What to know about insurance if you have a paying tenant

Are you a homeowner with an extra room or house? Are you thinking of becoming a landlord to help pay the bills? If you answered yes to either question, you might find yourself in a bit of a grey area when it comes to your home insurance.

Here’s what to know about insurance if you have a paying tenant.

Renting space in your home

If you rent a room in your home, you’ve officially become a landlord. Although held to slightly different laws than a traditional landlord, you’re still in charge of the property and hold the responsibility of providing your tenant with a clean and safe place to live.

Oftentimes, this responsibility includes maintaining adequate insurance coverage. Most insurance companies in Canada don’t have a problem with you renting out a spare room or area of your home to a paying tenant as long as you also live in the home. If you move out and convert your home to a boarding house, your homeowner’s insurance policy will probably not be sufficient.

Although your home insurance will usually remain valid with a paying tenant in your extra room, you should counsel your tenant to get his own renter’s insurance. Renter’s insurance is relatively inexpensive and will cover his personal property in the event of a theft or fire.

Renting a separate property

The property ladder is filled with landlords who own one or two properties. Often, these are new landlords who haven’t yet managed to build a large portfolio of rentals. Other times they’re people who have decided to rent out their primary residence and move to a different house or town. In all of these situations, a regular homeowner’s insurance policy is not sufficient. If you and your paying tenant do not live at the same property, chances are high that you’ll have to get a landlord insurance policy for your rental.

There’s good news though. Often, landlord insurance policies are less expensive than homeowner policies. Landlord insurance generally covers the building itself and liability coverage for the landlord. The property inside the building is excluded from landlord insurance, both because it is not the landlord’s property and because the renter should be carrying his own insurance to cover the contents of his rental.

If your rental property is paid off, you might be tempted to forego landlord insurance entirely. Although not generally required, landlord insurance is inexpensive enough to be worth the cost. In the case of a fire, the insurance coverage will pay for a rebuild of your insurance property and could cover you if you’re found at fault for damages to the tenant.

Large property management companies almost always have insurance just in case something goes wrong. As a small-time landlord, either with a rental property or a spare room in your home, you might not be sure whether you need to have additional insurance. Generally, if your paying tenant is going to be sharing the same address and property as you, you’ll both be covered under a regular home insurance policy. If your paying tenant is going to be living alone, a cheaper, stand-alone landlord insurance policy might be the right thing for you.