Owning investment property that you rent out to tenants is a great way to add a stream of income that doesn’t require a whole lot of effort. Once you’ve found a tenant to rent to, simply collect rent each month and deal with the occasional repairs. You want to protect your investment property from certain events happening that may cost you a lot of money to repair or replace and that don’t entail other liabilities. This is where landlord insurance is very valuable.
What Is Landlord Insurance?
You might be wondering what exactly landlord insurance is and what it covers. The general idea of landlord insurance is to help cover the owners of rental property from a range of potential liabilities. The actual insurance policies that landlord insurance includes will vary by the insurance company that provides the coverage.
Landlord insurance will cost you more than a homeowner’s insurance policy. The average cost for homeowner’s insurance in 2017 was $1,211. Adding an extra 15 to 20 percent more is probably a good estimate of what insurance would cost. That would come out to be around $1,392 to $1453 for landlord insurance. There are various factors that go into this number.
For example, a rental for a home that will be rented for a year will cost less than an insurance policy for a home that’s rented for six months. Short term rentals will tend to have higher insurance premiums.
Property damage, liability protection from tenant lawsuits, rental reimbursements if you can’t rent your property due to property damage, and medical expenses that cover someone who gets injured while on your property are among the issues that are typically covered in a landlord insurance policy. You can also add other forms of insurance protection with certain policies, such as the furnishings that are included in a furnished condo.
Who Should Acquire A Landlord Insurance Policy?
There are some cases in which you may not need to get a landlord insurance policy. If you are renting out a room in a home you live in, you might be able to add coverage through your homeowner’s policy. Generally speaking, landlord policies cater to “non-occupied” property according to the National Association of Insurance Commissioners.
Essentially, if you plan to rent out your entire home or have other property that you’re intending to use for the same purpose, it’s likely that you’ll need to get insurance. Whether you are planning to rent out your home while you spend the summer in your vacation home or rent an apartment unit that you own for a year, you’ll probably need to get landlord insurance.
What Does A Policy Cover?
The policies may vary by the insurance company that you decide to go with. However, most landlord insurance policies will cover three general benefits. Here’s a look at what you can expect to be included in a typical policy:
Property Damage Coverage
This coverage is for events in which your investment property and furnishings are damaged due to a natural disaster or certain events. Fire, earthquake, vandalism, irresponsible tenants, and an electric or gas malfunction are among the issues that may be covered. Some policies will offer to replace the actual value (replacement cost minus the depreciation) while others will offer the replacement cost (current value of the item).
Liability Protection Coverage
If someone is injured while they are on your property for something that you are responsible for, liability protection will cover you. This will cover both medical and legal costs that could occur if the injured person pursues legal action against you. Some examples of potential liabilities this policy would cover include an unshoveled walkway, pest infestation, or an architectural collapse.
Loss Of Rental Income Or Rent Default
This policy will cover you from the financial loss that occurs if a tenant is unable to make their rental payments or your property can’t be rented because of an unlivable condition. These conditions could be situations like termites, an infestation of rats, the existence of a sinkhole, or a very bad mold problem.
What Doesn’t A Policy Cover?
Most landlord insurance policies won’t cover the examples shown below, but they might be able to be added to your policy:
- Robbery – Cover the value of stolen items
- Emergency coverage – Travel costs you incur if you need to visit the property to help with a problem
- Construction coverage – While your property is being renovated, this provides protection during the period in which it is under construction
The following are not covered by almost all insurance companies:
- Shared property – Landlord insurance isn’t available if you live on the property you’re renting
- Maintenance – Mechanical breakdowns like a washer or dryer are usually the responsibility of the owner
- Tenant’s possessions – Your policy won’t cover your tenant’s personal possessions
Speak To A Professional Landlord Insurance Brokerage
Need to talk to a professional about your landlord insurance needs? Contact Merchant Family Agency to get our expert advice and guidance on building the right landlord insurance policy to protect your investment.