As a landlord, you most very well use your rental properties as your main source of income or as an important addition to your monthly funds. Therefore, it only makes sense that you protect your revenue stream with applicable insurance. Much like homeowner’s insurance and renters insurance, landlord insurance will protect you from unexpected accidents and tragedies.
With this in mind, it is important that all landlords understand exactly what landlord insurance covers and how to go about obtaining it.
What is a landlord insurance and what does it cover
Landlord insurance provides coverage for those renting out one or more residential homes, apartments, or condos. Although you might run a tight ship at your rental properties, landlord insurance is necessary to protect you from the things that you cannot control. Should tragedy strike, landlord insurance will protect you from financial losses or legal troubles associated with renting out a property.
Landlord insurance typically includes the following coverage:
1. Liability Insurance
Liability insurance is arguably the most important part of landlord insurance because it will protect you from expensive legal troubles. Policies will generally cover you against liability claims and lawsuits. The insurance will cover costs associated with bodily injury claims on your property, including medical payments, funeral costs, legal fees, and settlement costs. For instance, if your tenant trips and falls over a broken pathway in your property and you are found legally responsible for their injuries, the landlord insurance will pay for the medical and legal expenses you may incur. In addition, liability insurance covers your costs if you are found responsible for another person’s property damage.
2. Property Protection
Landlord insurance will typically provide coverage to repair the actual dwelling that you are letting if it is damaged by accidents such as fire, storm damage, theft, vandalism, tenant damage, and other losses specified in the policy. Try to secure coverage that will cover replacement costs for your entire rental property should the it get entirely destroyed. Property protection will additionally include detached structures on your property, including garages and gardens, if they are damaged. Many of your personal property items will also be covered in the property protection part of your policy. This does not mean that the insurance will pay for random items you have on the property, but rather will cover personal property onsite that is used to maintain your property, such as a lawn mower or hedge trimmer.
3. Loss of Income
For many landlords their property is their main source of income, so landlord insurance will cover your income in the event of a severe loss that causes a tenant to move out. This includes extreme fire, flood or earthquake damage that makes the property uninhabitable. Loss of income coverage will compensate you for this loss of income. However, keep in mind that this coverage only extends to accidental events and will not cover you if a tenant is evicted or if a unit remains vacant for an extended amount of time.
4. Extra Coverages
You can also pay for additional coverages that you may need depending on the location and condition of your property. Vandalism coverage will cover the costs to repair damage to your property caused by vandals; if your property is located in a neighborhood where vandalism is common, you may want to opt into this additional coverage in order to minimize long term costs. Because standard policies only pay for repair costs associated with break-ins and burglaries, you can choose to add burglary coverage to your policy. This additional coverage will pay the replacement costs for the items you keep on property for landlord responsibilities. Other optional coverages include protection for properties under construction, coverage for costs incurred when making upgrades to comply with changing building codes, natural disaster insurance, and employer liability insurance.
Why should you have landlord insurance
You have likely invested in a rental property in order to make a profit, so landlord insurance is important in protecting your income stream and saving you from potential financial losses. Insurance will give you peace of mind and keep you from worrying about losing money or going out of business should something go wrong at your property.
You may think that your existing homeowners insurance is enough to cover your small property, but you would be wrong. If you try to make an insurance claim for a property with a tenant, you will almost certainly be denied by the insurance company. Therefore, you should never think that homeowner’s insurance is all you need. You can never fully predict accidents, lawsuits, and other tragedies even with the best tenants and most up to date properties. Long term, landlord insurance will save you money and protect you both legally and financially.
Potential cost of landlord insurance
Landlord insurance costs will vary depending on the size and scope of your rental property. However, a good estimate is that it will cost you about 25% more than the cost of homeowner’s insurance for the same property. Your cost will also be affected by the size and condition of the property; the scope of security measures installed; the amount of coverage needed; the geographical location of the property and its associated risks; the number of rental units; whether or not the building is up to current code; and the total replacement costs for the entire property.
Despite the potential costs, there are also potential savings. Because being a landlord is a business venture, your insurance costs will be tax deductible. You may also be eligible to receive discounts for paying on time or referring other businesses. Lastly, many insurance carriers will allow you to bundle your landlord insurance with other policies, such as your auto insurance; this bundle will often lower your total costs.
Once you have figured out the total costs of landlord insurance, factor this amount into the total rent you will charge in order to maintain your return on investment.
What to look for in landlord insurance
When you first begin to look for rental insurance, you should contact your auto insurance company to see if they provide landlord insurance and if they will give you a discount for bundling policies. You can also research companies that will give you additional discounts, while still providing full coverage; you should never sacrifice the coverage you need to save money. Skimping on coverage will cost you more in the long run. No matter what, look for a policy that makes your costs and coverages clear.
Be picky about which company you choose. Before purchasing anything, do some research to see what other customers have said about the different insurance carriers. Online reviews will provide you with insight into what it will be like to work with these companies. Look for insurers who advertise 24-hour claim services and specialize in insuring rental properties; this will mean your insurance carrier is prepared at all hours for any potential emergency that may occur on a rental property.
Lastly, you should choose a policy with lower premiums and higher deductibles. This will motivate you to only claim serious incidences that occur on the property, which will keep your premiums low and save you money in the long run. As your property portfolio grows, your insurance costs will stay low if you maintain a history of few claims.
How to shop for landlord insurance
You should be fully prepared when you begin to shop for a new policy. Before you make any calls, know the value of your property. The insurance company will need to know your total replacement costs, so you should have a recent appraisal that you can show to your agent to confirm the current market value. You should also know the projected rent roll of your property. This information will be necessary should you need coverage for income incidents. Have copies of any current leases you have or research the rent rolls of comparable renters if your property is vacant.
Also be prepared with documentation of proof of installation for all safety precautions such as fire alarms and burglar alarms. Other important items to document include any personal property in your units, such as furnishings or appliances, as well as your own personal property used onsite. Even if you are not providing furnished units, you should have documentation for property like lawn mowers and hedge trimmers.
When you are prepared with full documentation, you can begin making inquiries into different carriers. Before committing, obtain at least three quotes from different companies. Reach out either to a local independent insurance agent or to large insurance companies directly. However, you should reach out to large companies first, especially if you have other types of insurance with them already. You may be able to secure a multi-policy discount, which many large carriers will offer.
What does the law say?
There are very few laws regarding landlord insurance, other than that the law does NOT require you to obtain it when renting out a property. However, you should not assume this means you don’t need it. Without insurance, you’ll end up paying for everything out of pocket should something go wrong. You’ll also be in serious legal trouble should you accidentally violate the rights of your tenants. Ultimately, although insurance is legally optional, you should view it as a required expense of owning a rental property.