of these include: 

 

• Overland Flood Insurance: You might be surprised to learn most property insurance policies don’t automatically include coverage for overland flooding, which is when water flows overland from an outside source and seeps into buildings through windows, doors, and cracks (on that note, check your home insurance policy). 

• Sewer Backup Insurance: Likewise, if a municipal sanitary sewer backs up into your rental property through drains inside your home and leaves a putrid mess, it’s expensive to have it cleaned up. Sewer backup insurance can cover those expenses. 

• Earthquake Insurance: Adding earthquake insurance to your policy is wise if your property is in a region prone to earthquakes. 

• Legal Expense Insurance: Despite your best efforts to screen and select the most responsible tenants, one may be unable or refuse to pay their rent. Evicting someone is a lengthy and costly process. Legal expense insurance can help manage those costs by covering your legal fees. 

 

Landlord Insurance vs Homeowners Insurance: What’s the Difference? 

 

Landlord insurance and homeowner insurance are both types of property insurance. However, they differ in the types of coverage and risks they address.  

 

Homeowner insurance only covers you if you reside at the property. Why? Because when you rent an apartment, house, condo, or multi-unit building, insurers consider it a business. Therefore, residential homeowner insurance is unlikely to cover third-party liability claims from your rental property involving tenants. 

 

For example, if a tenant or one of their guests is injured due to a hazard on your rental property, landlord liability insurance covers your legal expenses and pays for the injured person’s medical expenses. In comparison, homeowner insurance also includes liability coverage, but it’s designed only to cover situations involving the homeowner and their family. 

 

It’s important to note a landlord insurance policy does not cover your tenants’ personal belongings following an unexpected insurable loss, such as a fire. It’s wise to encourage your tenants to buy tenants or renters insurance to protect their property.  

 

However, if one of your tenant’s personal belongings is damaged by an incident or accident that arises because you neglected to maintain the property, you would be liable for those damages. For example, if you failed to fix a water leak that damages your tenant’s furniture and clothing. 

 

Assessing Insurance Needs for Your Rental Property 

 

Assessing your liability insurance needs for a rental property is crucial to protect yourself financially and legally. Here are things to consider: 

 

• What coverage limits you need 

There are different types of insurance coverages in every insurance policy. Each one has a coverage limit. When choosing the coverage limits for different insurance coverages in a policy, consider what the value of your property is, its condition, location, the liability risks you face, potential legal expenses, and any optional coverages you add to your policy. If you choose low coverage limits, know that once you hit those limits, you must pay any outstanding balance on your own. 

 

• The deductibles you choose 

Most insurance policies include deductibles. A deductible is the portion you pay upfront when filing an insurance claim before your insurer pays out following an insurable loss. By choosing a high deductible, your annual premium will be lower. But if you do so, be sure you have the funds available to cover your deductible. 

 

• Local laws and regulations 

Know the municipal and provincial laws and regulations governing a landlord’s responsibilities to understand the minimum requirements and standards you must meet. For example, ensure your property adheres to safety codes. 

 

• Coverage for common areas 

If your rental property houses multiple tenants and has common areas that all of them use, such as hallways, stairways, or a shared kitchen, let your insurance broker know so your policy accounts for them. 

 

• Think of your tenants 

Renting to a family may have different liability risks than renting to young professionals. If you’re renting to postsecondary students where tenant turnover can be frequent, it’s critical to understand the demand and supply dynamics of student rental housing in your community. 

 

• Implement safety measures 

You know what they say about an ounce of prevention. Ensure your property is maintained and habitable, and address any hazards promptly to avoid minor issues from becoming significant problems. 

 

How to Get Low-Cost Landlord Insurance 

 

Getting affordable landlord insurance that adequately covers your risks should be simple and easy.  

 

Partnering with an experienced, licensed business insurance broker can simplify the process. A broker can advise you on what coverages your policy should contain and the coverage limits. They can also explain in plain language the policy’s details and offer risk mitigation tips to help avoid filing a claim and keep your annual premium low. 

 

About the Author 

 

Brandon Bowie is a licensed broker and Team Lead, Property and Hospitality at Zensurance, Canada’s leading source for small business insurance.