Dan Tetzlaff from Hub International Insurance share his expert opinion and speaks on the most common pitfalls when insuring your property and a robust program on how to avoid them.

1. Downtown Toronto (Annex) Real Estate Investors
Coverage pitfalls to look out for in your investment property insurance policy
Investing is your business.
Insuring it is ours.

2. Most Common Pitfalls
 Named Perils/Fire & Extended Coverage vs. Broad Form Coverage
 Actual Cash Value vs. Replacement Cost
 Permission for vacancy period
 Limited Coverage during vacancy
 Vandalism caused by tenants
 Rental Income Insurance
 Sewer Back-up, Flood & Earthquake, and sump pump coverage.

3. Named Perils/Fire & Extended Coverage vs. Broad Form
There are two forms that your investment property may be currently insured under:
 Named Perils Coverage This form is limited to the causes of loss that are
named on the policy. Named Perils form is a more “restrictive” coverage
form. You do not get as much coverage as you would get on a Broad form.
OR
 Broad Form Coverage This form is highly recommended as it covers “all
causes of loss” unless excluded.

4. Actual Cash Value vs. Replacement Cost
Methods by which your insurance company may calculate the amount it will
pay for your loss. Two common ways are:
 Replacement Cost is the cost to replace the property with new materials of
like kind and quality, without depreciation. This is the most favorable.
 Actual Cash Value is the cost to replace the property minus deduction for
depreciation. Also known as market value. It represents the dollar amount
you could expect to receive for the item if you sold it in the marketplace
excluding the land value.

5. Vacancy Allowance Period
 Most policies have an exclusion on the policy that indicates that if the home was
vacant for more than 30 consecutive days, a loss would not be covered. You must
notify your insurance broker if your property is vacant for more than 30 days. They will
have to add a vacancy permit to your policy. There is typically a charge for this.
However, some insurance packages designed specifically for investment properties
may have a longer vacancy period allowance. This is certainly helpful considering a
rental property may be vacant until tenants are found.
 Conditions to keep in mind relating to this permission:
- All doors and windows be securely closed and locked.
- All rubbish be removed from within the described buildings and premises.
- Buildings must be checked a minimum of once a week or more depending.
- You have shut off the water supply and drained the system and appliance of water, or
you have maintained heat in the building and have made arrangements to assure
heat is continued.

6. Vacancy During the Regular Heating
Season
Residential policies usually have a stipulation that if you are away
for more than 4 consecutive days during the usual heating season,
they will only cover water damage resulting from freezing if you can
establish the following: i). you or your tenant arranged for a
competent person to enter your dwelling each day you were away to
ensure that heat was being maintained, ii) you shut off the water or
iii) your system is connected by a monitored heating alarm system
to a station providing 24 hour service. Is your tenant really going to
do this? A ruptured pipe, undetected for 2 or more days can easily
cause $60,000 worth of damage and often much more.

7. Damage/Vandalism Caused by Tenants
 This is a common exclusion on most rental property policies. You retain the
loss if your tenants damage or vandalize the building. It is recommended
that you double check with your insurance carrier to ensure that this is
included.
 Damages can be significant if you get an angry tenant.

8. Rental Income Insurance
 After an insured loss and during the period of restoration, rental income
insurance will reimburse you for the rental income that you were getting
prior to the loss. Check with your insurance broker or agent to be certain
that you have this coverage.
 Is the Rental Income Insurance on an Actual Loss Sustained basis? Actual
Loss Sustained basis means that there is no limit on the rental income.
However, this does not mean an unlimited source of payment for your loss.
The loss must still be proven and the proof is the amount that will be paid.
 There is also a limit as to when the rental income coverage is paid out. For
example,12- 24 months. It varies between policies.

