Stay Protected: 5 Common Activities That Could Void Your Insurance
*This post is sponsored by one of The Real Estate Investment Network’s Trusted Partners, Park Insurance. To become a contributing editor or to learn about our sponsorship opportunities, please contact us at [email protected].
There are many different types of surprises in this world – some are amazing, others you could do without. Inadvertently voiding important insurance coverage for your investment property is definitely the latter. That is why it is essential to understand the terms of your insurance policy. When you apply for insurance, your coverage and rates are determined by the information you provide at that time. If those circumstances subsequently change and you do not inform your insurer, you could risk voiding important coverage. This is referred to in the insurance industry as “material change of risk” which means you have made a substantial change that increases the risk involved in insuring your home.
Bottom line, stay protected by informing your insurance company of any significant changes. What types of activities constitute a significant change? We discuss five of these activities below.
5 Common Activities and How They Impact Your Investment Property Insurance
1. Jumping on the Airbnb Bandwagon?
Have you considered listing your long-term rental property on the short-term rental market? Short-term rentals via Airbnb and VRBO have become very popular over recent years. However, short-term rentals carry more risks than typical rental arrangements. Increased risks of damage, theft, or vandalism are all concerns. So, you must speak to your insurance broker first to make sure that you have adequate coverage. It is also important to ensure that your tenants are not subletting your property via a short-term rental site without your knowledge. Be sure to include clear language in your rental agreements prohibiting subletting and make sure your tenants understand these requirements.
2. Sitting on Vacant Property?
Unoccupied properties are more susceptible to break-ins, vandalism, water damage, fire, and other damage. So, insurance policies stipulate that a property can only remain vacant for a specified amount of time before coverage is voided. The allowable vacancy period is often limited to 30 days. Review your policy to determine how long your properties can remain vacant and consider obtaining coverage that allows for extended vacancy. For example, the REIN Investor Guard policy, from Park Insurance, provides coverage for your property should it become vacant for any reason—for up to 120 days.
Also, most policies require certain precautions be taken when a home is vacant during the usual heating season, even for as little as 4 days. You may be required to have the home checked regularly, or have the heat maintained, or shut off the water supply and drain the system. So, review your policy and make sure that your tenants are aware of these requirements if they are planning a winter vacation.
3. Undertaking a Substantial Home Renovation?
Renovating your investment property can be a great way to increase its value and appeal to potential tenants. But, it could also result in your insurance coverage being voided if your insurance company is not informed. So, take the time to talk to your insurance provider before you begin your renovation to be sure you are adequately covered. Here are some important points to consider:
- Insurance policies often exclude coverage for vandalism, water damage and glass breakage for buildings that are under construction. Therefore, you may need to arrange for special insurance to protect you during renovations.
- Are your tenants moving out to avoid that dreaded drywall dust? As discussed above, if your home is going to be vacant for more than 30 days you will likely need to inform your insurer.
- It is also important to remember that the premium you paid for your homeowner’s policy was based upon the condition of your home at the time you bought the policy. The renovations that you make increase the “replacement cost” value of a home.
- One final recommendation – it is also important to ensure that your contractor carries adequate insurance!
For more information on how to maintain your coverage during and after your renovations, contact your insurance broker.
4. Do Your Tenants Have a Home-Based Business?
Over the last year, many of your tenants may have traded in that lengthy commute for a quick trip down the hall to a home office. They may decide that they prefer this flexibility, and ultimately start their own business so they can continue to work from home. If so, it is very important to understand that home insurance policies were designed to cover risks associated with normal activities around the home. These policies often exclude coverage for properties that are used in whole or in part for business purposes. Therefore, both you and your tenants must obtain the correct insurance coverage to ensure your investment remains protected.
5. Do Your Tenants Have a New-Found Penchant for Horticulture?
In Canada, 2018 went down in the history books as the year when recreational cannabis became legal. Again, it all comes down to a change in the risk profile of your property. Cannabis cultivation can increase the risk of fire, burglary, vandalism, water damage and mould/mildew growth. So, if cannabis is being grown on your investment property, you will need to inform your insurer/broker immediately. It is also essential to regularly inspect all your investment properties to ensure that (legal or illegal) drug cultivation is not happening without your knowledge.
Unwittingly voiding your investment property insurance is a surprise no one likes to think about. So, talk to your insurance broker to ensure you keep your investments protected.
Chris Westrop is the Vice President of Commercial Lines at Park Insurance. He has 30 years of experience in the commercial insurance business and is a Chartered Insurance Professional with the Insurance Institute of Canada. He is also a REIN member and a regular attendee at many of our programs. Learn more about Chris and the experienced team of Commercial Insurance advisors at Park Insurance. Chris may be reached at (604) 659-3133 or [email protected].