Tiny Homes And The Insurance Industry

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You might be thinking of owning your own home one day, but as a millennial the potential of purchasing a home in the current housing market probably makes it seems like a faraway dream. With affordable housing at an all-time low, many Canadians are turning to some unconventional housing options. These solutions are not only more affordable, they also better address a young homeowner’s desire for sustainability while meeting smaller sizing needs. What are these unconventional options?

Tiny homes and minimalism are one of the hottest housing trends!  Find out what a tiny home is and how the insurance industry is dealing with this emerging risk. How does working in the insurance industry connect to this up and coming housing marketplace? You’d be surprised to learn just how important an insurance professional’s involvement is when it comes to tiny homes. Read on!

What is a Tiny Home?

A tiny home refers to a home that is under 400 square feet and used as a permanent year-round dwelling. Most building codes in Canada refer to units over 400 square feet as a dwelling unit. Consequently, a tiny home is frequently not even considered a dwelling unit for zoning and bylaw purposes under current law. Nevertheless, to their millennial owners, tiny homes are a compact way to fit in all the necessities of a traditional home within a fraction of the square footage.

Why Would Someone Want to Live in a Tiny Home?

There are many reasons why tiny homes have seen such popularity. The media is partly responsible for the popularization of the trend by featuring television shows which showcase tiny homes and their happy owners. Still, most of the reasons for Millennials’ recent love affair with tiny homes are far more practical. With residents of large cities experiencing record high increases in housing prices for both purchasing and renting homes, affordability is a big problem!  Tiny homes are a lot more affordable, carrying a fraction of the debt load. In fact, 60 percent of tiny homeowners are mortgage free! This appeals to younger generations starting their lives, but it’s also attractive to those looking to downsize and avoid carrying a debt load into retirement.

The third group who are invested in the tiny house phenomenon are ecologically conscious homeowners. Tiny homes take up a fraction of the percentage of land space of traditional homes.  A smaller square footage reduces greenhouse gases, shrinks the carbon footprint, and results in a more environmentally friendly home. It also means lower heating, hydro, water, and electricity bills. Tiny homes are becoming the affordable and ecological solution to Canada’s housing needs.

Types of Tiny Homes

Presently, the two main types of tiny homes in Canada are shipping container homes, and tiny homes on wheels (THOWs). Both are fundamentally different in appearance and structure but have the same purpose and appeal. They provide a permanent housing solution with minimal ecological and financial burden, while still having all the comforts one wants in a home.
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Shipping Container Homes are made from exactly what they’re called – shipping containers. They can be purchased from a home company specializing in these type of homes, from the container manufacturer, or even from Amazon! These homes can be inexpensive, and are often times prefabricated so that they just need to be put in place, hooked up to water, hydro, and sewage, and presto — they are ready to live in. These units have all the finishes and details of a regular home they just exist in a structure that once was, or is made to resemble, a Shipping Container.
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Tiny Homes on Wheels, or THOWs, are small dwelling units constructed with wheels but placed on a permanent slab. They often get confused with recreational vehicles (RVs) but they differ from RVs because their primary function is to be a home, with portability being secondary to the housing functions. Unlike RVs, they do not contain VIN numbers, as they are not meant to be on the road for long periods of time. These units have all the comforts of a traditional home —they are just smaller in size and have wheels. THOWs are designed to be installed on a permanent foundation for stability, and to be occupied all year. These homes are also sturdier than RVs with a lot more comfort and detail in their finishes and can be prefabricated or created from scratch by the home owner or builder.

How Do You Insure Tiny Homes?

Shipping Container homes and Tiny Homes on Wheels may seem completely different from an aesthetic standpoint, but fundamentally these housing alternatives are very similar, and both need to be insured. How does one insure such a tiny and unique space that is exempt from many regulatory standards, requirements, and rules?

With tiny homes differing so much from unit to unit, it can be a challenge to even categorize and insure such structures.  Normal homes are insured based on size, and while that can still be an option, it is not the most common way to insure tiny homes. This has to do with the restrictive nature of the laws, regulations, and code around units under 400 square feet. The more common way insurance providers are insuring tiny homes isn’t based on the size of the unit like traditional homes, but instead with housing and safety standards.

Difference in Policies

While fundamentally the same in purpose, from an insurance standpoint Shipping Container Homes and THOWs could not be more different. Not only are the two made from different materials, they also often times have different uses. Shipping Container Homes have rigid and impenetrable walls and limited ways to exit the building in case of emergency. Due to these factors it is hard to insure such homes in a case of emergency. Just because they are difficult to insure does not mean they are impossible. A few Canadian insurance providers are insuring shipping container homes, but they are assessed on a case by case basis.

Tiny Homes On Wheels are a little easier to insure. Many insurers are insuring THOWs based in accordance to CSA Z240 standards (main mobile home standard in Canada), a document that discusses in depth the standards, materials, best practices, and regulations around mobile homes.  As long as the units are built to CSA Z240 standards, or a related standard or bylaw in the area, and the unit is permanently parked and skirted to local provincial standards, it is covered in a similar fashion as a mobile home. These homes are often times covered based only off the structural value of the unit and not the land, amenities, and other factors. Many tiny home cases are assessed by an insurer and a policy is created on a case to case basis.

Main Steps in Insuring Tiny Homes

The insurance industry in Canada has been rather quick to respond to this emerging trend. With these homes gaining popularity, more and more Canadian insurers are writing policies for tiny homes. If you’re exploring buying your first tiny house, there are 3 main steps in insuring a tiny home you need to know. First, you need to identify the nature of the home and how it is used. Is it a temporary or permanent residence? Is it going to be fixed in one place or will it be moving? Second, the insurers need to calculate replacement costs accordingly. Reconstruction costs don’t necessarily exist with tiny homes, so the replacement cost is mostly based on the structural value. Third, the pricing of the plan needs to take into account the risk associated with the structure. Does it have proper entry and exit points in case of emergency? Does it use proper materials to help slow down fires? Is it going to be on the road often? All these situations are taken into account when writing an insurance policy for a tiny home.

Career Opportunities

Tiny homes provide insurance professionals the opportunity to be on the cutting edge of the housing market. Below are some examples of what some insurance professionals need to consider when dealing with tiny homes.

Brokers – Brokers are responsible in helping choose the right coverage, they need to be careful in recording all the necessary information on the requirements such as foundation, skirting, and blocking of tiny homes.

Claim Professionals – Claims professionals are there for you when something goes wrong, they need to ensure all claims are in line with properties insured as a manufactured home product when dealing with tiny homes.

Underwriters – Underwriters are the ones who asses the insurance needs, they need to pay special attention to standards for the different types of tiny homes.

If you want to find out more about tiny homes and the Insurance Industry, check out the Insurance Institute’s trends paper on this topic. Also, be sure to check out the other Career Connections articles to see all the egg-citing things happening in insurance!

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