Does Home Insurance Cover Secondary Suites?

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Families in Canada frequently rent out a basement or secondary suite to help cover mortgage costs and to make a bit of extra income. But does your home insurance company know you have a renter? If not, your policy could be null and void. As it turns out, there are benefits of letting your insurer know about the extra suite -- regardless of whether that suite is legal.

Is the Suite Legal?

Not all secondary suites comply with municipal bylaws. But that phenomenon is not uncommon. In Calgary alone, for example, the current registry of legal suites is 961 units, while one independent estimate of Calgary illegal inventory is 16,000 units. For that reason, many homeowners may be reluctant to disclose the unit to their home insurance. 

Even if the suite does comply with local regulations, some may not report the suite for fear their home insurance rates may rise. 

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Should You Tell Your Insurer?

If your insurer doesn't know about the suite, it may fail to cover you for damage connected to the unit. It may also make the entire policy null and void. That means if you put in any claim, you won't have the protection you need. But if your insurer can properly assess the risk associated with a secondary suite, they can provide you with the right policy. In addition, you won't have to worry about claim denial because you failed to disclose the suite.

According to the Insurance Bureau of Canada, the change in risk isn't just about the unit. Your individual renters also pose different kinds of risk. So, it's a good idea to have a chat with your home insurance company every time the identity of your tenant changes. 

What Home Insurance Covers

Your home insurance policy may cover damage that results from the renter's suite. For example, if there is a burst pipe in the renter's unit, your homeowner’s policy may coverage the resulting damage. You could also be responsible if a visitor gets injured on the property.

It’s always good for you to ask your renter to purchase their own renters insurance policy. In fact, your insurance company may make it a requirement that your renter have their own policy the includes liability coverage. 

In addition, depending on the type of coverage you have, you may be able to get compensation for lost rental income if your suite is vacant because of an insured peril. That's a benefit you would not get if you didn't tell your insurer about the person living in your home. 

Protecting Your Tenant

While the home's structures may be covered under your policy, your tenant's belongings will not be. Encourage your tenant to purchase tenant insurance, as this will give them protection against their own losses and liability. For example, if your renter is at-fault for the injury of a visitor, it's their policy that should protect them against liability. Your home insurance only covers you and your dependents. 

Sharing your home with a tenant can make financial sense but make sure you protect your investment with insurance that is appropriate for your situation.