Do basement tenants buy the right coverage?
Key takeaways:
- Summer 2024 flooding in Greater Toronto caused $1 billion in insured losses
- Tenants renting basement apartments now more vulnerable to flood damage because of extreme weather
- Standard renters policy covers water damage caused by sudden and accidental events within the home such as a burst pipe
- Additional overland water, sewage backup protection provides renters with more protection
As Canadian cities struggle to create housing, some homeowners and other landlords are converting basements into rentals.
But major floods in Toronto last July, which racked up nearly $1 billion in insured losses, raise questions about whether owners and, particularly tenants, are properly insured.
Many homeowners woke up to find their basements flooded during the July 2024 floods, and Canadian Mortgage and Housing Corporation data from 2021 shows there are roughly 75,000 basement apartments across the Greater Toronto Area.
“Most tenants only think about the contents of their apartments when they take out tenant insurance policies, but the real issue is finding a place to live if their apartment floods or is otherwise made unlivable,” says Rates.ca’s Daniel Ivans. “Most basement floods can take weeks to repair. In the event of a city-wide flood, like the one we saw in the GTA … that timeline can stretch to months as many claims are processed at once and systems are overloaded.
“Some will be fortunate enough to move in with friends or family, but if those options aren’t available, securing a temporary place to live becomes a real concern, especially in an expensive rental market with low supply.”
Further, rising NatCat rates mean adjusters and other personnel handling tenant claims and landlord flood restoration claims can easily be overwhelmed by the sheer number of cases requiring their response.
Customers filed more than 228,000 claims for the four NatCat events across Canada in July and August in July 2024. That’s more than double the number recorded by that same time in summer 2023 (113,000) according to the Insurance Bureau of Canada.
These intense storms illustrate how “climate change-induced extreme weather patterns intensify year-over-year,” notes Rates.ca, adding tenants renting basement apartments are becoming more vulnerable to flood damage.
Proof of insurance
While tenant insurance is not mandatory in Canada, an increasing number of landlords are requiring proof of tenant insurance. Premiums are calculated in much the same way as other property insurances. Some factors include where you live, the location of your unit in the building, the condition and year of the building and its security features. The value of what you are insuring is also considered.
The Insurance Bureau of Canada recommends when purchasing tenant insurance (also known as renter’s insurance), that you keep an updated record of everything you own, also known as a home inventory. Taking pictures or videos of your belongings also helps, in the event you need to make a claim.
What it covers
Tenant’s insurance covers your possessions in your apartment and while you are away. It’s a common misconception that damages to a rental unit or personal belongings are covered under the landlord’s policy. The landlord’s policy covers property damage outside of rental units and to the building, loss of rental income and liability for injuries that may occur on things such as icy walkways or in common areas.
Here’s what your tenant policy would cover:
Contents: Your belongings include everything from clothes, television, furniture and more. If there’s a fire in your apartment building that affects your unit, it would cover the cost of replacing what you lost. Most policies are in the range of $35,000 in contents.
Personal liability: Tenants may be liable for any damage they cause to the building or unintentional harm caused to others who live in or visit the property. This covers up to the limit chosen – usually $1 million or $2 million – for any amount you’d have to pay someone who successfully sues you and the cost of the lawsuit. This includes a pet that injures another person.
Additional living expenses: This provides you with compensation for additional living expenses if your residence is uninhabitable from an insurable loss. It is subject to certain limits outlined in the policy.
Water damage: A tenant’s policy would cover water damage caused by sudden and accidental events within your home, like plumbing leaks or burst pipes.
Additional water protection
In order to cover water damage from outside sources, you’ll need to purchase additional coverage, mainly overland flood and sewer backup protection.
Flooding from natural disasters such as heavy rainfall, storm surges, or rising rivers, is not typically covered by a standard tenant insurance policies. If you live in a flood-prone area, speak with your broker about additional insurance to protect your belongings. Sewage-related issues also aren’t covered by a typical tenants’ policy.
That’s why it’s important to talk to your broker or insurer about relevant add-ons before damage occurs, especially if it’s of concern when living in a basement apartment.
With files from Canadian Underwriter
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