Is it worth taking out additional insurance for a property that is being rented out?

Renting out property in Calgary can be a stable source of passive income, but along with promising profits come risks that owners often underestimate. Standard homeowners insurance does not cover the specific risks associated with rental relationships, making specialized rental property insurance not just a recommendation, but a necessity to protect your investment.

Property owners in Calgary face unique challenges, from Alberta's harsh weather conditions to increasing tenant demands and an ever-changing legal environment. Statistics show that over 42% of landlords do not notify their insurance companies of a change in the status of their property, which can result in a complete denial of coverage. At the same time, another 24% of landlords are unaware of the need for specialized insurance for rental properties.

Key risks of rental property

Landlords in Calgary face risks that are not present for regular homeowners. The most common is damage to property by tenants, ranging from accidental incidents such as a pot left on the stove causing a fire to deliberate vandalism. According to insurance companies, 68% of claims in Alberta are related to damage caused by tenants.

Loss of rental income becomes a critical issue when a property becomes uninhabitable due to damage. During the 2022 Calgary floods, rental property owners lost an average of $4,200 per month because they were unable to rent out their damaged properties. Standard homeowners insurance does not cover such loss of income.

Increased liability to third parties also poses a serious threat. When a tenant's guest is injured on the rented property or damage is caused to neighboring property, the owner may be held financially liable. A recent court case in Alberta awarded $142,000 in compensation for an injury sustained due to a defective driveway.

Limitations of standard homeowners insurance

Standard homeowners policies are designed with the assumption that the owner lives in the home, which is vastly different from the situation with rental properties. Typical homeowners insurance excludes coverage for many risks specific to rental relationships.

Damage caused by tenants is not usually covered by standard policies, especially if it is intentional vandalism or long-term damage due to poor maintenance of the property. Theft by tenants is also not covered.

Vacancy periods create additional risks, as unoccupied premises are more susceptible to vandalism, theft, and damage from freezing. Standard policies often exclude coverage for losses incurred in unoccupied properties.

Changes made by tenants without the owner's permission are not covered by standard insurance. This may include unauthorized repairs, installation of additional equipment, or remodeling.

Specialized rental property insurance

Landlord insurance is designed specifically to cover the unique risks faced by owners of rental properties. This insurance typically costs 15–25% more than standard homeowners insurance but provides much broader coverage for specific risks.

Main types of coverage

  • Property insurance covers damage to the building itself and to furniture or equipment belonging to the owner from unforeseen events such as fire, flood, vandalism, or natural disasters. Unlike standard insurance, it includes certain types of damage caused by tenants.

  • Rental income insurance compensates for lost income when the rented property becomes uninhabitable due to an insured event. This coverage is typically valid for up to 12 months and can be critical to maintaining the owner's financial stability.

  • Extended liability protects the owner from third-party claims, including visitor injuries, damage to neighboring property, or claims related to the living conditions in the rented property.

  • Equipment insurance covers the repair or replacement of heating, air conditioning, appliances, and other equipment owned by the owner in the event of mechanical or electrical failure.

Additional coverage options

  • Flood insurance is particularly relevant for Calgary, given its proximity to the Bow River and the city's history of flooding. Many standard policies do not include this coverage, so it needs to be purchased separately.

  • Earthquake insurance may be appropriate for certain areas of Alberta, although the risk of earthquakes is relatively low compared to other regions of Canada.

  • Legal support insurance covers the cost of legal services in cases where the owner has to evict a tenant for breach of contract or non-payment of rent. This can save thousands of dollars in legal fees.

  • Vacancy coverage protects your property from the specific risks of unoccupied real estate, including vandalism and freeze damage.

Insurance costs and economic viability

The average cost of rental property insurance in Canada ranges from $40 to $80 per month for basic coverage. In Calgary, basic policies cost around $1,200 per year, while comprehensive coverage can exceed $2,800 depending on the size, age, and location of the property.

The economic viability of insurance becomes clear when comparing annual insurance premiums with potential losses. A single serious incident, such as a fire or significant water damage, can cost tens of thousands of dollars to repair, not to mention the lost income during the restoration of the home.

Statistics show that insurance losses from weather events in Canada reached $8.55 billion in 2024, three times more than in 2023. Calgary in particular was hit by a devastating hailstorm in August 2024, which caused $4.18 billion in damage in just one hour.

Factors affecting insurance costs

Location of the property

Insurance companies carefully analyze the risks of a particular area. Properties near the Bow River or in low-lying areas such as Inglewood are more expensive due to the risk of flooding. The crime rate in the area also affects the cost — areas with high rates of theft or vandalism have higher rates.

Building characteristics

The age of the roof has a critical impact on insurance costs. Roofs older than 15 years can increase the cost of a policy by 25%. The condition of the plumbing system is also important — outdated Poly-B pipes or corroded lines increase risks and insurance costs.

The presence of security systems reduces the cost of the policy. Smoke detectors, security systems, and automatic fire extinguishing systems can provide discounts of 5 to 10%.

Type of tenants and lease term

Short-term rentals (Airbnb, VRBO) are significantly more expensive due to increased risks. More frequent tenant turnover means more risk of damage and claims. Some insurance companies refuse to insure short-term rentals without special commercial policies.

Long-term tenants with good references can help lower rates, especially if the owner can prove a stable history without claims.

Tips for reducing insurance costs

  • Combining policies Insuring rental property together with your homeowner's insurance or auto insurance with the same company often provides significant discounts.

  • Increasing the deductible Increasing the deductible can lower monthly premiums, although this means higher costs for the owner in the event of a claim.

  • Regular maintenance Annual inspections of heating, plumbing, and electrical systems not only prevent accidents but can also result in discounts from insurers.

  • Selecting reliable tenants Thorough tenant screening, including credit history and references from previous landlords, can reduce the risk of claims in the long run.

Specific risks in Calgary

Alberta's climate creates unique challenges for rental property owners. Harsh winters can cause pipes to freeze in unoccupied properties, and sudden spring thaws often cause basement flooding.

Hail remains one of the biggest risks in Calgary. The events of August 2024 showed just how devastating hailstorms can be, causing billions of dollars in damage in a matter of hours.

Wildfires, while less directly affecting urban housing, can lead to evacuations and temporary uninhabitability due to smoke or damage to infrastructure.

Legal requirements and regulations

There is no legal requirement to have rental property insurance in Alberta, but most mortgage lenders require it as a condition of lending. Even without a mortgage, insurance remains a wise financial decision.

Some municipalities may have specific insurance coverage requirements for licensing rental properties, especially in the case of multi-unit buildings or commercial rentals.

Conclusion

Obtaining specialized insurance for rental properties in Calgary is not just something to consider — it is a financial necessity for any serious real estate investor. While the additional cost of 15–25% above standard homeowners insurance may seem significant, it pales in comparison to the potential losses from uninsured risks.

Given Alberta's harsh weather conditions, rising repair costs, and the legal complexities of rental relationships, specialized rental property insurance is not just insurance against risks, but a tool for protecting the long-term profitability of your investment. Owners who ignore this necessity risk losing not only their current income but also their entire investment capital in the event of a serious insured event.