When the unexpected happens, it pays to be prepared.
That’s why just like you would purchase health or car insurance to protect those assets, it’s also important to get landlord insurance to protect your investments.
Landlord insurance is the best way to defend yourself, your investments, and your tenants should an unanticipated event threaten your rental business.
Even a minimal coverage policy could save you hundreds of dollars after a loss. Landlord insurance should be one of your top financial priorities, whether you’re a rookie investor or a seasoned real estate pro.
Here is everything you need to know about getting your rental business insured.
What is Landlord Insurance?
Landlord insurance is financial protection property owners can purchase to protect their rentals against potential losses.
Landlord insurance is typically offered in several dwelling policies (DP). Cheaper dwelling policies cover basic losses like fire or storm damage, while more expensive ones cover extensive losses and broader types of losses.
To purchase landlord insurance, you’ll need to prove that you are a landlord, or the owner of one or more rental units. You must own the building and all its structural components (condo owners must purchase a separate kind of insurance). You also must be actively renting your property to tenants to qualify for landlord insurance.
What does landlord insurance cover?
A typical dwelling policy covers three main types of losses:
- Property damage – This includes physical damage to your property’s structure (or items inside it like furniture) due to weather, fires, or criminal break-ins.
- Lost rent – If your property becomes uninhabitable and your tenants must move out until you can finish repairs, this type of coverage covers your lost rent.
- Liabilities – This coverage is for legal claims made against you or your rental business.
Before getting a quote for landlord insurance, decide which types of coverage you need. It may also be a good idea to purchase certain add-on policies, depending on the risk factors where your properties are located. For instance, you may decide to purchase add-ons for vandalism, construction damage, or building code changes. Your monthly rate will depend on what kind of coverage you choose to include in your package.
The benefits of landlord insurance are numerous. Investments are significant risks, so the more protection you can afford, the better you’ll fair should an unanticipated loss occur.
Another benefit of landlord insurance is that it will allow you to secure better mortgages in the future. Many lenders require investors to purchase landlord insurance before taking out a mortgage loan on another property.
Finally, insurance premiums are tax deductible, meaning you can deduct the monthly expense as an operating expense for your business. This means you can subtract the amount from your rental income and avoid paying tax on it.
What About Renter’s Insurance
Landlords aren’t the only people who need insurance.
Your renters need insurance too. That’s why it’s generally a good policy to require your renters to purchase renter’s insurance before agreeing to rent them your property.
Renter’s insurance typically covers personal property damage, injury liability, and loss of use/living expenses. These policies kick in first, before your landlord insurance, so it’s beneficial for you to require your renters to have it.
How much renters insurance your tenants need once again depends on the risk factors. For instance, different neighborhoods or locations might make it necessary for your renters to add theft extension or earthquake coverage.
Costs and Benefits of Requiring Renter’s Insurance
The cost of renters insurance is entirely on your tenants, who will pay around $15-$20 a month for their coverage. This is generally an affordable premium for renters who are qualified to rent your properties.
A renter who objects to this price may not be a suitable fit for your property. If a tenant cannot afford renter’s insurance, do you really trust them to be able to afford your rent?
Benefits of requiring renter’s include protection for your tenants’ assets, less stress for you, and decreased hostility and blame when an unexpected loss occurs. Your tenants are much more likely to be satisfied and secure with their renting experience when they know they have financial insurance.
Landlord insurance is just one way to lessen the risks of investing. While it’s impossible to eliminate all of them, purchasing coverage will ultimately benefit you—even if, as we hope, those losses are few and far between.