InFocus: Residential Rentals

The Condo Crack- coverage gaps in rented properties

The Condo Crack- coverage gaps in rented properties

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It is an unfortunate fact that many condo owners that rent out their unit don’t bother with insurance, whether due to limited contents, or because it isn`t required by mortgage companies.

With the explosion of the condo market and the rental of those units – this niche needs proper coverage.

“It is a concern – especially from a broker standpoint,” says Karen Roller, Underwriting Director with APRIL Canada. “Often a broker only finds out about their client’s condo purchase when they come to them after a loss, with an invoice from their condo corporation, asking for assistance.”

A unit owner may feel contents or liability coverage isn’t necessary, or may extend liability from an existing policy. Large loss assessment exposures are often not considered. These are becoming more common thanks to the increased frequency of water damage claims in condos across the country, Roller told Insurance Business.

 “The reality is that the sheer number of people living together in a complex makes water losses more likely,” she says. “Condos are built up, and water flows down, meaning that a tap left on, or a broken dishwasher can lead to hundreds of thousands of dollars of damage.”   Although the condo corporation’s insurance will likely cover the loss, they are just as likely to look to the responsible unit owner to recover the deductible through an assessment.  Buildings with a history of these losses could easily have a $25,000 deductible which is a heavy burden for a unit owner without the proper insurance.

This makes it all the more important for condo unit owners to tell their brokers that they’ve made such a purchase and obtain the relevant cover.

Brokers should take a proactive role by encouraging their clients to regularly inspect their rental units. These inspections should look for signs of water damage, loose or old appliance hoses, storage on or near sprinkler heads and replace batteries in smoke and carbon monoxide detectors.

Mortgage payments are another often overlooked issue. A devastating fire loss, such as the recent one in Calgary, demonstrates this when it leaves many owners homeless.

“The biggest thing to learn from the recent losses in Calgary is that these people have been displaced from their homes, but their mortgage continues,” says Roller. “Those who don’t have insurance end up paying rent and hotel bills in addition to their mortgages. Their condo fees might stop but the bank still expects to get paid whether the condo is inhabitable or not. Owners renting out the unit now have the burden of their mortgage without the tenancy income to cover it’.   

Additional living expense or rental income coverage therefore needs to consider the length of time that it could take to rebuild a complex after such a disaster.

In Roller’s opinion condo boards do not have an enviable task. They need to negotiate proper coverage and assess adequate limits with reasonable deductibles for a premium that their budget can afford. “Condo unit owners, must take responsibility for themselves if they don’t like surprises, and work with their broker to ensure that they have a condo package in place to address their needs.”

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