Landlord Insurance Coverage Guide

Each building is different, and insurance requirements vary by size of building, geography and types of tenants. This guide has been created so Zensurance landlord customers can fully understand all the available coverages. 

Below are the most common coverages considered by landlords. This is not an exhaustive list, but rather the most common types of coverages considered. We highly recommend you review this list, and if you are interested in any of these, speak with your Zensurance broker. Note that any tenants in the building need their own insurance policies; a landlord’s policy is not meant to cover a tenant’s exposures.

Property (building owner)

Property insurance covers the cost of repairing or replacing a structure. For instance, if there is a fire that burns down the entire building, property insurance would be there to remove the debris, clear the land, and then re-construct the structure back to its original state, subject to the conditions and limits of your policy. 

Property coverage includes several variables and considerations. 

  • Rebuild value: The estimated cost to reconstruct a property from scratch in the event of a total loss, including materials, labour, and compliance with current building codes. We recommend you use a professional valuation firm to determine this value to get the most accurate number. As your brokerage, we can’t provide this number, but we can help guide you.
  • Coverage form. The two main form types are broad form and named perils. All perils are covered in the broad form except those expressly excluded in your policy. Named perils are the opposite, covering only the stated perils, while everything else is excluded. Older buildings typically will be insured on a named perils form, unless there have been significant updates in the last 20-25 years.
  • Co-insurance: Co-insurance is an agreement between you and your insurance company. Essentially, it’s part of your insurance contract where you agree to maintain your property coverage limit up to the total value to replace it or a stated percentage of the property’s replacement value (usually 90%). Co-insurance aims to share the risk between a policyholder and the insurance company. It’s designed to ensure a policyholder maintains a proportionate amount of coverage relative to the property’s actual cash value or replacement cost. If you suffer a claim and it is discovered that you are insured at a value lower than what the co-insurance agreement requires, your payout would be reduced by the same proportion that you were underinsured.
  • Basis of settlement: For any property coverage, it is important to know the basis of settlement, which is the method to determine the payout value of a claim. Three typical approaches include:
    • Actual Cash Value (ACV): The replacement cost of damaged or destroyed property minus depreciation. It considers the item’s age and condition at the time of loss.
    • Replacement Cost Value (RCV): The amount needed to replace the damaged item with a new one of similar quality without accounting for depreciation.
    • Agreed Value (AV): The value of the insured item is predetermined at the beginning of the policy. This method is often used for unique or high-value items where the value can be difficult to determine post-loss.
  • Bylaws coverage. Bylaws coverage covers the additional costs incurred to rebuild or repair a property to comply with current bylaws. It is important if you have an older structure that is not compliant with current bylaws or live in an area with very strict bylaws. However, in the event the structure needs to be rebuilt, you would have to comply with the current bylaws, which could increase the cost of reconstruction. This coverage comes with different limits and sub-limits, so be sure to check the limits and deductibles if this coverage is relevant for you. Here is how it could be important:
    • Increased Repair Costs Due to Code Upgrades: If a rental property is damaged, local building codes may require the owner to rebuild or repair it according to current standards rather than its original construction. Without by-laws coverage, your policy may only pay for repairs to the damaged portion, not the additional costs of meeting new codes. For example, a fire damages part of a property, but local laws now require upgraded electrical and plumbing systems. By-laws coverage helps cover the added cost of bringing the undamaged parts up to code.
    • Coverage for Demolition and Rebuilding: If a building is partially damaged but local codes require a full demolition and rebuild instead of repairs, by-laws coverage can help cover the cost of tearing down and reconstructing the entire structure. For example, a storm damages 50% of a rental property, but local laws state that buildings with more than 40% damage must be demolished and rebuilt to new standards. Standard coverage may only pay for 50% of repairs, but by-laws coverage can pay for the required full rebuild.
    • Compliance with Accessibility and Safety Regulations: Municipal codes might require updates to things like wheelchair accessibility, fire suppression systems, or seismic reinforcements. By-laws coverage ensures you’re not paying out of pocket for these mandatory improvements. For example, after a flood, your rental property’s foundation needs reinforcement to meet updated seismic safety regulations. By-laws coverage helps cover this unexpected expense.

