Many B.C. residents rent a suite in their home to help with the mortgage
When Raj Bhangu put a secondary suite into his Kitsilano house, he spent the extra $20,000 to do it legally and get the right permits. But he was surprised to find that even though he had home insurance, it would have been null and void had the unthinkable happened — a flood, fire, earthquake or any other unforeseen catastrophe.
That’s because insurance companies will not pay out if homeowners don’t inform them when they put in a secondary suite, something Bhangu found out when his insurance came up for renewal several months after his first tenants moved in.
Almost one quarter of B.C. residents rent out a secondary suite in their home to help with the mortgage — and that’s likely a conservative estimate — but most are unaware they are not covered if their insurance company doesn’t know about it, according to Square One Insurance.
Many people are reluctant to tell their insurer they have a secondary suite because they may not have followed all the rules, said Square One CEO Daniel Mirkovic. It is a widespread misconception that insurance companies pass on information about illegal suites to municipal governments, he said.
“For insurance purposes, it really doesn’t matter whether it’s a permitted or a legal suite,” he said. “In most cases, coverage is available. It might cost you a little bit more, but in the long term it’s well worth it.”
Insurers are only concerned about properly assessing the risk and making sure the customer is being charged at the correct rate, Mirkovic said.
An insurance company would only communicate such information to a government authority under a court order or with the homeowner’s explicit permission, given in writing, Mirkovic said.
Failing to tell the insurance company about a secondary suite is “the absolute worst thing that could happen because they’ll say that you didn’t disclose all of the necessary and pertinent information on the home which would have affected their decision as to whether they would insure the risk or not,” Mirkovic said.
In Kitsilano, Bhangu said many of his neighbours who rent out basement suites don’t know what the rules are.
“If you have an illegal suite, you’re not necessarily going to go and tell your insurance company that ... so they just avoid it altogether,” said Bhangu, noting that his insurance went up by about $100 a year when he informed the company of the suite.
Many people tend to think of insurance as something they pay every month and don’t necessarily think to ask the pertinent questions, he added.
“It’s a recurring thing that you hope you’re covered [for the] worst-case scenario.”
Other changes to homes that may affect insurance rates are going from a one- to two-family residence and conversions of garages to coach houses, according to Square One.
Another thing most landlords don’t know is that they can purchase insurance to cover a loss of rental income stemming from damage that requires repairs, Mirkovic said.