You’ll often hear the ubiquitous term `mortgage helper` applied to secondary suites in many Vancouver homes. Alternatively and more correctly, on the Multiple Listing Service you will see these suites categorized as ‘unauthorized accommodation. Are they an asset or a hidden liability?
Are You Covered?
What you call them doesn’t really matter. What does matter and what you may not be aware of is that your home insurance may not provide any indemnity for you and the people living in that secondary living space. The consequence of incorrect home insurance coverage can be disastrous!
In a recent conversation a story was told about a family who own their home that had an actively rented basement suite. At some point in time, it seems the renters inadvertently started a fire in the suite. Growing quickly, the fire engulfed the suite and subsequently spread to the upper floor causing immense damage to the home. Worse, the tenant in their attempt to put out the fire was severely burned.
Laying in ruin was all the furniture, clothing and the former homes of both the owner and the tenant. No worries thought the owner – we have insurance that has us and the tenant covered.
The twist to the story is that the insurance company denied all claims – both the owner`s and the tenants. Amongst things denied, was the tenants mounting medical costs to treat their burns and subsequent rehabilitation. The reason – the home was not correctly insured to cover `two` families.
The disaster quickly escalated for the owner who now was not only left without insurance to replace his home soon found himself defending a legal action by the tenant who without means to pay for his medical care and who had no where to live sued the owner for costs. The problem for the owner – all claims were denied including law suits.
One or Two?
The story as told struck me as curious that this could be the case. It precipitated a lengthy phone call to my Vancouver home insurance broker to find out if this could be fact or fiction.
According to the conversation with the broker in substance the following applies. You and your home will be fully insured if you have a direct relative living in the suite and subject to the terms of your insurance policy you are designated as being ‘one’ family. If you have any other arrangement you may well want to take some time to speak with your insurance broker to ensure you are covered. Your insurance broker may determine that because you are renting the suite to a third party you may be designated as having ‘two’ families living in your home?
For quick reference have a look at your policy’s ‘Declaration page’ to see if the number of families covered is one. If it is for only one and you have someone other than a direct relative living in the suite you will want to give this serious attention and have this condition changed to reflect this alternate and potentially devastating arrangement.
As with all good things the change may required an increased annual premium which based on the conversation with the broker was approximately $150 per year. From this perspective the extra premium seems a small price to pay to mitigate a potential financial life altering problem.