September 6, 2019 by Mike Innis
With the cap on residential rental increases lowered, BC landlords are looking for ways to cut down on expenses to make up for the revenue shortfalls that await them.
One of the first things that landlords look to save on is the insurance premium. While some insurers will stick to “at-market” rates, others will look to undercut and capitalize on this cash-squeeze by offering cut-rates.
Although these can be attractive, there are hidden pitfalls landlords need to be aware of if moving to a cut-rate policy. Find out the top 4 things to know before changing rental insurance:
1. Claims made at rental properties could affect the rates and insurability of the landlord’s own home
This is often a real shock to rental owners. Many home insurers will “bundle” your home and rental insurance on to one policy. While this can be advantageous both in lower premiums and deductibles (and to be fair, this can be the right strategy often), it can be unfavourable should the rental property suffer a loss.
With some insurers, a claim at a rental property will wipe the claims-free history (and corresponding discounting structure) off of the entire policy. Being unable to isolate properties can be expensive in the years after a claim.
2. Commercial insurance can be cheaper but beware of the co-insurance clause
Sometimes to get around the above problem of claims history attaching to the home, brokers will place a homeowner’s rental property with a commercial insurer on a commercial insurance form. Again, this can be a correct strategy both for premium and coverage, but it can come with a scary clause.
The co-insurance clause is meant to prevent the insured person from intentionally under-insuring their property. Most commercial policies will come with a 90% co-insurance clause. This will state that the property owner must insure their property to at least 90% of the replacement cost of the home or they will face a financial penalty in the event of a partial loss (like a kitchen fire or a sewer back-up, something that damages the home but not fully.)
Penalty? Replacement cost? Huh? Yeah, we know – it’s confusing. If your policy has a 90% co-insurance clause in it, ask your broker what it means in your case, and what they’ve done to make sure it doesn’t affect you negatively in the event of a claim.
Read more here to learn more about co-insurance for business owners.
3. Special limits of insurance – not that special
Banks, insurers, cell phone providers – all of these large entities like to use creative language to describe less-than-attractive clauses in their contracts. A special limit of insurance is a lowered amount of coverage for specific perils within the insurance contract. They are meant to limit the insurer’s exposure to claims that happen most often. In home insurance, special limits are commonly used for jewellery and bicycles, specifically for theft or mysterious disappearance. In rental home insurance, special limits used for water damage and sewer backup claims. Commonly, we’ll see limits listed at $30,000 but some as low as $10,000.
Often, these special limits are not made apparent to the insurance purchaser. Reviewing a policy after a tenant has found a foot of sewer in the basement is not the correct time to do so. Speak with your broker about special limits on your policy, and if so, for what reason.
4. Not all deductibles are created equal
Insurers will adjust their deductibles to suit the level of risk they are prepared to undertake, not necessarily reflecting the level of risk the policy holder wants to undertake. Many rental policies will show one deductible for earthquake, one for water damage, one for sewer backup, one for tenant/guest vandalism, one for flood, and one for all-other-losses.
As a policy holder, it’s good to know what deductibles you have now and what are available on the wider market. All-other-losses deductibles have been steady for years at $500-$1,000, as have flood deductibles at $10,000, but most others listed have increased.
It’s now common for water and sewer deductibles to be $5,000. For tenant and guest vandalism, $2,500 is a number we see often, but some policies exclude the coverage altogether.
Earthquake has the largest variance however. A 10% deductible is a common number we see, but some policies will have a $100,000 earthquake minimum deductible which makes that percentage deductible misleading. Other companies still will offer earthquake deductible buy down coverage which can move the earthquake deductible down to $2,500 flat.
There is a lot of complexity within this area of insurance; again, it’s best to speak with a broker on these items and make sure you know where you stand in case of an insured loss.
Find out how you can insure your rental properly for the best price. Give us a call, we’d love to help.
Mike Innis is a commercial insurance broker at Hendry Swinton McKenzie Insurance.