Deductibles, Depreciation & Disasters: How Claims Are Actually Paid Out

This post is written by Trusted Partner, Park Insurance. To become a contributing editor, please contact our Real Estate Investor Solutions Specialist, David Maxwell at david@reincanada.com.

When a disaster strikes a property—whether it’s a fire, flood, or severe storm—real estate investors expect their insurance policy to step in and cover the loss. Yet the way claims are paid out often comes as a surprise. Between deductibles, depreciation, and policy limits, the final cheque from the insurer may look very different from the damage estimate. Understanding these mechanics isn’t just about reading the fine print; it’s about protecting your investment strategy and maintaining financial stability when the unexpected happens.

Understanding the Risks

Insurance is designed to manage risk, but it doesn’t remove all financial responsibility from the property owner. A deductible represents the amount you’ll need to pay out of pocket before coverage begins. Depreciation reduces the payout based on the age and condition of the damaged property, which means older appliances, roofs, or finishes may not be fully reimbursed. And every policy comes with limits and exclusions—caps on how much will be paid out and types of losses that may not be covered at all.

For investors, these factors create a gap between expectation and reality. A major claim can still leave you with significant expenses, not because your insurance failed, but because of how the policy is structured.

Coverage That Closes the Gaps

Fortunately, there are ways to minimize unpleasant surprises. Replacement cost coverage ensures damaged property is repaired or replaced at today’s prices without deducting for depreciation. For larger holdings, guaranteed or extended replacement cost endorsements provide a safety net when rebuilding costs exceed the policy limit. Rental property owners may also want to consider loss of rental income coverage, which protects cash flow if tenants are forced to move out during repairs. And while higher deductibles can reduce premiums, they should be balanced carefully against your liquidity and tolerance for risk.

Strategies for Investors

The insurance policy itself is only part of the equation. Smart investors adopt proactive strategies to make claims easier and payouts smoother. Keeping detailed records—receipts, appraisals, and inventories of upgrades—helps substantiate claims and supports full reimbursement. Regular maintenance reduces the chance of damage in the first place and demonstrates responsible ownership to insurers. As your portfolio grows, reviewing and updating coverage ensures policy limits reflect current rebuild costs, not outdated values.

Knowing the Limitations

No insurance policy covers everything. Wear and tear is always excluded, as is intentional damage. Vacancy clauses can reduce or void coverage if a unit sits empty for too long. And natural disasters such as earthquakes and overland flooding often require separate policies. Recognizing these limitations before a claim arises allows you to decide whether additional policies or endorsements are necessary.

The Value of Professional Guidance

Insurance policies can be complex, but you don’t need to navigate them alone. A broker who specializes in real estate investments can translate policy language into clear expectations, identify potential gaps, and recommend adjustments that protect both your properties and your income streams. At Park Insurance, our brokers work directly with investors to align coverage with their portfolio and long-term goals, ensuring that when disaster strikes, you’re financially prepared.

Disasters may be unpredictable, but your financial recovery doesn’t have to be. By understanding how deductibles, depreciation, and disaster claims are calculated, investors can plan realistically and avoid costly surprises. The right combination of coverage, preparation, and expert advice ensures your portfolio remains resilient—even when the unexpected happens.

Chris Westrop is the Vice President of Commercial Lines at Park Insurance. With over 30 years of experience in the commercial insurance industry, he is a Chartered Insurance Professional with the Insurance Institute of Canada. As a REIN member and regular attendee at many of their programs, Chris brings valuable insights to real estate investors. Learn more about Chris and the experienced team of commercial insurance advisors at Park Insurance. Chris can be reached at (604) 659-3133 or cwestrop@park.ca.