Are you new to owning rental properties? While there can be a lot to think about and pay attention to when it comes to the various responsibilities of being a landlord, there is one aspect of real estate that is crucial for anyone involved with a property, and that is insurance.
Insurance is a vital thing to have in case you experience an unexpected issue with your property or your tenants.
Often, when a landlord rents out their residential property for the first time, they assume that the homeowner’s insurance that they already have will be sufficient to cover the costs of damages caused by natural disasters, accidents, or a different incident that requires repairs to the home.
This, however, is unfortunately not the case and can be a mistake that comes with costly consequences. As an owner of a rental property, what you need is landlord’s insurance.
But what exactly is landlord’s insurance? What does it cover, how much will it cost you, and why do you need it?
In this article, we will answer all of these questions and more as we go over everything you need to know about landlord’s insurance.
Why Do You Need Landlord Insurance?
While you may think your homeowner’s insurance will be enough to cover your rental property, you may want to think again. The fact is, most insurance policies for homeowners will only cover owner-occupied properties.
This means that when you start renting the property out to a tenant, the coverage will no longer apply. Additionally, since renters generally are not financially responsible for large repairs on a rental home, the costs would impact you, the owner, the most.
Regardless of a natural disaster, a burglary, or the malfunction of a large appliance such as the furnace or the HVAC system, you may end up having to pay the full cost if you decide to rely on your homeowner’s insurance for coverage.
This is where landlord insurance becomes crucial. These plans come with a wide range of policies and prices for you to choose from based on the specific circumstances of your rental home. So, before you begin to choose a new landlord insurance plan, consider what exactly you will need covered in your plan.
What Does Landlord Insurance Cover?
When choosing a new plan for your insurance, there are lots of things to consider before making your final decision. At the end of the day, it’s important to make sure that you are covered as thoroughly as possible.
A solid and comprehensive landlord insurance plan will cover the three most important factors: property damage, lost income from rent and liability protection.
1. Damage to Your Property
In the event that your rental property suffers damage due to a natural disaster, fire, electric or gas malfunction, earthquake, vandalism, or irresponsible tenants, this coverage will come in handy.
If possible, try your best to get a landlord insurance policy that will offer you the replacement cost rather than the actual cash value of whatever you are replacing or a predetermined lump sum of money. This is especially important if your fixtures or furnishings are on the older side.
2. Lost Income from Rent/Rental Default Insurance
This coverage will be useful should your rental property ever become uninhabitable for any reason. This could happen if you encounter a severe case of mold, termites, a rodent infestation, a sinkhole, or anything else that would risk the health of your tenants.
This coverage would provide you with temporary reimbursement for any funds that you may have lost from being unable to have a tenant occupy the home and pay their rent.
3. Liability Protection
This coverage would help you with any medical or legal bills that you may be faced with should a tenant or a visitor suffer an injury on the property due to a maintenance issue.
This can include anything from a tenant slipping on an icy sidewalk to an architectural collapse on the property.
Additional Coverage to Consider
Now that we have gone over the vital aspects of rental properties that must be covered by your landlord insurance, there are also several fairly common riders that can often come with your landlord insurance policies.
While they may not seem as crucial as the policies listed above, they just might end up saving you money and helping you out in the long run.
Here they are:
1. Guaranteed Income Insurance
This coverage can help you should your tenant come up short on their rent payments one month (or be unable to pay their rent at all).
In this case, you would be reimbursed for your missing income caused by the tenant’s inability to pay their rent in full.
2. Flood Insurance
Unfortunately, many landlord insurance plans do not include flood damages that may happen to the property, whether the damage comes from a natural disaster or a plumbing malfunction.
Due to this likely gap in your already existing insurance plan, adding protection for flood damage to your property is a good idea. This is especially important if you live in an area where this type of damage is common.
3. Emergency Coverage
This protection can come in handy should your tenant call you with an emergency that they need you to solve as soon as possible.
Whether their dishwasher is leaking or they lock themselves out of the house, including this coverage in your landlord insurance plan can take care of some or all of the costs that you have incurred by traveling to the rental property to handle the emergency issue for your tenant.
4. Additional Construction Expenses
This coverage will take care of any expenses that you may face when you have to bring the building back up to code after it has suffered any damage.
How Much Does Landlord Insurance Cost?
As of July 2022, the average cost of homeowner’s insurance is $1,899. However, it is important to note that prices can vary significantly depending on where you live, how old the property is, and many other factors that the insurance company will take into consideration.
Since rental properties are more susceptible to damage and incidents than a traditional residential home, landlord insurance generally costs about 15% more than homeowner’s insurance does, even if the insurance is covering the same property.
Additionally, the inverse is true when it comes to the relationship between the cost of your insurance plan and the length of time that the property has been used. For example, you can expect to pay almost double when it comes to annual premiums if you choose to rent out your property for only 12 weeks, rather than a standard one-year period.
The reason for this is that shorter-term tenants are significantly less likely to notice or mention maintenance issues in the home. A short-term renter may be more careless than a long-term renter, or they may not be used to the home’s layout and where its plumbing, load-bearing supports, or electrical wiring is located.
All of these factors will only increase the likelihood of maintenance issues in the rental home and the risk that the insurer is being subjected to.
When you are shopping around for a new landlord insurance plan, make sure to ask your homeowner’s insurance provider if they are able to include any bundle options for rental property coverage. If you are able to receive homeowners’ and landlord’s insurance from the same company, they may be able to offer you a discount.
Additionally, it’s important to note that landlord’s insurance will not end up covering the belongings of your tenants. For this reason, it is a good idea to ask your residents to get renter’s insurance while they are living in your rental property.
Doing this will help everyone sleep better at night knowing that if anything should happen to your property, every aspect will be covered and no one will be left in a financially difficult situation.
Bottom Line: Landlord Rental Insurance
You are now all up to speed about landlord insurance! While you may think that you can get by with general homeowner’s insurance, it is crucial to upgrade your plan once you start to rent your property to a new tenant.
As long as you have your core coverages like property damage, lost rental income, and liability protection, you will be able to rest knowing that you, your property, and your finances will be protected from unexpected events and damages.
Plus, with the option to purchase additional riders for coverage of flood damage, expenses related to bringing your building back up to code, and more, you are sure to have all of your bases covered in no time.
It is also always a good idea to request that your tenants acquire renters insurance while they occupy your property.