There are many ways a landlord can minimize the financial risk of owning a rental property, including selecting the best markets for rentals, thoroughly screening tenants, and keeping the home in excellent condition.
However, there are times when the unexpected can happen, such as a natural disaster or a renter’s slip and fall claim. A landlord’s insurance policy can provide additional protection for situations like these that are beyond the landlord’s control.
Reading: Landlord insurance what it covers
- Homeowners insurance is a policy purchased specifically for rental properties.
- A landlord’s insurance policy typically provides coverage for property damage, liability claims, and loss of rental income.
- Optional endorsements for landlord insurance may include coverage for theft, vandalism, and unoccupied dwelling.
- Equipment and appliance breakdowns, shared ownership, and renters’ belongings are items that are generally not covered by homeowner’s insurance.
- A landlord may require a tenant to purchase renters insurance to help protect the tenant’s valuables and from injury claims made by a guest, if allowed by state landlord-tenant laws.
- house rented to a tenant on a long-term lease.
- rental property with a tenant on a short-term lease.
- seasonal vacation rental.
- Theft – Covers the replacement cost of personal items owned by a landlord and used in a rental property, including kitchen appliances such as a refrigerator or oven, washer and dryer, and garden equipment such as a lawn mower or snow blower.
- vandalism: An optional rider for vandalism in a landlord insurance policy helps protect a landlord if a property is deliberately broken into and damaged by such things as graffiti, walls being hit with sledgehammers or poured cement. plumbing lines.
- building codes: Sometimes when a property sustains significant damage and repairs are being made, a city may require the owner to “code” the home to meet building standards current. Building codes often change from the time a home is first built. The landlord may be required to upgrade mechanical systems, such as electrical and plumbing, if major renovation work is underway.
- Unoccupied Home: This type of optional coverage can be purchased if a rental property is unoccupied for an extended period of time, usually more than 30 days. For example, a landlord who has a rental property under construction or undergoing major renovations may want to purchase an unoccupied dwelling endorsement until the work is completed and the property is rented to a tenant.
- hvac reimbursement – An optional provision for heating or cooling loss reimbursement compensates a landlord for payments made to a tenant if the hvac (heating, cooling, ventilating, air conditioning) system ) does not work due to mechanical failure. for example, some sunbelt cities have scorching summer temperatures and it can take several days for a licensed air conditioning contractor to visit a property due to the backlog of emergency repairs.
- earthquake insurance: according to fema, the 3 states most subject to earthquakes are california, missouri and washington state. A landlord may want to investigate traditional earthquake insurance and parametric insurance to help protect a rental property located in an earthquake zone.
- Flood Insurance: Often, a homeowners or renters insurance policy will not cover flood damage. Even if a property is not located in an official flood zone, flood damage can still occur due to heavy rains or excessive snow melt. In addition to obtaining flood insurance, a landlord may want to ensure a rental property is protected from flooding by installing a sump pump in a basement, leveling the lawn away from the home, and making sure rain gutter drains point away from the foundation.
- Personal Umbrella Policy: A landlord who owns multiple rental properties may wish to purchase a Personal Umbrella Policy to provide additional coverage. For example, if the cost of repairing a home that is significantly damaged exceeds a policy’s coverage limits, a personal umbrella policy could be activated to provide additional coverage.
- Create an LLC: Forming a limited liability company (LLC) for a rental property can help limit the landlord’s personal exposure. For example, if a tenant or someone else sues for damages caused by an accident that took place on the property, the owner’s exposure will generally be limited to the assets held by the LLC, such as a single rental property, rather than of the entire owner. business and personal assets.
what is homeowners insurance?
Homeowners insurance provides additional layers of coverage to help protect an investor from potential financial loss. While a standard homeowners policy provides limited protection for a rental property, a landlord insurance policy provides additional coverage if a property is damaged and liability protection if the renter is sued by an injured tenant, guest, or repairman. .
all types of rental property are eligible for homeowners insurance:
what does homeowners insurance cover?
While every insurance policy is different, homeowners insurance generally offers protection for 3 types of losses.
Landlords insurance typically provides additional coverage if a rental property or outbuildings, such as a storage shed or detached garage, are broken into or damaged by a covered peril, such as a fire, major hail or storm. wind. Most policies also provide protection if a landlord’s personal property is damaged, such as kitchen appliances or a renter-provided washer and dryer, and landscaping equipment or tools that are kept on site.
personal injury law is a $38 billion business in the us. meaning that even the most conscientious landlord can end up being sued by a tenant, guest, or seller who is injured on the rental property. Liability coverage in a landlord insurance policy legally protects a landlord if someone is injured and can help cover the costs of medical care, legal and court fees, and a negotiated settlement after any deductible is paid.
A landlord’s insurance policy may also cover the landlord against loss of rent if the house becomes uninhabitable and the tenant has to move. An insurance company adjuster may request proof of the amount of rental income received.
That’s one of the reasons many investors subscribe to Stessa’s free rental property financial management software. income and expenses are automatically updated and tracked, and owners’ bank accounts linked to stessa can be easily reconciled on a monthly and year-end basis.
optional clauses for homeowners insurance
A property owner may also wish to customize a landlord’s policy by adding additional riders or endorsements for additional coverage. For example, an insurance company may provide coverage that pays for a tenant’s moving expenses if the landlord has to move the tenant for major repairs.
In some cases, an insurance company may not pay specific claims related to vandalism, unless the landlord’s insurance policy has a vandalism rider. That can be especially important for a landlord who owns a rental property in a high-crime area, or who has a property vacant for an extended period of time while it’s being renovated.
Optional riders that can be added to a landlord insurance policy include:
Are there claims the landlord’s insurance doesn’t cover?
While a homeowners insurance policy provides a variety of different protections, there are some items that homeowners insurance may not cover.
malfunction of equipment and appliances
The cost of repairing broken kitchen appliances, a water heater, furnace, or air conditioning system is generally not covered by a landlord’s insurance. A landlord may want to consider purchasing a rental property home warranty to pay for the repair or replacement of items such as these.
Because a landlord’s insurance policy is designed for properties that are not owner-occupied, a landlord who fixes up the house by renting extra space may not be eligible for landlord’s insurance. however, a landlord may want to check with the company that issues their homeowners insurance policy to see if additional coverage is available if a vacant room is rented to a tenant.
In most cases, a homeowners insurance policy will not cover a renter’s personal belongings that are stolen during a burglary or damaged by a covered natural disaster, such as a hail storm or flood. Under state landlord-tenant laws, a landlord may require a tenant to obtain renters insurance as a condition of signing the lease. A renters insurance policy helps pay for the cost of repairing or replacing items owned by a renter that are damaged, and can also pay for lodging expenses if a renter has to temporarily move while the home is being repaired.
other types of rental property insurance
In addition to homeowners insurance, other insurance policies and methods to protect a rental property include:
A landlord’s insurance policy can help protect a landlord from financial loss caused by property damage or a lawsuit. In addition to purchasing homeowners insurance, other steps a landlord can take to help minimize risk and reduce liability include conducting regular inspections to make sure the home is in good repair, making sure the lease language protects to the landlord and require the tenant to purchase a renters insurance policy if permitted by landlord-tenant laws.