Condo units are unique, and can have different exposures than freehold structures. We recommend considering the following coverages that are unique to condo units, which could help protect you in the case of specific losses:

  • Contingent Unit Owner’s Liability: Contingent unit owner’s liability is a supplemental insurance coverage that provides additional liability protection for condo owners if the condo corporation’s master policy does not provide adequate liability coverage. This coverage is triggered if the condo corporation’s master policy’s liability limits are exhausted or the owner is found liable for accidents within their unit that are not covered by the master policy.
  • Water Buydown Deductible: The water buydown deductible is a supplemental insurance policy that condo owners may purchase to align their individual insurance with the condo corporation’s master policy. For example, if the condo corporation’s master policy has a $50,000 water damage deductible, but your policy only covers up to $10,000, you can purchase a water buydown deductible policy to cover the additional $40,000 gap.
  • Deductible Assessment Coverage: Deductible assessment coverage is designed to protect condo owners from having to pay a portion of the condo corporation’s master policy deductible in case of a loss that affects the common areas or multiple units. For example, if the condo corporation files a claim and the cost does not exceed the master policy deductible, the deductible amount is often assessed to the individual unit owners. This coverage helps you pay your share of that deductible.
  • Special Loss Assessment Coverage: Special loss assessment coverage differs slightly and generally covers special assessments levied by the condo corporation for unexpected expenses.

In insurance, a peril is an event, situation, or hazard that can cause damage, loss, or injury and is covered by an insurance policy. Perils are the specific risks that an insurance policy aims to protect against, ensuring that the policyholder can recover financially from certain types of damage or loss. It is important to know which perils are covered by your policy and their respective deductibles. 

The following are the most common perils that are optional on property policies. 

  • Flood: Flood coverage protects property owners against damage caused by natural water events, which are not typically covered under standard water damage policies. Flood coverage ensures that property owners are financially protected against the significant and often devastating effects of flooding, which can lead to extensive water damage and costly repairs. This type of coverage includes:
    • Natural Water Events: Protection against damage from natural phenomena such as heavy rainfall, overflowing rivers or streams, storm surges, and coastal flooding.
    • Surface Water Runoff: Coverage includes damage caused by surface water runoff during heavy rainstorms or melting snow that accumulates or flows onto the property.
    • Flooding Events: Coverage extends to situations where water inundation occurs due to natural causes, such as flash floods, prolonged rain events, or the breaching of levees and dams.
  • Sewer backup: Sewer backup coverage protects property owners against damage caused by water or sewage backup into their homes through the plumbing or septic system. Sewer backup coverage ensures that property owners are financially protected against the unpleasant and often costly effects of sewage or water backing up into their homes, providing peace of mind and security in the event of such an occurrence. This coverage includes:
    • Damage to Property: Protection against damage to the property’s structure and contents, including floors, walls, furniture, and personal belongings, caused by sewer or drain backup.
    • Plumbing and Septic Systems: Coverage for repairs to the plumbing or septic systems that may be necessary if a backup occurs and causes damage.
    • Cleanup Costs: Financial assistance for the often extensive and costly cleanup efforts required to remove sewage and contaminated materials from the property.
  • Earthquake: If your rental property is in an area prone to earthquakes, adding earthquake insurance to your policy can cover losses and damages to your property and contents caused by earthquakes.

Perils such as fire, vandalism, lightning, hail, and windstorms are typically covered by the policy, but it is still important to review your coverage for these.

You must fully disclose any relevant property details, such as how it is intended to be used, the types of tenants you expect, etc. Your policy may have exclusions or conditions that could impact your coverage.

  • Short-term rentals. If you own a rental or residential unit, some policies only allow annual rental terms, while others allow short-term rentals. 
  • Vacant. Most policies do not provide coverage in the event the unit is left vacant for a specified number of days, sometimes as low as 48 hours. If you expect that your unit will be vacant for any period of time, discuss this with your Zensurance broker so that the appropriate coverage can be in place.
  • Tenant’s insurance. Some policies require you to validate that all tenants have renter’s or tenant’s insurance and that you are an additional insured on their policies.
  • Snow removal. If snow removal is not outsourced to an insured professional, some policies require you to keep a log of all snow clearing and pictures of the cleared driveway.
  • Wood burning stove. Often these are not permitted in the policy, so if you have one in the property, be sure to check it is covered.

