If you own a rental property that’s going through a vacancy period, it’s recommended that you take some extra insurance precautions. Specifically, insurance professionals generally advise that property owners add a special type of endorsement known as a vacancy permit that ensures their coverage will remain valid even if no tenant is currently occupying the rental unit.
The Basics
In Alberta, four main types of rental property insurance are available:
- Insurance for single-building dwellings that you own and rent out to long-term tenants
- Insurance for properties with outbuildings (sheds, garages, etc.) that are rented out to others
- Seasonal rental insurance that covers the building as well as any property inside it that you own
- Insurance for properties that generate rental income that you rely on for your livelihood
Each of these insurance products provides you with essential protections against perils including fire, weather damage, accidental damage and other types of threats. You can expand coverage for comprehensive protection against all perils, or purchase a more basic package at a reduced price.
Vacancy Permit Endorsements
Vacancy rates have been on the rise in Calgary and throughout Alberta, leaving a growing number of homeowners in need of insurance solutions that protect them against exclusions. An exclusion is an event that triggers limitation clauses in the policy, making you eligible for reduced levels of compensation in the event that you have to file a claim. They occur when a property’s usage patterns deviate from what was stated when you purchased the policy.
For insurance purposes, a property is considered vacant if:
- A newly built home, apartment or condominium does not have anyone living in it
- A previous tenant has left the property permanently, and no new tenant has elected to move in
From an insurer’s perspective, risks change if a property is not occupied. To make sure you’re protected, add a vacancy permit endorsement to extend your current policy. In addition to adding a vacancy permit to your insurance coverage, you must also take proactive steps to keep the property safe, including:
- Turning off the water
- Ensuring all pipes and all water-drawing appliances are fully drained
- Turning off natural gas service (if applicable)
- Visiting the property in person on an ongoing basis to ensure nothing has happened to it
- Maintaining the property (mowing the lawn, trimming the hedges, etc.)
You should also add a vacancy permit to your primary residence if you have moved into a new home, but your old home has not yet been sold in the resale market.
How Insurers Assess Risk
To help you better understand your responsibilities, it’s good to have a sound working understanding of how insurance companies assess risk. The cost of a policy is directly tied to the level of risk it poses to the insurer, and in some cases, it is possible to secure more advantageous rates by taking steps to reduce risk.
Specific to real estate, insurance companies deem the following factors to increase risk:
- The homeowner has a low credit rating, or a history of defaulting on payments
- The policy holder has little to no previous insurance history
- You have had a previous insurance policy cancelled, or your previous insurer elected not to renew your coverage
- You are an absentee landlord (i.e. not living in the property you are renting to others)
- The property has outdated electrical or plumbing infrastructure
- More than two people are listed on the mortgage or title deed
While some of these factors may be beyond your control, others are not. Eliminating as many of these risks as possible will help you secure more affordable rental property insurance rates.
Rental Property Insurance Alberta: Tenants Need Protection Too
It’s a good idea to remind prospective and current tenants that they should carry their own insurance, too. Your coverage will not extend to the personal belongings of your tenants, so in the event of a fire or other disaster, their property could be at risk.
Learn more about tenant insurance by consulting the Lane’s Insurance digital library. You can also get a fast, free quote on your property insurance. For more information on vacancy permits, call a Lane’s customer service representative.
