As an owner of rental properties like an apartment, townhouse, vacation cottage, or any other residential property, you’d know that while such investments promise great returns, they also come with risks. For instance, risks such as property damage due to natural disasters can put you in a delicate financial situation. This is where getting insurance becomes beneficial.
However, one of the common misconceptions about rental property investments is that homeowner’s insurance covers financial losses due to accidents or property damage. It’d be good to note that a homeowner’s insurance only covers residential dwellings occupied by the property owners. If someone else occupies your property, they aren’t covered by your insurance, hence, the need to get landlord insurance.
In this article, we’ll explore and learn more about landlord insurance to help you make a well-informed decision when choosing the best coverage for your rental property.
What Is Landlord Insurance?
Landlord insurance is intended to cover property damage, liability claims, and lost rental income of properties for rent. After all, you can’t expect tenants to shoulder the cost of major appliance malfunctioning or failure, burglar incidents, or forest fire property damages. That’s when landlord insurance comes into play.
The law doesn’t generally oblige landlords to obtain landlord insurance. However, most lending institutions require this insurance coverage. So, if you’re planning to finance your rental property with a mortgage loan, you must get standard landlord insurance coverage.
And depending on your needs, additional coverages or optional features for landlord insurance is available for comprehensive protection. Additionally, you can learn more about comprehensive insurance at https://www.alpineinsagency.com/.
Landlord Insurance Standard Coverage
New landlords or property owners aren’t usually prompted to get landlord insurance, but disaster can strike anytime. And in such cases, the damage sustained by your rental property or injuries suffered by tenants can force you to shell out significant money to shoulder such expenses.
Generally, the standard coverage of landlord insurance includes the following:
- Property Damage: With landlord insurance, appliances, equipment, and other belongings can be covered when they malfunction or fail due to natural disasters, irresponsible tenants, and other man-made causes. In most cases, the insurance company pays for the cash value of the damaged property.
- Liability Coverage: As a landlord, you must ensure your rental property is safe and well-maintained. For instance, if someone slips or falls because of a slippery driveway or broken tiles, you may be held responsible and must compensate the injured victim. This type of coverage allows you to cover medical and legal expenses due to the injury claims, damage, and loss associated with your rental property.
- Lost Rental Income Coverage: Loss of rent coverage applies when an area or the entire property becomes uninhabitable. For example, this could be due to utility damages like structural issues, broken pipes, or faulty electrical wiring.
Landlord Insurance Optional Riders
On top of the basic coverage, landlords and property owners can also consider adding optional riders to their policies for more comprehensive protection. Some of the common additional coverage options include the following:
- Burglary Coverage: In 2019, there were a total of 492,911 burglary incidents reported in America. So, if the location of your rental property is situated in a burglary-prone area, it pays off to get extra coverage for burglary. This type of coverage can cover the replacement cost of stolen items. However, note that it won’t cover or protect the tenants’ personal belongings.
- Flood Insurance: If your rental property lies in a flood-prone zone, consider getting flood insurance. This can be useful, especially since standard landlord insurance policies don’t usually cover flood damage due to municipal plumbing issues and natural disasters.
- Emergency Coverage: Emergency coverage covers incidents that require prompt intervention, such as a leaking faucet or broken pipes. This rider covers the landlord’s costs to travel to the rental property and fix the issue.
- Vandalism Coverage: This add-on covers the cost of vandalism or when someone deliberately damages the rental property. Some examples include graffiti and sledgehammered walls.
- Building Code Coverage: Building codes change over time, and landlords must comply with these updates to avoid penalties and other legal consequences. This coverage can help you with the expenses associated with upgrading your mechanical, electrical, and plumbing systems to keep up with current building standards.
- Non-Occupied Dwelling: Some landlords have vacant rental properties for more than 30 days or longer because of major renovations, extensions, or other construction activities. The weeks or months without tenants mean no income for landlords, which a non-occupied dwelling can cover for you.
- HVAC Reimbursement: Because heating, cooling, ventilation, and air conditioning (HVAC) systems are essential in rental properties, you may consider getting this additional coverage. HVAC reimbursement coverage compensates you for payments made to tenants if the HVAC system malfunctions or fails because of a mechanical breakdown.
- Guaranteed Income Insurance: There may be cases wherein your tenants fail to pay the rent, resulting breach of the rental agreement. If your tenant can’t pay a month’s bill, guaranteed income insurance covers this loss of income.
What Landlord Insurance Doesn’t Cover
Generally, a landlord’s insurance doesn’t cover your tenant’s personal belongings. This means that tenants need to get renters insurance to protect their belongings. So, as a landlord, you can require your tenants to obtain at least a standard renters insurance policy to cover their personal belongings and liability claims when someone gets hurt because of their doing or negligence while in your rental property.
Landlord Insurance Cost
As of July 2022, homeowners’ insurance costs an average of USD$1,899 or USD$158 monthly as per Policygenius Home Insurance’s Pricing Report. However, this number can go up, as a policy’s cost can be influenced by various factors, such as where your property is located and how much coverage you need.
And since rental properties are more at risk for incidents and damages, landlord insurance cost is estimated to be 15 percent more than the homeowner’s insurance policy on the same rental property.
Landlord insurance is necessary for all rental properties. While this insurance coverage isn’t mandatory, landlords and property owners can protect themselves from liability and other damages with this type of policy.
As a landlord, choosing the best insurance coverage based on your rental property’s needs is important. Hopefully, the insights above can give you a good start in knowing how to protect your rental property. Furthermore, it’s best to talk to a reputable landlord insurance specialist to know more about your coverage options to avoid financial losses.