Renting out part of one’s home can provide additional income, but the Insurance Bureau of Canada (IBC) warns that this could also bring new risks that can affect a landowner’s insurance needs.
According to the IBC, renting out a basement or a bedroom, or taking in boarders or listing a home on a home-sharing app, actually changes that property’s risk profile. This change has insurance implications, which is why it is important to speak with an insurance representative before making these changes to ensure proper coverage.
Standard home insurance policies typically cover property, contents, and personal liability for the policyholder and their immediate family, but they generally do not cover tenants’ belongings or liability, IBC said.
The IBC also warned about failure to disclose changes in occupancy as this could result in the policy being voided. For example, if a tenant causes a fire and the insurer was not informed of the tenant’s presence, coverage may be denied, leaving the property owner exposed.
Furthermore, short-term rentals may present higher risks as tenants may not have the same responsibility toward the property, increasing the likelihood of damage.
The IBC said landlord insurance can provide additional protection by covering lost rental income if tenants must vacate due to an insured loss. It will also cover legal defence costs if tenants or their guests pursue claims for injury or property damage.
Therefore, for first time landlords planning to put their properties for rent, the IBC advised them to notify their insurance representatives before changing their living arrangement. It also said to keep a written record of the notification, which will serve as proof whenever required.
If the property owner rents a property that they do not occupy, the IBC said another separate insurance policy will likely be needed as this property might need expanded coverage.
The IBC also advised landowners to carefully screen prospective tenants by conducting background checks and interviews, as well as obtaining references to reduce the risk of disputes. It advised tenants to carry insurance for their belongings and liability, as well as to ask for proof of annual coverage.
While these measures may reduce the number of potential tenants, the IBC said these can help establish clear expectations and provide protection for both landlords and tenants in case of loss or damage.