Landlord Contents Coverage

This coverage is designed to protect the landlord’s property within a rental unit. It typically includes items such as appliances, furniture, and maintenance equipment that the landlord owns and provides for tenants’ use. 

For example, if a residential rental unit comes furnished with a refrigerator, stove, or washing machine, this insurance would cover damage or loss to these items due to covered perils such as fire, theft, or vandalism.. 

This coverage is essential for landlords who are providing a unit for rent that comes with contents owned by the landlord. 

Rental Income Coverage

This type of coverage, also known as loss of rent insurance or business interruption insurance for landlords, is vital. It protects against the loss of rental income if the rental property becomes uninhabitable due to a covered peril, such as fire, storm, or water damage. If a property is damaged and tenants must vacate while repairs are made, rental income coverage compensates the landlord for the lost rental income during the repair period.

For instance, if a significant fire damages an apartment building, making living unsafe for tenants, the restored rental income can help the landlord cover ongoing expenses such as mortgage payments, property taxes, and maintenance costs. Without this coverage, landlords could face substantial financial hardship due to lost income while still being responsible for the property’s ongoing expenses.

This coverage would only apply in the event of an insured loss on the property. For instance, if you purchased flood coverage, and there was a flood, you could rely on this coverage to cover lost rent while the building is repaired. However, if there is an earthquake, and you didn’t purchase earthquake coverage for your property policy, you would not have rental income coverage.

Equipment Breakdown Insurance

Equipment breakdown insurance is a specialized type of coverage that protects landlords against the financial losses associated with the sudden and accidental breakdown of essential equipment and systems within a rental property. This insurance is critical for landlords, as it helps cover the cost of repairing or replacing the equipment necessary to the operation and maintenance of their rental properties.

Covered equipment typically includes heating and cooling systems (HVAC), boilers, water heaters, electrical panels, and other mechanical and electrical systems. For example, if the furnace in a rental property breaks down in the middle of winter due to an internal mechanical failure, the cost to repair or replace the furnace can be significant. Equipment breakdown insurance would cover these costs, ensuring that the property remains safe and habitable for tenants without the landlord having to bear the full financial burden out-of-pocket.

This type of insurance extends beyond standard property policies, which may not cover mechanical or electrical failures unless a covered peril like a fire or storm causes them. Equipment breakdown insurance provides peace of mind to landlords, knowing they have protection against unexpected and costly repairs or replacement of critical building systems. By including this coverage in their insurance portfolio, landlords can help ensure their rental properties’ continuous and efficient operation, ultimately protecting their investment and maintaining tenant satisfaction.

Commercial General Liability (CGL)

CGL, or general liability insurance, is essential for landlords because it helps safeguard their financial interests and assets against various third-party liability risks. Rental properties can present numerous potential hazards, and accidents and incidents can still occur even with the best maintenance practices. Landlords may face significant out-of-pocket expenses and legal fees without adequate liability coverage, which could be financially devastating.

  • Bodily Injury Liability: This part of CGL insurance covers legal costs and compensation for injuries sustained by tenants, visitors, or other third parties while on the landlord’s property. For example, if a tenant slips and falls on an icy walkway and is injured, the CGL policy can cover medical expenses and legal defence costs if the landlord is sued.
  • Property Damage Liability: This coverage protects the landlord if they are held responsible for damage to someone else’s property. For instance, if a fire originating from the rental property spreads and damages a neighbouring property, the CGL policy can cover the costs of the repairs and any legal claims.
  • Personal and Advertising Injury Liability: This includes protection against non-physical liabilities such as libel, slander, wrongful eviction, invasion of privacy, and advertising injuries. For example, if a tenant claims wrongful eviction and sues the landlord, this coverage can handle the legal expenses and any settlement costs.
  • Medical Payments: This coverage provides immediate, no-fault coverage for minor medical expenses, regardless of liability. This helps address injuries quickly and potentially prevent further legal action.

A few examples of claims are given below:

  • A visitor is injured on the rental property’s stairs due to a broken handrail and sues for medical costs and damages.
  • A tenant claims their personal property was damaged by water damage caused by a plumbing issue that the landlord failed to address promptly.
  • A falling tree from the rental property’s yard damages a neighbour’s vehicle, and the neighbour demands compensation.

