Secondary suites complicate insurance coverage

The City of Penticton has approved 41 secondary suites since 2009

If you have a secondary suite, legal or illegal, it’s best to make sure your home insurance company knows about it.

According to some estimates, nearly one-quarter of B.C. residents help make the monthly mortgage payments by renting out a secondary suite. But even those who have gone through the process to create a legal suite may forget to notify their insurance company, while those with illegal suites may be even more reluctant, fearing that the information may be passed on to the city.

“We ask them specifically. We don’t ask them if they are illegal suites or not,” said Peggy Bird of Valley First Insurance.

While the legality of the suite doesn’t matter, other consequences of not informing an insurance broker about the presence of a secondary suite can be costly for a homeowner.

“In the event of a claim, if they haven’t told about it, then the insurance company can decline. It depends on the company,” said Bird.

The Canada Mortgage and Housing Corporation agrees that insurance companies need to be notified. Additional occupants, cooking facilities and living space may increase the potential for an accident to occur, all of which could affect the insurance premium.

“The situations vary, so you really need to talk to your broker,” said Bird. “That is something we are pushing with our clients all the time. Your broker is more than happy to give you the proper information so you are not in a situation where you could be denied claim coverage.”

And, she continued, that information is never passed on to anyone else.

“There are privacy issues. They don’t pass any information on,” said Bird. “Whatever it is, it is confidential between you and your broker.”

“To my knowledge, we haven’t had any inquiries from insurance companies,” confirmed Anthony Haddad, director of development services for Penticton.

He said they are far more likely to discover illegal secondary suites when a home is sold and the city receives a request for a file search on permit approvals or other historical records regarding a property.

“We are either following up through complaints and enforcement or people coming in to make them legal through the building permit process,” said Haddad.

There is no telling how many secondary suites there actually are in Penticton, but in Vancouver and Toronto, they are estimated to make up close to a fifth of the rental stock, according to the CMHC.

Haddad said the City of Penticton approved 41 secondary suites between 2009 and 2012. Of those, 19 were in new single-family buildings which included a secondary suite, while 22 were legacy suites, those were existing buildings that were approved before 2009, where they converted basements into suites.

“We had a grace period, I think it was a year or so in 2009, and we received eight permits under the legacy suite program and the rest we had in 2010-2012,” said Haddad.

To legalize a secondary suite, Haddad said they require a building permit, that goes through a review and approval process.

“We also put a new address to it, so unit No. 2 or “A” or whatever, to identify it for emergency services,” said Haddad. “But in terms of insurance, that’s up to the property owner to take care of.”