What is Landlord Insurance?
For anyone who owns a rental property they know that finding a good tenant is key to a successful income unit. Well that can also be said for having the right insurance in place in case something bad happens which it inevitably will. In this article I will explain what landlord insurance is and what it will cover in the event of a loss.
Landlord insurance is very similar to homeowner’s insurance but it is a different policy with greater coverage for those who use the property for rental income. There are many different types of landlord policies but the main point is that you must have a policy designed for rental properties or you may not be covered completely.
Commonly found coverage on a homeowners policy:
- Dwelling Property - Also known as building coverage, it covers many types of damage done to your home including hail, wind, and vandalism.
- Personal Property - Usually based on a percentage of the building property, it covers loss or damage to items like clothes, electronics, and furniture.
- Liability - Pays when you are legally liable for someone else's bodily injury or property damage resulting from accidents. This includes costs to resolve claims or defend lawsuits brought against you.
- Medical Payments - Rarely used but on most home policies this will pay for medical expenses for people injured at your residence regardless of liability.
- Additional Living Expenses - When you are forced to live elsewhere while damage is repaired to your home this will pay for additional expenses commonly up to 24 months or a specific coverage limit.
The items listed above are usually covered under most comprehensive homeowner’s policies but there are items that need special coverage or have different use on a landlord insurance policy. As you can imagine there are different things that can happen when you rent your property versus living in it. This can expose you to more liability and perhaps more severe damage due to not being there to mitigate immediately.
In addition to the coverage listed above here are few important differences or additional coverage items on a landlord policy:
- Loss of Rental Income - This replaces "Additional Living Expenses" and is used when a loss forces your tenants to move out while damage is being repaired. The loss of rental income during this period is covered.
- Landlord Liability - This is similar to liability protection on a homeowner policy but if you don't have landlord policy your insurance carrier could deny your claim as you did not inform them the house was rented to others.
- Water Backup - Water is a homeowner’s worst nightmare especially if you don't have water backup coverage. Most standard policies will not cover a backup from sewer systems so this coverage is vital.
- Identity Theft Protection - Some insurance companies offer this as an additional coverage. This is the fastest growing crime worldwide and you as a landlord need protection. Identity theft protection can cost as little as $8 per month and we partner with a leading organization that compare identity theft protection products.
Landlord insurance policies are simply a home insurance policy with additional protection for landlords. If you own a rental property be sure to have the proper protection or you could be in for a big surprise when something happens to your rental.
What is covered on a landlord insurance policy?
Depending on the type of property you own the coverage can vary, for example if you own a condo that is rented out usually the homeowners association will cover the exterior of that property. If you own a single family home the insurance would cover the entire dwelling. Without getting into detail about home insurance policies we will explain coverage that is specific to landlord insurance.
- Landlord property - This can include furniture or other items you keep at the income property. Property coverage includes items like furniture, clothes, electronics and dishes. Be sure to include enough coverage for all of these items at full replacement value.
- Landlord liability - This includes damages you could be legally obligated to pay. If your tenant were to get injured on the property and sue you for damages this would provide legal counsel and protection.
- Loss of rental income - If your tenants ever have to move out while the home is being repaired for a covered loss this coverage provides the loss of rental income up to one year. Some companies offer longer periods of protection but the key is to take the current annual rental income and make that the loss of rents limit. Most tenants will come back to your property if they know you have corrected the problem and other to break the lease during reconstruction. Don't underestimate this coverage as it is your lifeline to continue owning that property.
What is not covered on a landlord insurance policy?
None of your renters property is covered on your landlord policy so be sure to have your tenants get renters insurance. Renters insurance will cover their property and provide liability protection for them in case they are legally liable for damage to the home.
What other insurance should I carry as a landlord?
In addition to landlord home insurance it may make sense to also have an umbrella policy. Umbrella policies provide liability insurance above and beyond your home insurance policy limits. Most landlord insurance policies offer up to $1 million in liability protection but if you have assets worth more than that it is advised to get an umbrella policy.
These policies offer coverage from $1 million to $5 million on average and can range from a few hundred dollars per year up to $1500 depending on what is included. Remember this type of policy only kicks in once the full limits have been exhausted on the underlying policy.
Vacant Home Insurance
If you have a vacant property you know the dangers that come with an unattended home. Due to these dangers the cost to insure a vacant home can be much more costly than a primary residence. The most common losses associated with a vacant property include:
- Water Damage
While most insurance companies do charge more to insure this type of risk that doesn't mean it needs to break the bank. Your best option as a landlord or homeowner is to shop around the best companies to find the best price. This once took many hours to call each company for a quote but we now offer a service to get up to 5 landlord insurance quotes in only a few minutes.
Do I need to let the insurance company know the rental property is vacant?
When a landlord tries to get home insurance one of the first questions an insurance agent will ask is if the property is vacant. This is a factor most insurance companies will surcharge for and may not even accept the risk if their underwriting guidelines are strict enough. For this reason many rental property owners feel like they need to lie about the condition of the home to get insurance in place.
There are a couple of things that can happen if you don't tell the complete truth about the status of occupancy for your rental unit.
- The insurance company may perform an inspection of the property prior to binding coverage to confirm it is in good condition. If the inspector notices that no one appears to be living there they will inform the company.
- Assuming the landlord insurance policy is bound and coverage has been in place the company may deny coverage in the event of a loss. They can deny coverage based on the fact that you lied on your application for coverage.
- The worst case scenario is the insurance company sues you for insurance fraud given the fact you knew the property was vacant when completing the insurance policy.
The bottom line is that is may cost you more money in the short term to insure this vacant property but it will save you bigger headaches later if something were to happen.
What are my responsibilities as a landlord to the tenant?
There are many responsibilities that come with owning a rental income property but none more important than those that affect the safety of your renter. Your tenant's safety should be your utmost concern because if something happens to them in your rental unit you can be held liable. We will discuss the most common items you should be concerned with regarding being a landlord.
When accepting a renter as your tenant you should always sign a rental agreement so that each party understands what they are responsible for while that agreement is valid. In most cases landlords don't have renters sign rental agreements or they are very inadequate with information that may become vital later. The rental agreement is the starting point to what is expected from the landlord and the tenant but it does not stop there. Included in this agreement may be items such as:
- Rent due date
- Move in and move out date
- Condition of unit prior to move in and acceptable conditions after move out without penalties
- Prior notice for visits from landlord
- Emergency contact information for landlord and local authorities
- Security deposit amount and criteria for reimbursement
While these are necessary and helpful for both parties there are some additional items that may not be in the agreement but expected of the landlord.
In order to be a successful landlord you need to provide a place where your tenants feel safe. By providing timely repairs to maintenance issues you not only make your tenant happy but also minimize the potential liability risk inherit with rental property lawsuits. Your landlord insurance policy will have coverage for liability but you should do everything in your power to minimize that risk.
Responsibilities of landlord not included in rental agreement
Here are some basic responsibilities that landlords have to their tenants that may not be included in the rental agreement.
- Provide a clean and safe living environment
- Have well lit hallways, stairways and entryways
- Include all possible safety precautions such as fire extinguisher, working locks on doors and windows, and working fire detectors
- Clear common areas of debris like trees or shrubs to minimize slip and fall
- Respond to tenants maintenance requests in a timely manner
- Comply with all building, housing and health codes