Different Great Types of Real Estate Insurance You Need for Investing in 2023
Real estate investments are often considered “safe,” but there’s still plenty that can go wrong. From fires and floods to defects in the title, non-paying tenants and injuries on your property, it’s wise to expect the unexpected. Getting adequate real estate insurance can protect you from life’s unpleasant surprises, so you’re not left scrambling to cover unexpected expenses.
Whether you’re just getting started or are a seasoned investor, it’s worth browsing this list to make sure you’ve covered all your bases. Here is an overview of the different types of real estate insurance you’ll need when you’re investing in Canadian real estate. Not every investor or property will require each type, and you might need specialized real estate insurance for niche properties. These are simply the most common types investors use.
Did you know that some lenders will require you to get certain types of real estate insurance to qualify for their products? To learn more about the types of real estate insurance you will need to succeed as an investor today, click the link below to book a free strategy call to discuss lender requirements.
General real estate insurance
General liability
General liability insurance protects you from being sued for accidents or property damage occurring on your property. If someone sues you for an incident on your property, you’ll be covered for any damages awarded to them in court. All properties need liability insurance—anyone can get hurt on your property, and damages will quickly eat away at your investment profits.
Hazard insurance
Hazard insurance protects you from fires, storms and theft. Like liability insurance, hazard insurance is something you must purchase for all of your properties. Otherwise, you’ll be on the hook for repairing the damage yourself—or losing your entire investment.
Flood insurance
While not applicable for every property, be sure to include flood insurance if you live on a floodplain, coastal area or areas prone to hurricanes. Flood coverage is usually not included in hazard insurance. You may need to add it on or purchase it separately.
Sewer backup insurance
Sewer backup insurance is a must if you have a rental unit, and it usually can be added to your hazard insurance for an extra fee. This is usually a minimal amount and is worth it if disaster strikes.
Umbrella policy
An umbrella policy allows you to purchase additional coverage in the event that your liability insurance doesn’t cover your entire legal defence and damages. While it’s not mandatory, it’s never a bad idea—lawsuits can be expensive even if the fault doesn’t lie entirely with you.
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Real estate Insurance for rentals
Rental property insurance
Rental property insurance isn’t a specific type of insurance—rather, it’s often offered as a bundle for rental property owners. It may include liability insurance, hazard insurance and other rent-related coverage. However, please note that these policies won’t cover your renters’ belongings. They’ll need to purchase their own insurance, which you can require as part of the terms of the lease.
Rent guarantee insurance
This type of policy is designed to protect you if a tenant refuses to pay, whether they leave unexpectedly, lost their job or suffered another kind of disaster. The COVID-19 pandemic has highlighted the importance of this kind of coverage—while no one can predict a pandemic, anyone who depends on rental income to survive needs this policy.
Loss of income insurance
This is similar to rent guarantee insurance, but it protects you if your building suddenly becomes uninhabitable or is otherwise destroyed. Be sure to check the policy carefully—it might not protect against every type of disaster. If your investment property is on a fault line, for example, you’d want to ensure that your loss of income insurance pays out if an earthquake causes the damage.
Real estate Insurance for construction and development
Builder’s risk insurance
Anytime you renovate a building, you need builder’s risk coverage. It can cover anything from the structure and equipment during the construction phase to loss of income if the construction is delayed. Be sure to find out exactly what your policy covers so that you’re not left with any surprises when you file a claim.
General contractor insurance
If you’re doing the renovations yourself or alongside subcontractors, purchase a general contractor’s insurance policy. This will protect you if someone gets hurt on the job and files for workers’ compensation and sues for damages. It will also cover any damage to the construction equipment, which can be pricey to repair or replace on your own.
Workers’ compensation insurance
Finally, whether you’re hiring employees to do construction on your property or you need someone to manage the property, invest in workers’ compensation insurance. This will cover you when someone gets injured on the job, whether that’s from renovating a rental unit or accidents in the office. It covers their medical expenses as well as any damages you’re liable for paying after a lawsuit.
As you can see, there are plenty of options for insurance—and you must get enough coverage to offset all of your potential costs, fees and repairs. There are rarely good times to cut corners, but it’s especially bad when it comes to insurance. Don’t fool yourself into thinking you’ll never have to deal with natural disasters, accidents or deadbeat tenants.
Don’t stop there
If you’re getting ready to purchase or upgrade your insurance, be sure to ask your insurance agent whether you can save money by bundling policies together. There may be a way to cut down on your monthly costs without sacrificing quality protection.
Make sure to talk to your colleagues and mentors, too—they may have localized advice that will better protect your portfolio. For example, some companies offer terrorism insurance, should you be worried that your properties may be targets of terrorism. Similarly, if you’re buying a property in British Columbia, you’ll probably want earthquake insurance. Different geographical locations have different challenges, so do as much research as possible.
Ultimately, your investments are only as good as your insurance. If you don’t protect them with enough coverage, you could lose out on your capital, sweat equity and most importantly, your credibility.
Did you know that some lenders will require you to get certain types of real estate insurance to qualify for their products? To learn more about the types of real estate insurance you will need to succeed as an investor today, click the link below to book a free strategy call to discuss lender requirements.