Landlord insurance is a special type of homeowner's insurance specifically designed for property owners who rent all or part of their property to others. Like a standard homeowner's policy, a landlord's insurance policy will usually cover damage to the building and the owner's belongings. The policy also includes liability coverage and medical coverage for injuries on the property. With the exception of the owner's property that is stored and used on the premises, the interior contents of the building will not be covered.
Understand your coverage options
Specific coverage varies with the policy, with additional options increasing its cost. One way to lower the price is to increase the deductible amount for each claim. Deductibles are the amount that you are required to pay in the event of a property loss. Deductibles typically range from $100 to 5% of the building coverage amount.
Comprehensive insurance will cover loss from all causes unless specifically excluded. Lower cost policies may limit coverage to specifically named situations or "named perils." Lower cost "actual cash value" policies will reimburse the owner for the value of the property less depreciation. Higher cost "replacement value" policies will reimburse the cost of replacement, but only if a replacement is actually purchased.
Actual cash value coverage factors in depreciation when paying claims but has a lower premium. Replacement cost coverage pays the full replacement cost of building damage; however, the landlord must rebuild the property to receive reimbursement of the full replacement cost.
A landlord's policy may also include additional features specific to the landlord-tenant activities being conducted on the property. One common option reimburses for loss of rental income during a period in which the property becomes uninhabitable. Landlord's insurance may also include extra coverage due to increased risks associated with doing business with tenants. These include coverage for legal fees and extra liability coverage, including coverage for libel, slander and discrimination claims.
Urge your tenants to buy Renter's Coverage
It is a good idea to require your tenants to purchase rental insurance. A landlord's insurance policy will generally not insure a tenant's property located in a rental unit. The tenant must either self-insure or purchase his own renter's insurance policy. Nonetheless, a tenant may benefit from a landlord's insurance because it may compensate the tenant for damages and losses under the landlord's liability coverage. Additionally, a tenant may be spared the inconvenience of relocating if insurance payments enable the landlord to make needed repairs in a timely manner.
How much coverage to buy?
If a property is mortgaged, the lender will usually require an insurance policy sufficient to cover the outstanding loan balance. Coverage above that level and extra coverage options are completely up to the landlord. Generally, the decision of whether to insure requires an assessment of the potential saved premiums against the risk of bearing all costs associated with a future loss or claim. When considering insurance on property which has significant value and which can be associated with liability claims, only very high net worth individuals are likely to find complete self insurance a viable option.
When shopping for Landlord Insurance, it's wise to consult several insurance agents or companies that specialize in business insurance. They can help you choose the perfect solution for your specific rental property.
In summary, landlord insurance protects property investors from financial risk in the event the property is damaged or individuals are injury on the property. Investors must make a business decision about how much coverage to purchase on the building and the extent to which they need coverage for loss of use or lost income. However all investors should purchase liability insurance to protect against the potentially catastrophic medical and legal costs associated with lawsuits from individuals who are injured on the property.