Rates for rental homes have gone down in the last 3 years
Yes, that’s tough to believe I know. With rates for property insurance on Vancouver Island seemingly ever spiraling upwards, it’s not possible rates for residential rentals have gone down. Well, that’s what we’re seeing – and it stands to reason. There is very stiff competition among insurers to secure this business. Typically, smaller single or multi-family structures are very well looked after properties that will have little or no claims history. Many insurers will lump Strata Condominium properties in with single and multi-family residential rentals unfairly, causing rates to increase from some insurers. Others have seen that these multi-family properties can be profitable, and it’s the lure of these profits that have brought other competitors into the market which in turn has driven rates down.
Claims made at your rental property could affect the rates and insurability of your own home
This is one that can be 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 disadvantageous 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, and indeed portfolio in the case of a multi-property owner. Being unable to isolate properties can be expensive in the years after a claim.
Commercial Insurance can be cheaper, but beware 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.
Special Limits of Insurance – not that special
Banks, insurers, cell phone providers – all of these larger 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. Often, these special limits are not made apparent to the property owner and/or insurance purchaser. Special limits are meant to limit the insurer’s liability for claims that happen most often. In home insurance, you’ll see special limits used for jewellery and bicycles, specifically for theft or mysterious disappearance. In rental home insurance, we will see 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. Reviewing your policy after your tenant has found a foot of sewer in your basement is not the correct time to do so. Speak with your broker about sublimits and if your policy has any, and if so, for what reason.
Deductibles are not 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 you want 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. 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 at $500-$1,000 for years, as have flood deductibles at $10,000 for most carriers, but all of the 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 buydown 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 your broker on these items and make sure you know where you stand in case of an insured loss.