9. Sewer Back-Up, Flood & Earthquake
Always ensure you have these as part of your insurance package.
 Sewer back up – Loss or damage caused directly by the backing up of
sewers, sumps or drains.
 Flood – waves, tides, tidal waves, and the rising of, the breaking out or the
overflow of any body of water, whether natural or man made.
 Earthquake – snowslide, landslide, or other earth movements occuring
concurrently with and directly resulting from an earthquake shock.

10. Tenants Insurance Recommendation
 Always recommend that your tenants have tenants insurance. It is not
uncommon to ask for a copy of their policy for your own peace of mind.
 If there is a loss and the tenants are negligent, your insurance company can
recover the loss from their insurance company if they are insured. This
avoids the payout from showing on your record.
 If there is a slip and fall incident and your tenant was negligent, it will likely
be your policy that responds if your tenant does not carry insurance. Even if
there is no payout, there is still defence costs that are involved in lawsuits.
This means that the claim will be shown on your loss history report, hence
could result in higher insurance premiums on renewal.

11. How much should you insure your building for?
 You should insure your building for the amount of money it would cost to re-
build the structure. The cost of land or the market value of the property does
not have any bearing on the cost to rebuild.
 Don’t forget to take into consideration Detached Structures – Coverage for
sheds, detached garages and other structures not connected to the main
dwelling itself.

12. Contents Insurance Limit
 You should insure your contents for the figure it would cost to replace them.
Being a “landlord”, there may be some items such as appliances and
furniture that you own and would want to replace following an insured loss.
The tenant should be insuring their own contents. Your policy does not
cover their contents.

13. INTRODUCING
INVESTMENT PROPERTY ASSET
PROTECTION PROGRAM
FOR:
Downtown Toronto Annex Real Estate Club

14. What type of properties are eligible?
• Single Family Homes
• Duplexes/Triplexes/ Etc.
• Apartment Buildings
• Commercial Buildings
• Condominiums Residential and Commercial
• Student Housing

15. Highlighted Coverage Benefits
Broad Form/All Perils Coverage
Automatic Contents coverage - $5,000 (appliances, furniture)
Vandalism caused by tenants -$50,000
Replacement Cost
Ice Damming
Permission for vacancy – Up to 120 Days
Standard $2,000,000 Commercial Liability w/option to increase to
$5,000,000
By-Laws Coverage
Business Income/Rental Loss – Actual Loss Sustained (12 months)
Debris Removal – Additional limit of $25,000

16. Continued…
• Newly Acquired Locations - $1,000,000 (Building)
• Power Surge -$25,000
• Land and Water Pollution Clean Up Expense - $10,000
• Fire Fighting Expense - $25,000
• Earthquake, Sewer Back up, Flood , up to the limit of the policy
• Growing Plants, Trees, Shrubs or Flowers in the Open -$10,000
***$1,000 deductible***
$2,500 deductible on sewer back up and water damage

17. Claims Examples
• Tenant Vandalism – A client of mine who owns and manages over
120+ properties had a tenant that was mentally ill which he was not
aware of, and had stopped taking her medication.
• The tenant used the floors and walls as a canvas for her artwork
she carved with knives and paint.
• She turned off the water and began using the bathtubs and sinks to
go to the bathroom.
• She used the home as a personal garbage
• Total Damage – $21,279 dollars paid by our insurance company
• This claim would not be covered under most policies.

18. Sand S. Claim Photo

19. Claims Examples
• Not Paid – Client who had not yet moved all of his policies to our company
suffered a water damage loss from a burst pipe causing over 42,000 in
water damage. His tenant moved out two weeks early without alerting my
client and the following stipulation in his policy did not allow the claim to be
paid
• “The following loss or damage if they occur while the building is under
construction or vacant even if permission of construction or vacancy is
granted by us;
• Glass or breakage
• Loss or damage caused by vandalism
• Water damage
• THIS EXACT SAME CLAIM WOULD BE COVERED UNDER OUR POLICY

20. Water damage Singh

21. Contact Information
For more information please e-mail me at:
Dan.tetzlaff@hubinternational.com
Or call me at 905-582-7006 or
1-800-263-2383