When searching for the perfect rental property, you run every number, fact and figure in the book. You calculate the exact monthly payment needed to cover the mortgage and expenses, and you make sure you can rent it out for more than that. As for insurance, you know you need …
Wait, exactly how do you insure a rental property? Nope, not with a homeowners policy, but with a landlord insurance policy.
Let’s take a look at five things every landlord needs to know about insuring a rental property to help ensure you’re not missing anything important:
- Coverage levels range from basic to broad to broader. If your landlord policy is written with “open perils” coverage, your property will be insured against a wide range of perils (those pesky things that cause losses, such as fire and wind). This type of policy lists what perils are excluded, such as flood and earthquake. Excluded perils are not covered. Everything else typically is.
Dropping to less extensive coverage changes the game. Now you’re only covered for the “named perils” that are specifically listed in the policy. It could be 10 different perils or it could be 12 – be sure you know what they are.
You also need to weigh actual cash value coverage against replacement cost value coverage. The former factors in what can be a significant amount of depreciation. If the building is completely destroyed, your claim settlement would likely not be enough to fully rebuild it, due to the depreciation. With the latter, the opposite is generally true. When you purchase the policy, you determine how much it would cost to rebuild it from the ground up. This is how much you insure it for and how much you’d receive toward rebuilding the structure in the event of a loss, according to your policy. Yes, it usually costs more but that’s because you get more.
The combination you choose of open or named perils and actual cash or replacement cost value will determine how basic or broad your coverage is.
- Protect yourself against loss of rent. You can’t collect rent if your tenants have to move out due to severe building damage. What then? Your landlord insurance may cover the cost of rental payments you are unable to collect for a certain period of time. Your landlord policy may automatically include this coverage, but you may want to purchase more to account for extended periods of non-occupancy.
- Liability coverage comes in handy. A tenant may sue for wrongful eviction or wrongful entry. A contractor or guest may sue for injuries that occur on your property. If you’re like most of us, your pockets aren’t deep enough to handle unexpected legal and medical costs. That’s where liability coverage comes in. Just make sure you have broad liability coverage – and plenty of it – to help with lawsuits and other incidents.
- If you have personal property on-site, insure it too. Sure, you don’t live there, but you may own some of the stuff that’s there, such as a lawnmower or other maintenance equipment. If so, get coverage for it. If not, there is no sense in paying for personal property coverage.
- Working with an independent agent can open up your options. As a landlord, you have plenty on your plate – even if you have good tenants (and I hope you do). So, it’s nice having someone to bounce your insurance questions off of. What happens if a tenant burns the place down? What if there’s an invasion of privacy case? An independent insurance agent is available for just that and more. We are able to compare the available coverage options from multiple carriers and tailor an insurance quote and policy to your preferences and concerns.
I hope this article has served as an eye-opener regarding landlord insurance coverage and some of the issues you’ll want to address with your own independent agent. Here’s to keeping your property insured, giving you the peace of mind to focus on maximizing that return on investment!