Canada's Condominium Magazine

Lack of insurance a higher risk to condos than debt load; many condo owners carry no insurance; 53 percent of condo renters do not.

As housing prices have increased, so too, have insurance costs, making it tempting to “go without.”  Increasingly, this means homeowners are “going without” — a dangerous proposition. Even more tenants of condos are going without — over half, according to Substance Strategis survey. [3] Some financial analysts rank lack of insurance as a bigger risk to home owners than ratio of debt on a home.

 

Are you considering opting out of insurance for your owned or rented condo? Think again. Most people cannot afford to self-insure against major disasters.

 

It is not mandatory by law to carry insurance — although it likely is required by your mortgage company or landlord — but it is a necessity. Not long ago, a family in Creemore was left homeless after their home burned down; they had no insurance. [4] In the U.K. one in four homes carry no insurance. [5] In Australia, the number is 18.5%.[6] In the U.S. 5 % of homeowners have no insurance.[6] Canada census doesn’t collect this data, but each year families end up financially devastated from lack of insurance.

 

Making sure you are insured, despite high premiums, is critical to protect your asset, even if you are not leveraged. (Most mortgages require insurance, but there is no obligation to insure if you carry no mortgage).

 

Doesn’t condo insurance cover it?

Some people, due to costs, rationalize no insurance by assuming the condo corporation will cover any losses — without realizing these losses are limited only to common areas of the community.

“People don’t always understand who is responsible for what,” said Serge Meloche, business-development manager of the insurance brokerage Dale Parizeau Morris Mackenzie. [1] The biggest risk for expensive damage in condos is “flooding” — commonly where a bathroom leak upstairs damages units below. Some condominium corporations are even having difficulty obtaining water-damage insurance and are having to self-insure.

 

Condominium corporations only cover common areas. In fact, the corporation’s insurance can sue you for any damage to common areas caused by your home, making insurance of your own necessary.

 

One in five live in a condo

According to the last Census data (which is out of date) [2], one in five Torontonians live in a Condo. Out of those, in CMA urban areas, 26.6 percent of condo-dwellers are renters. Of those, 53 percent have no insurance. Based on conservative estimations, at least 5 percent of home owners go without.

For those who believe the myth that every home-owner has insurance, Personal Injury Lawyers Conte & Associates’s article “What to do after a house fire with no insurance” seems to counter that perception. The article tells you who to go to for help when you are devastated by a loss without insurance.

 

Fire is only one type of necessary coverage. Liability is also crucial to protect homeowners.

 

Not normal times: protect your investment

Because mortgages “eat” much of our disposable budget, it is tempting to at least partially “self-insure.” Maybe, give up flood insurance because the deductible and premium is so high. Yet, given the very high value of real estate, there is no logical case for compromising protection of our most valued asset. Whether you are a homeowner or the tenant of a rented property, you need to make sure that you are protected against any problems that may arise. Some of these may include burglaries and damages caused by vandalism, fire, and natural disasters. Prepare for any problems that are prevalent in your area.

 

Don’t forget burglaries. Even in secure condos with cameras, locks and gates, burglars still find ways to get in. The good news is that this type of coverage in a secure condo will cost less than in a detached home.

 

Appropriate insurance: not always

The majority of owners — and, sadly, a minority of condo renters — do actually have insurance. After all, protecting your assets is important. You do not want to find yourself in a situation where you have lost your home to a fire and have no way to find a new home and move past the devastation. Unfortunately, not everyone has the appropriate insurance. Whether it is a lack of insurance altogether or a specific threat that is not covered, major problems can arise form a lack of adequate coverage.

Many people who rent, assume that their landlord’s insurance is adequate and that regular renters’ insurance is too expensive, so they do not purchase it.

They rely on the standard “landlord fixes everything” ideal scenario and a great deal of luck, thinking that they are immune to disasters and that if they do face any problems the landlord will swoop in and fix them all at no cost to them.

 

Make sure you have access to your policy off-site in the event of a disaster at home.

 

Nothing could not be further from the truth. Although many landlords do help with repairs, they only include those that come from normal wear and tear. They do not include damages that are caused by neglect or intentional sabotage. They also do not cover damages that are caused by fires and other disasters. If you leave the bathtub flowing, chances are good the landlord’s insurance company will chase after you for the damages.

Top myths of insurance coverage

The top two myths of insurance coverage are:

  • “Natural disasters are not covered”: actually, usually they are, but you should check. [7]
  • “We are covered for floods”: actually, NO home insurance policy for individuals covers flooding (except with special extra coverage); only water damage from your own broken pipes may be covered. [7]
  • “Sewer backups” are covered. [8] This may require “extra” coverage.
  • “Earthquakes” are covered. In Canada, probably not, without extra coverage. [8]
  • “I’m covered for my collections, art, rare items.” Probably not, unless you have a special extension (and even then, it will likely be limited) [8]
  • “I’m covered even if I don’t maintain property.” If you have an unprepared toilet (maintenance issue) you may not be covered for flooding even if you have special flooding insurance. Check the fine print. [8]
  • “I’m covered if I renovate.” On the contrary, you have an obligation to let the insurance company know before you renovate. If your renovation causes damage or future issues, you may be limited in coverage. [8]
  • “My jewelry is covered.” [8] Not automatically, and some “fine print” limits claim amounts.
  • “I’m covered for my vacant condo while I look for a tenant.” [8] Probably only for 30 days.

 

Talk to your insurance agent in detail. Shop around. Ask the tough questions. Never allow your policy to lapse.

 

Go past the basics

Some people purchase insurance but only get the most basic of plans, thinking that they cover what is necessary and that anything more is a scam. However, this thinking can leave the buyer with insurance that only covers minor damages and only under certain situations. If someone only purchases insurance that covers fires, then they will be stuck paying for any damages caused by vandalism or natural disasters.

Even if your insurance covers burglaries, vandalism will not be included if nothing was stolen because it does not fit the description of a burglary. Most insurances will not include vandalism because any tenant-caused damage is intentionally excluded, and it is extremely difficult to prove that the tenant did not cause it themselves unless there is security footage that captures the act.

If the tenant does cause the damage, then the owner of the property is often left with the bill because he or she cannot prove the tenant’s guilt. Performing background checks can save you a great deal of hassle if you are renting out your home. You want to make sure that your tenants are trustworthy and that they do not have a history of damages.

Also, a lot of insurances that cover a wide range of scenarios still have an “Act of God” clause that prevents the company from being liable in the event of natural disasters. Often, natural disasters are deemed too unpredictable, and with no way to prevent them the company faces tremendous risk of having to pay out a great deal of money if multiple properties are destroyed. You should be extremely careful when choosing your insurance so that you are sure it will cover you in any situation you are likely to face.

Saving money on insurance

The top ways to (possibly) lower your insurance premiums are:

  1. Combine with car insurance.
  2. Even in a condo, have an alarm system.
  3. Raise your deductible (premium reduction can be significant).
  4. Pay annually, not monthly.
  5. Comparison shop, but make sure coverages are equal.

 

NOTES

[1] Serge Meloche of Dale Parizeau Morris Mackenzie

[2] Statistics Canada Statscan.gc.ca

[3] “Half of Canadians don’t have tenant insurance? Belairdirect magazine.

[4] “Fire destroys family home” 

[5] “No home insurance.” 

[6] “How many homes are insured? How many are uninsured?”

[7] “Insurance: Myths and Reality” Intergroupe

[8] “Six Big Home Insurance Misconceptions” CBC

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