Landlords: 5 Types of Insurance Coverage You Want
The ideals of being a Landlord are very simple; you buy a property, make any necessary repairs, secure tenants (hopefully good ones), and collect rent hoping to generate a positive cash flow.
The basics are wonderful but they don’t take any legal ramifications or risk management factors into account. You may wish to consider insurance in order to safeguard your investment, protect yourself from unexpected financial loss and provide protection from potential liability.
It is true that there is no legal requirement for you to carry insurance; you do have a contractual obligation to insure the property if you have a mortgage, but then again, would you allow all that hard work and investment to go uninsured?
Landlords Policies come in a few different flavors; from the Basic Fire Only Coverage to the Special Form Dwelling Property Package with a bunch of endorsement included. The following 5 Items are of great importance and shouldn’t go without attention:
- Dwelling (Building) Coverage – this will ensure that the home will be rebuilt in the event of a covered loss. Perhaps a fire, lightning, wind, hail or water damage. Quite obviously, if you only purchase a Fire Only policy, that is the only peril that will be covered.
- Loss of Rents – in the event of a covered loss, if the home is uninhabitable and you end up losing the tenant, you may claim the loss of rental income.
- Owner’s Personal Property – for instance, if the home is furnished or if there are any furniture or equipment rented to the tenant with the home, the owner may add some personal property coverage to assure the replacement of those items in the event of a covered loss. (the cause of loss must be a covered peril on the specific policy form, i.e. fire, lightning, wind, water damage etc….)
- Premises Liability Insurance – If someone is hurt on the premises and a suit is filed against the owner/landlord for negligence, this important coverage will both defend and pay out up to the limit of liability on the policy.
- Personal Injury/Wrongful Eviction – This is a very inexpensive endorsement available in all states, it offers coverage for Wrongful Eviction, Libel, Slander, Defamation of Character and more. Any Landlords policy without this line item may need some serious review; unless, the customer is intentionally only buying a basic policy covering Fire/Lightning and nothing else!
Renter’s Insurance Requirement
All seasoned landlords and property management firms require the tenant to purchase Renters Insurance and list the landlord as an ‘Additional Insured’ on the policy. The Additional Insured clause doesn’t usually cost anything but it includes the Landlord with rights to make a claim on the policy. Most policies have a minimum of $100,000 per occurrence personal liability but many landlords require a higher limit; if there is a loss to the home as a result of the negligence of the tenant, the Renters Policy’s liability portion will kick in.
If a tenant can afford $1,500 per month to rent a home or condo; and there is hesitation to pay perhaps $10-$20 per month for renters insurance, it may be wise of the landlord to simply go to the next name on the list!
Landlords aren’t required to buy insurance; Landlords are usually successful investors and won’t usually leave their risk uninsured – this is all part of responsible risk management. If one is concerned about a negligible cash flow situation, could you imagine what an uninsured loss would do to an already negligible cash flow?