Understanding Insurance for an Investment Condo

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

Insuring an investment condominium unit is complicated by the fact that there are actually three parties involved— the strata/condo corporation, the owner of the individual unit (the investor), and the tenant.  

As a result, some condo owners (investors) mistakenly do not obtain coverage for their unit.  But, a condo insurance policy is essential to fill the many gaps in coverage that exist when relying exclusively on the Strata/Condo Corporation’s Master Insurance policy.  As an investor, you require your own coverage for appliances, personal liability, rental income protection, betterments and improvements, loss assessments and more.

To better understand the role each party plays in adequately insuring an investment condo, let’s take a brief look at what is covered by each insurance policy.

What is Covered by the Strata/Condo Corporation’s Master Policy?

Strata/Condo Corporation’s Master Insurance policies typically provide coverage for the building itself and its common areas, such as walls, roof, floors, elevators, swimming pools, and any associated outbuildings. 

However, even when it comes to the building itself, it is important not to assume that the Master Insurance Policy protects you from loss or damage to your rental unit. Typically, the walls of the condo unit, as well as the plumbing and electrical lines within them are considered part of building’s structure, which in the event of a loss would be covered by the Strata/Condo Corporation’s Master Insurance policy. However, the laws vary from one province to the next, and bylaws vary from one building to the next.

Therefore, it is extremely important to:

• Carefully read the Strata/Condo Corporation’s by-laws regarding their insurance decisions
• Carefully read the Master Insurance policy to confirm the level of coverage provided

What is Covered by the Tenant’s Policy?

A basic tenant insurance policy covers such things as your tenant’s furniture, electronic equipment, small appliances, and other personal belongings, such as clothing.  A tenant’s policy also provides them with personal liability protection.

What is Covered by the Condo Owner’s (the Investor’s) Policy?

Personal Property & Liability

As the owner of the condo unit, you also require your own personal property and liability coverage. A condo owner’s policy provides coverage for any of your personal property in the unit, including the appliances.

Betterments and Improvements

The Strata/Condo Corporation’s Master Insurance policy provides coverage for the unit as it was originally built by the developer. Therefore, any upgrades to the unit by you or by previous owners, such as lighting fixtures, air conditioners, flooring, kitchen and bathroom cabinets, countertops, moldings, etc., requires your own coverage, referred to as “Betterments and Improvements”.

Loss, Unit and Deductible Assessments

Because the common areas of a condominium complex (sidewalks, lobbies, hallways, exercise rooms, swimming pool, meeting and party rooms, etc.) are available for the shared use by all unit owners, there is a shared responsibility amongst all owners when a claim is made against the Strata/Condo Corporation’s Master Insurance policy. 

For example, a visitor is injured when they slip on one of the condo complex’s sidewalks because the snow and ice have not been cleared. If the strata/condo corporation is sued, their liability insurance will usually cover their legal costs and any possible judgment against them. However, if the financial value of the claim is very large and the strata corporation is underinsured for the amount of the judgment, each unit owner is now assessed to cover the shortfall.

These days, it is also common for strata/condo corporations to purchase Master Insurance policies that have a very high deductible (i.e., $100,000+), for property claims. Again, each unit owner can be assessed to pay a portion of the deductible when a loss occurs and a claim is filed. It is also possible for one unit to be assessed the entire deductible if the owner is considered responsible for the damage or loss.

With rising inflation, some strata/condo corporations also fail to buy enough insurance to rebuild at today’s construction costs. Should the building suffer a serious loss, and the strata/condo corporation’s level of coverage is inadequate—each unit owner would be assessed to pay a portion of the cost to rebuild.

In each of these situations, an investor could seek reimbursement from a condo owner’s policy.  Therefore, with recent trends, it has become even more important to ensure that you have a condo owner’s policy and that you have reviewed the coverage levels with your broker to make sure your investment is protected.

Rental Income Protection

If your property is damaged by an insured peril that prohibits your tenants from continuing to occupy the unit while it is repaired, rental income coverage enables you to still meet your mortgage or other financial obligations, despite the loss of rental income.

These are just some of the important coverages provided by an investment condo policy.  To learn more about the dedicated coverage available exclusively to REIN Members, please review our Strata Guard policy coverage chart.

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 cwestrop@park.ca.