As a landlord, your biggest assets are the properties you own. They not only make you money but also appreciate year to year. It makes sense to protect your property assets in any way you can. That is why Landlord Insurance or Real Estate Investor Insurance is one of the most important parts of your business plan.
Moreover, the best business plans look at risks from all angles. Let’s look at the risks that you face as a property investor and how landlord insurance can help reduce your exposure.
What is Landlord Insurance?
You might think, I already have basic homeowners insurance, so why do I need anything else? To start, basic homeowners insurance will not always cover your property damage or liability if you are using your property commercially. There are different risks involved in the activities of renting space, so different insurance is necessary to cover renting risks.
“Landlord Insurance” is commercial insurance that protects your property (properties) from the risks involved with your business. It will pay benefits when your property is damaged, if someone is hurt on the property, and/or if the property incurs a loss of revenue if it becomes unlivable because of a covered catastrophic event.
What Does Landlord Insurance Cover?
So, what does landlord insurance cover or not cover? There are three areas of consideration for real estate investor and landlord insurance coverage:
- Property Damage
- Liability Coverage
- Loss of Rental Income
Let’s look at each of these in more detail.
Property Damage Coverage
Property Damage Coverage (which is also sometimes called Dwelling Insurance) protects your investments and real estate assets from hazards such as hail, lightning, fire, wind or any other events that are covered by your chosen policy. Just like you have standard home insurance to protect your primary home, you will have standard property coverage to address damages to your rental home.
Note, that property damage insurance policies will come with a deductible and a coverage limit of how much the policy will pay out for certain events or claims. You can work with your insurance agent to customize your policy to meet your cash flow needs.
Tenant Damages
So, what happens if the property damage comes from a tenant? Unintentional tenant damage is most often covered by your Property Damage Insurance. For example, if your tenant accidentally floods your bathroom or ignites a kitchen fire, your policy will typically cover these events.
There are times when tenant damage will be ruled intentional. For example, if your renter purposefully puts a hole in your wall or door,or vandalizes your property. Intentional damage may or may not be covered. You will need to read your policy carefully to see what is and what isn’t covered.
Do I Need Landlord Insurance if I Rent My Home Short-Term?
Next, note that homeowners who rent out a house or apartment for at least six months will need landlord insurance, also called a “rental dwelling policy.” The policies you need for shorter-term rentals still cover much of what the standard landlord property damage insurance covers. However, the policies are slightly different. As a result, it is important to work with a professional insurance agent to make sure you get the correct coverage for your property and your situation.
Liability Coverage
In addition to having damage coverage, as a landlord, you will also need liability coverage to protect your assets. You are opening yourself and your business up to risk by having other people staying on your property. That is just the nature of the business. As a result, liability coverage is necessary to protect you from legal expenses and claims associated with any injuries or damages associated with your business.
If a judge or court finds your business or property responsible for someone being injured while on your property, you might be saddled with a large restitution payment. Also, if you are found responsible for damage to someone else’s property, you may be expected to pay a settlement.
Consequently, liability insurance is an important part of your landlord insurance risk management program that will keep you in the black even with an expensive claim.
How Much Landlord Liability Insurance Do I Need?
Just how much liability insurance you purchase will depend upon your unique situation. It will depend on what part of town you live in, how big your coverage area is, and whatever else your insurance company can pinpoint as a risk you face.
If you own just one standard property, the typical liability policy will start at $100,000 to $300,000 in coverage. If you own multiple properties or have multiple tenants in one larger structure, you may end up purchasing more. Again, this is a great question to ask your professional insurance agent or broker.
Loss of Rental Income
In the case of a rental fire or another covered, weather related event, you will need “Loss of Income” insurance to protect you if your rental dwelling is uninhabitable. Loss of Rental Income Insurance will provide a cash payout to help you limit your loss while your rental unit is repaired. The amount of coverage you choose will depend on the amount of revenue you expect from your property month-to-month.
Optional Riders
Sometimes it makes sense to customize your landlord insurance policy to include more coverage or specialized coverage. Insurance policy customizations are called “riders,” and they can be very helpful in pinpointing the specific coverage you need for your unique situation.
According to Stessa, optional riders can include the following:
- Burglary rider
- Building code coverage
- Non-occupied dwelling endorsement
- Vandalism
- HVAC endorsement and/or heating or air conditioning loss reimbursement
Taking the time to carefully consider all the risks your property faces will pay off in the end. Even if it takes a little more time initially. Riders are a great way to add even more protection to your productive assets.
Other Insurances to Consider
Finally, all good insurance plans address every angle of risk. So, it is important to look beyond basic landlord insurance and round out your coverage with any necessary extras. These may include umbrella insurance, flood insurance or even earthquake insurance.
Action Steps
Now that you have a good understanding of what landlord insurance is and what it covers, it is time to take action. Our team is here to help you shop around and compare different insurance companies and their various policy options. We’re confident you will find a plan that works for your properties and your business.