On the road to paying off their homes sooner, many homeowners decide to add a secondary suite to their property. As these soon-to-be landlords stay busy designing a suite that appeals to renters, getting it authorized by the city, and finding the right tenants, there is a major detail that often gets overlooked in this process—insuring the suite.
Many people who add a rental suite to their property fail to inform their insurance companies about the change in occupancy at their property. In doing so, they risk financial losses in the event of unforeseen disrepair to the property. liability and/or property claims.
Why do so many homeowners neglect such a large piece of the puzzle? It usually comes down to misinformation. Let’s take a closer look.
5 Common Misconceptions About Insuring Secondary Suites
There are a few reasons why homeowners neglect to insure their suites. Here are the top five reasons why people leave their suites uninsured, and how insurance brokers at SeaFirst Insurance typically respond:
1. They didn’t know insuring their suite was an option
With the existence of homeowners insurance and tenant’s insurance, it’s a common misconception that a rental suite can’t be insured against damages and that landlords just have to take it as it comes. “Isn’t that just the risk you take by being a landlord?” People say. No way!
There are plenty of insurance packages available that specifically cover landlords, taking away a lot of the financial risk of becoming one. Insuring your suite covers things like:
- Replacement/repair costs of the suite
- Repairing vandalism and malicious acts
- Fixing broken glass/break-in damage
- Premises liability
Some insurance packages also reimburse homeowners for the rental income they lose out on while their suite is under repair. This is especially helpful if you rely on your suite as a mortgage helper.
Paying to insure your rental suite is separate from buying homeowners insurance, which doesn’t cover a suite, even if it’s attached to your property, which you are insuring. It also differs from tenant’s insurance (something you can’t count on your tenants on having anyway), which only covers the replacement costs of their personal belongings in the event of a fire or flood. Tenant’s insurance won’t cover the cost of repairing your suite, even if they are the ones who started the fire.
2. They figured it would be too expensive.
The cost of insuring a rental suite varies from company to company. Some insurance companies may add a multi-family surcharge which can get quite expensive. At SeaFirst, we generally charge an additional fee (starting at $10) to extend liability to a rental suite. We will also look at increasing the replacement cost of your home to include the rental suite. starts at about 10% of your annual home insurance costs. This means that at $1,500 for the home, additional insurance for the suite is around $150 for the entire year. There is always the option of adding onto this base rate to receive extra coverage, it all depends on your needs. Insuring your suite is one of the most affordable types of insurance out there, and is one that provides exceptional rewards should you ever need to make a claim.
3. They figured their homeowners insurance was sufficient.
With the addition of a suite, even though your square footage hasn’t necessarily increased, the structure’s occupancy level has. Your basic homeowner’s insurance policy may have been sufficient for your home before you renovated it to accommodate a secondary suite, but your existing policy does not cover said suite.
Insuring a home with two electrical panels, two water mains, and two kitchens is a higher risk for the insurance company, so it’s important to alert your insurance broker of the fact that you’ve added a suite. Failure to do so could lead to devastating financial losses, whether you have tenants living in the suite at the time or not. At the end of the day, the insurance company only insures what it knows about.
Liability insurance is another important factor to consider. The liability coverage under your homeowners policy does not automatically extend to cover your suite and/or tenants. You should always make sure your liability coverage is extended to the rental suite. It is also a good idea to require your tenants to carry their own Tenant Insurance Package, which provides their own liability coverage.
4. They only rent their suite to people they trust.
Whether you are renting to your in-laws, your teenage son, a friend of a friend, or complete strangers, damage is damage. Insuring your suite will protect it in the event of accidents happening. Insuring your property isn’t going to offend anyone, nor will a family connection void a claim.
5. They assumed their insurance broker would report their unauthorized suite to the city.
As per the City of Victoria, “A suite is considered legal when all the required building, plumbing, and electrical permits have been applied for and approved, and when all work has been completed, inspected, and issued a final Occupancy Permit by the City of Victoria.”
Insurance brokers will always advise their clients to report and register their suites with their local municipality, thereby making them a legal suite. However, an insurance broker does not report to bylaw officials what he or she believes to be an authorized suite. In addition, in the event of a claim, a homeowner is still covered if they have purchased insurance, whether the suite is legal or not.
According to the Canada Mortgage and Housing Corporation, secondary suites can reduce carrying costs for first-time homebuyers by about 25%. It’s no wonder so many suites are popping up all over British Columbia these days!
If you’re thinking of adding a suite to your property, or you are nearing completion on a big renovation and are requiring insurance, some see us at SeaFirst Insurance Brokers. We offer plenty of options for renter dwelling insurance coverage in Victoria, Brentwood Bay, Saanichton, Sidney, Salt Spring Island, Oak Bay, Westshore and Pender Island. Just give us a call, or simply drop in to see us!