If you have tenants who pay rent, you need a landlord insurance policy in place to protect your property. With the proper amount of insurance, you can secure your properties to guarantee that you are covered if anything should go wrong.
Landlords can be held liable for damage or injuries that occur at your rental properties. Landlord insurance will limit your risk of a serious predicament causing you monetary ruin or loss. However, not every landlord insurance policy is created equal. Therefore, it’s important to know which types of coverage can – and should — be incorporated in a landlord’s insurance policy.
Differences between Homeowner’s and Landlord Insurance
If you think homeowner’s insurance will cover you after turning your home into a rental property, or when you procure an investment property, think again. Some landlords, especially those managing their first property, are confused about the differences between homeowner’s and landlord insurance. Homeowners insurance normally covers owner-occupied, single-family homes. When your home no longer meets those criteria because it is being rented out frequently, it is no longer covered.
The majority of homeowners’ policies will include the infrequent, short-term rental (e.g., if you are going away for several weeks and someone stays at your home to make sure everything stays in order).However, if you have a summer home and you have decided to make it a rental and are renting to different people every week, that’s a much bigger risk for the insurance company.
The risk also increases for you and your insurer when you rent out your property on a full-time basis. Your responsibilities increase for injuries on the property, whether it be your tenant or their guests. In addition, insurers experience more claims on tenant-occupied properties. This is because tenants are usually less tidy with rented properties than owners would be. Renters tend to report or identify maintenance needs less, and they may be unaccustomed to a home’s system, such as where the water shut-off is located.
Components of a Landlord Insurance Policy
A landlord insurance policy typically has several components:
- Residence coverage for casualty from fire, lightning, burst pipes, flooding, and wind
- Additional structures coverage for outbuildings and garages
- Landlord liability insurance
Depending on your insurance company, you can usually select a standard policy that includes the above-mentioned items or a more extensive policy with coverage for additional hazards.
Points to Consider when Purchasing Landlord Insurance
When bringing together the components of your landlord insurance policy, review what is offered in the standard policy and then decide if that coverage is what you need. If liability insurance is not part of the policy, think about adding protection to cover your legal expenditures in case of a tenant lawsuit.
Consider what coverage you’re likely to need. For example, if a fire broke out because of electrical wiring, as a landlord and owner of the property, you could be charged with neglecting to maintain your building’s electrical system and permitting faulty wiring to remain in use. Insurance is one of the most important investments you can make compared to the risks of a liability claim that could cause you to go bankrupt.
Saving Money on Landlord Insurance
Landlord insurance is not cheap. Expect to pay 15% to 20% more for a landlord insurance policy than a homeowner’s policy on the same property, and even more if you provide short-term rentals.
How can you get the best deal possible? Begin your policy hunting by contacting the company that purchased your homeowners insurance from, then contact an independent insurance agent that sells business and commercial policies. Question how you can receive discounts if you have burglar alarms, fire prevention gadgets, or multiple properties. You may end up saving a bit on your insurance.
As a landlord, you may qualify for several discounts on your policy such as:
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- Multi-policy discount for properties and vehicles
- New customer discounts for creating a new policy
- New renovation discounts for upgraded-property
Don’t be shy about asking your insurance company about how to lower your costs. Specifically, ask about discounts for safety measures. Maintaining well-kept property decreases the likelihood of property damage, and injuries. Your insurance company may offer discounts for lowering-risks on your property. Things you can do to catch your insurance company’s attention include:
- Installing smoke detectors in the hallway, kitchen, and bedroom of each unit
- Install an inside sprinkler system
- Install motion-detector lights and security cameras
- Install a burglar alarm that links right to emergency services
In addition, you should inquire about professional group discounts. If you are part of a professional association, alumni or credit union, ask if you qualify for a discount for that membership.
Membership in retiree and employee organizations may quality you for a discount as well. These can include organizations such as the teacher’s association and the U.S. Department of Agriculture.
Another way to save on premiums is by increasing your deductibles. Making this decision may be perfect for you if you are willing to accept risk for more expenses from your own pocket and foresee few claims down the line.
How to Compare Landlord Property Insurance Rates
New landlords will sometimes begin their insurance shopping spree by searching for average rates. Regrettably, there are too many variables to consider. Such factors like the city and state your property is located in, the expenses to rebuild your property, and the dissimilarities between insurance company offerings tend to preclude simple comparisons.
Nonetheless, you can compare rates rather quickly when you understand exactly what you are looking for. For that reason, the initial step for comparing landlord insurance rates is to decide what you want. For example, your list of required coverage may resemble the following:
- Replacement cost-coverage on all residences and other structures
- Coverage for fire and smoke damage, lightning, ice damage, hail, wind, and water-damage from burst pipes
- $1 million in landlord liability
- $5,000 for medical payments coverage
- Loss of rent coverage in case your property becomes derelict
- Contents protection for any furnishings you provide
Encourage Tenants to Purchase Rental Insurance
Landlord insurance protects you against losses from water damage, wind and hail, falling trees, lightning, fire, and injury to your tenants and their guests. However, it doesn’t cover your tenant’s household goods. A word to the wise: Encourage your tenants to purchase a renters policy to cover their items. In fact, you can include a clause in your lease requiring that your tenants purchase renters insurance. This way, everyone understands what is insured and what isn’t.
Filing Insurance Claims
Don’t overdo filing claims, and don’t file unless you absolutely have to. There is a limit to how many claims you can file before your insurance company starts charging you more or cancels your policies altogether. Keep in mind that claims can add up quickly when you buy more rental properties.
There are certain situations where you should file a claim, such as when a person alleges they were injured on your property. One claim you want to stay away from filing is water-damage for under $10,000. Uncertainties about mold thriving in water-damaged properties will cause some insurers to quickly cancel your insurance policy!
Landlord Insurance Provides Some Peace of Mind
Becoming a landlord is not a fly-by-night decision — at least it shouldn’t be. There’s a lot riding on evaluating the risks and creating a plan of action to take when presented with various circumstances. Purchasing landlord property insurance is one way to give you peace of mind.