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QUESTION: When you purchase the homeowners insurance that is included in your mortgage payment, does it cover an accident that a tenant may have in your property. I rent my home out to some tenants. My rental dwelling policy recently was cancelled by my carrier for non payment of premium.

ANSWER: An insurance policy is like any other contract It is only effective between the parties and it only offers the coverage listed in its terms. We cannot guess what is in the contract. You will have to read it. You should also read the mortgage document. However, we will tell you what to look for.

What was the loss or damage?
Usually, the policy drawn up by your mortgagee is designed to protect the collateral, i.e. it focusses on the structure rather than the contents. So depending on what happened while the tenant was in occupation, look to see what perils are covered. If the loss or damage is squarely within the perils listed and not limited or excluded, the next question is:

Who can claim?
Under normal circumstances, only the party to the contract is covered. In mortgage-related policies, this is the title holder(s), their family and anyone visiting with their permission, e.g. friends, neighbors, plumbers and other workers. In the majority of policies, the cover is limited if you are not in occupation. The nature of the risk changes if you are not there to look after the property — tenants are rarely as careful as owners. So if you did not tell the mortgagee you were going to rent out the property, you may have problems. It may actually breach the terms of the mortgage to rent out the property without first getting the mortgagee’s consent. If so, you will have to pay for repairs out of your own pocket and keep the incident quiet. Even if the rental is legal and the damage is structural and covered, the deductible may make it better value to pay for the repairs yourself. Making a small claim goes on your record and may prompt a premium rate increase.

Read the policy and the mortgage deed, but prepare for discouraging news.


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