As wise real estate investors we look to our insurance brokers to ensure that we and our properties are properly and adequately insured for any potential unfortunate insurable occurrences, losses or claims relating to our properties or us as landlords. In chapter 15 of Look Before You Leap, but LEAP! I discuss this very important and growing topic of the considerations for rental property insurance.
However, recently a real estate investor shared their experience on social media that that quite frankly surprised me. What I am sharing is not to be construed as professional insurance advice in any way, but more as food for thought for real estate investors. You should always consult a bona fide insurance agent or broker for professional advice for your insurance questions and needs.
Background
I recently read a real estate investor who shared an unfortunate insurance experience online. I requested and obtained the permission to share it.
In March, an investor had a rental property in Red Deer Alberta accidently burn to the ground. Four fire trucks responded and the property was a total loss. The garage was also completely lost. Shortly after the incident they received a fire fighting bill from the city of Red Deer for almost $14,000.00 for Firefighting costs.
Needless to say the investor was shocked with the bill and went straight to their insurance broker only to find out that the insurance broker was unaware this fee was going to be charged to the property owner.
It doesn’t end there, as it turns out the garage was an out-building and it was not included or covered under the investor’s insurance policy, resulting in no financial recoupment through the insurance policy for the total loss of the garage.
Is this situation of the fire department recovery fee unique to Red Deer, Alberta? No! In fact, when I researched this issue, I found that several communities such as Lethbridge, Lacombe county, Edmonton, and potentially London, Ontario fire departments can charge fees for the fire department deployment and clean up to the recipient. I could not find anything that pointed to these types of fees being charged in BC or most other jurisdictions, but it is very important to check with your insurance if your insurance policy adequately covers this potential expense.
Personal Ownership (Individual Policies)
Typically, home owners and investors who own and insure the properties under their personal names, tend to be covered under the real estate insurance policies that are provided by their broker but that is not a certainty these days and not in all jurisdictions and municipalities. Typically, the number and types of properties are limited to residential under an individual property insurance policy if it is being used for residential purposes.
Corporate Ownership (Commercial Policies)
When properties are owned and operated through a corporation it gets more complicated and coverage insurance can become more “a la carte” in terms of what is or needs to be included or excluded. This was the very situation that the unfortunate investors in the above incident found themselves experiencing. They were not the knowledgeable ones and relied on their insurance broker to know what to include. Unfortunately, not all insurance brokers will know everything about all markets. Hopefully the insurance broker carries proper Errors and Omissions insurance for this very reason.
Also, fire department service charges are a common extension under most policies but the limit varies from insurer to insurer.
If you own several individual properties, multi-family, office space, retail speak to your insurance broker as you very likely may be required to hold commercial insurance policies even though the properties may be owned in your personal name. Short term rental properties also may require commercial policies as it is considered a business endeavour in a residential dwelling.
Basic Landlord Policy Coverage
For regular home owners it is worth knowing that you may only have $5,000.00 in firefighting coverage on your policy. If you have a fire and your municipality charges for firefighting you could end up with a massive bill for putting out the fire.
As investors, it is a must to at least have a landlord insurance policy in place that either covers all the properties or several individual policies for each and every investment property we own. The policy should include at least the following coverages:
Rental Interruption
This is coverage should the property suffer rental loss due to damages that prevents the property to be rentable. Depending on the property and how long realistically it would take to bring it back to a rentable state with proper occupancy status, it should have at least 12 -24 months rental loss coverage at your current rent or current market rents for your type of property.
Betterments and Improvement
This is coverage for any upgrades done to the property from the original condition. These upgrades must be noted and added to the policy at the appropriate time to ensure that they are included.
Third Party Liability
This is coverage should a tenant or another party that is on or in your property have a reason to make a claim against the landlord for injury, other damages, or losses as a result of the property or something related to the property.
Strata/Condo Deductible Matching Coverage
If you own any strata or condominium titled properties this one is very important coverage. As insurance premiums and deductibles on strata/condo corporation blanket policies have increased significantly over the past several years ensuring there is proper deductible coverage to match the strata/condo corporation blanket policy deductibles at the individual owner is vital.
The Importance of Inusruance
Many consider insurance a waste of money, but I absolutely believe that a properly executed insurance policy is like a safety valve to protect your assets that you have worked so hard for to obtain and maintain. It is a prudent and tax deductible expense against the property.
Before investing in a municipality, it is worth researching so that you know how and if their emergency response is billed to the recipient. The first place to check is the municipality’s bylaws as it relates to firefighters call outs and fees. Discuss your particular situation with your insurance broker to make sure that they understand your needs. Ask your insurance broker to check on the firefighters’ recovery fees, other potential coverages that you may need under your unique circumstances. If your insurance broker is not located in the area of your properties, it is wise to have them reach out to their colleagues in that area to gain knowledge of what may be unique to that area when it comes to appropriate property insurance.
For your existing properties, please check with your insurance agent or broker to make sure that you are properly insured so that you have the peace of mind.
If all else fails, ASK your insurance broker am I properly and adequately insured and is there any other insurance coverages that I should be considering or include as a landlord?
If you’re considering becoming a real estate investor, consider working with an expert who can help you navigate the market and develop a strategy that meets your needs. Contact me for a free initial consultation.
