416-364-9366 bob@aaron.ca

Blaze reveals why bargain hunting for property insurance is playing with fire

Sep 13, 2019 | 2019 Toronto Star Property Law Column

By Bob Aaron
Toronto Star contributing columnist

Bob Aaron bob@aaron.ca

There’s nothing like having your property burn to the ground to focus your attention on the need for good property insurance.

Three years ago, my business partners Ben and Jill, and my wife Dorothy and I, purchased a $230,000 triplex in a small Ontario town. We had good tenants, a local property manager and rents that secured a positive cash flow.

Before closing, I called my insurance agent, Dayle Semple at FCA Insurance Brokers, and asked him to find the best insurance available. He recommended we get replacement cost coverage with a stated value of $493,000, plus rental loss.

Meanwhile, my business partner Ben told me he had a great quote on a much cheaper insurance policy which would keep our operating costs down. In the end, we opted for the high-end commercial multi-peril insurance policy.

As a lawyer, I always advise my clients to get the best insurance coverage possible. And I followed my own advice. There are four different residential policy types available to homeowners:

  • A no-frills policy offers basic coverage for policies which may not meet normal underwriting requirements.
  • A standard, basic, or “named perils” policy insures a house only for the risks specifically detailed in the policy, but with some exclusions.
  • A broad form policy insures a house for all risks of direct physical loss or damage, unless the loss (such as earthquake) is specifically excluded from the policy. It insures the contents only for the named risks. If the damage is not caused by something named in the policy, there is no coverage.
  • A special or comprehensive policy covers the dwelling and contents for what is called all-risks of direct physical loss or damage except for specific exclusions.

Some insurance policies may have different names, using terms such as bronze, silver, gold or platinum. It’s best to ask about the differences when arranging coverage.

I also recommend liability coverage of at least $2 million, and rental loss insurance for income properties.

It’s important to insure a home for an amount equal to what it will cost to rebuild it, using materials of the same quality. This is called the replacement value and is totally independent from market value and assessed value.

Many mortgage lenders insist that policies include coverage for guaranteed replacement cost covering the dwelling for whatever amount is necessary to replace the building — regardless of the amount on the policy.

Back to our rental property. This past May, Ben phoned me and pointed me to a YouTube feed of our property on fire, posted by a neighbour who was filming the valiant efforts of the firefighters.

I was shocked when the insurance adjuster obtained two competitive rebuild quotes exceeding $460,000, plus site clearance and rental loss replacement. All this on a property which we had purchased in 2016 for $230,000. It turns out that the $493,000 coverage in our commercial policy and $25,000 for cleanup will be almost exactly the amount of the claim.

If we had purchased the cheap policy, the fire would have been a financial disaster. Ben now believes in the best coverage possible.


Contact Bob Aaron

Bob Aaron is a Toronto real estate lawyer and frequent speaker to groups of home buyers and real estate agents.
He can be reached by email at bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818.

Aaron & Aaron specialize in Real Estate Law, specifically Sale of Rental, Condominium, Residential, Rural Recreation, Offer to Lease, Commercial, and New Construction

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