Builder’s Risk Insurance

Also known as construction liability insurance, builder’s risk insurance protects a building and liability against property claims throughout a construction project’s duration, from the start to completion. Whether you are embarking on a complete construction project or even a renovation, you should look at a builder’s risk policy to cover you during this period, as the typical property and general liability policy would exclude coverage during construction.

The building owner must be insured under this policy. When finalizing the details of a project, be sure to confirm who will be responsible for purchasing the policy, confirm whether the requirements set out an all-risk or a named perils coverage, and ensure all involved parties are covered.

One of Canada’s most commonly used construction contracts, the CCDC 2 Stipulated Price contract, states that the contractor must provide, maintain and pay for the broad form builder’s risk coverage in the joint names of the contractor, owner and consultant. You can read more about it here: Builder’s Risk Insurance.

Legal Expense Insurance

Legal expense coverage protects landlords against the legal costs associated with potential disputes and legal issues arising from their rental properties. This coverage includes:

  • Eviction Proceedings: Financial assistance for legal fees incurred during eviction if tenants violate lease terms or fail to pay rent.
  • Disputes with Tenants: Coverage for legal expenses related to disputes over property damage, security deposit disagreements, tenant complaints, or other conflicts.
  • Property-Related Legal Issues: Protection against legal costs arising from property-related matters, such as boundary disputes, zoning issues, or compliance with local regulations.
  • Legal Advice and Counsel: Access to legal advice and professional counsel to help landlords navigate complex legal situations and make informed decisions.
  • Legal expense coverage ensures landlords are financially protected against the potentially significant costs of legal disputes, allowing them to manage and resolve conflicts effectively without bearing the burden of legal expenses.

You can read more about this coverage here: Legal Expense Insurance

Cybersecurity Insurance

Cybersecurity insurance provides your organization with financial support, professionals to guide you through the cyber incident, and other resources if your company suffers damage or loss from a data breach or cyber attack. You can read more about it here: Cybersecurity Insurance.

Deductibles

A deductible is the amount the policyholder must pay out of pocket before insurance coverage kicks in to cover a claim. It is a form of cost-sharing between the customer and the insurer. Deductibles are described in your policy document and will vary by coverage. For instance, you could have a $1,000 deductible for general liability, $25,000 for a flood, and $100,000 for an earthquake. 

It is important to understand the deductibles you have for all your coverages to avoid any surprises in the event of a claim. Get to know the ins and outs of your policy before you need to make a claim, and make any adjustments necessary.

Cancelling a Policy Mid-Term

Many (but not all) policies can be cancelled during a one-year term. Two elements must be reviewed to determine the amount of a refund you would get if you cancel your policy mid-term.

First is the Minimum Retained Premium (MRP). Regardless of how long the policy is kept active, it is the minimum premium you would owe. For example, if you had a $1,000 policy with a 25% minimum retained, even if you cancelled one day after the policy was issued, you would still owe $250 (25% of $1,000).

Second is the short-rate cancellation formula. It is typically included in your policy document and states the refund you would get based on the number of days your policy was active. The amount of the premium the insurance company keeps is called the “earned premium”. 

To calculate your refund amount, find the earned premium in the table provided on your policy document. Compare this earned premium with the minimum retained premium, and use the higher amount to determine your refund.

Keep Your Zensurance Broker Up to Date

Keeping your insurance broker informed about any changes to your business is crucial for ensuring that your coverage remains appropriate for the required limits, and tailored to your particular business needs as your business grows.

As your business evolves – whether through expansion, acquisition of new equipment, introduction of new services, or staff changes – the risks associated with your operations can change significantly.

By promptly updating your Zensurance broker about these developments, you enable us to accurately assess your current risk profile and adjust your policies to address new exposures. This proactive communication helps avoid coverage gaps that could leave your business vulnerable to unforeseen claims or losses. Moreover, an up-to-date insurance portfolio can lead to more accurate premium calculations and even potential discounts for risk management enhancements. Engaging in regular reviews with your Zensurance broker ensures that your business complies with contractual insurance requirements.

Please note: Coverage depends on your specific policy and this is for informational purposes only. Coverage varies by policy.

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