Your investment unit's ready to go: lease signed, surfaces glowing with that special hardwood glow, property manager informed that tenants are coming in. But have you made sure you have the right insurance?
Condo insurance is a crucial component of the rental condo recipe, one which could save your whole investment. While it's important for your tenants to have renters' insurance—in fact, it's a smart thing to require in a lease—that doesn't so much protect you against the costs of damage to the unit as protect their possessions and potential liability. What's more, your condo's common areas insurance, which you contribute to in your condo fees, will take care of anything that happens in the halls or lobby, but what's in your unit is up to you to cover.
What is landlord's insurance?
Landlord's insurance is a specifically designed package geared to rental situations. There are a few major components to a landlord's insurance policy: liability insurance and rental income insurance.
Liability insurance covers a risk of lawsuit if a guest injures themselves in your home—meaning your tenants or any guests of their own, and meaning the unit they've rented. It also covers a situation where your tenant's actions damage common elements or a neighbour's unit, and the neighbour sues to recover the cost of damages. No, it's not a certainty that an in-home injury or multi-unit damage will mean a lawsuit, but the point of insurance is covering your bases: it's not important until it really is.
The second portion, loss of rental income insurance, will cover your business income in case your suite or whole parts of your building can't be safely inhabited. In situations such as a building fire, ice storm, or any other event that means you can't rent an unlivable space, your rental income insurance will bridge the gap until the unit's safe to rent again.
There are add-ons that might be useful to insure as well: if you've made any improvements to your unit's floors, finishes, or structure that differ from the original, your condo corporation's insurance doesn't actually cover them. Building improvements insurance does, though, and if you're renting out an upgraded unit, it can be a crucial part of maintaining those improvements—and the rental value of your unit.
Remember: Insurance policies are WYSIWYG
Read an insurance policy with an eye to literalism. If you don't see a potential cause of damage on the policy, assume it won't be covered by your insurer. Anything you think is a likely cause of damage should be listed explicitly on your policy if you plan to collect later to defray potential damages.
Okay: How do I get some?
There are multiple sources for landlord's insurance: banks, insurance providers, and small insurers alike, and it's worthwhile to do a little shopping around before settling on a provider.
The insurance arms of major banks will gladly offer quotes online or over the phone, and may offer you discounts if you're a customer with one of their branches. However, insurance-focused providers may have more flexible, customizable, or specific policies, and it's always worth checking out a few comparisons when it comes to rates. Call multiple sources for insurance quotes, compare those quotes, and look at the breadth and depth of each policy before making a decision and signing the paperwork.
Converting your insurance policy
If you've previously occupied the unit you're renting, or took out an owner-occupied insurance policy as a condition of your mortgage or condo board bylaws, it's crucial to inform your insurance company ahead of time that tenants will be moving in. Your owner-occupier policy won't cover third-party damage—basically anything that can happen with tenants in the unit—and could leave you paying annually for a policy you can't use.
Call up your insurance company ahead of your tenants' move-in date and check out your options. Depending on your company and your policy, you may be able to convert your policy easily over the phone or by email; if not, you'll have plenty of time to schedule a trip to your bank or insurer to do the necessary paperwork.
And the cost?
Landlord's insurance, on the whole, costs a little more than an owner-occupier policy: it's covering more potential situations, with more variables in terms of the actors involved. But even if nothing happens to make that policy necessary (and that's the win condition!) you can still get a little money back after investing in landlord's insurance: on your taxes.
Like many of the expenses involved in renting out an investment condo, your insurance policy will be a valid deductible on your taxes, and is one more way you can help amortize the tax burden of your rental income.
Best of luck!