Your Introduction to Landlord Insurance
- March 22, 2023
Homeowners know all too well the secondary costs of owning a home, chief among them the cost of insurance. No homeowner should go without insurance. Naturally, lenders will not provide home loans to those who choose not to take out an insurance policy on their home that protects against all kinds of damage, whether they are caused by natural disasters, vandals and thieves, or negligence.
But when you decide to invest in housing property with the intention of earning monthly profit through rentals, homeowner’s insurance won’t cut it. As soon as you start renting out your property, homeowner’s insurance no longer applies. A responsible landlord – and a smart one – always purchases landlord insurance.
Why You Need Landlord-Specific Coverage
While renters are capable of purchasing renter’s insurance, and many do, there are certain damages that renters are simply not liable for. That includes breakdowns of large home appliances, an on-property injury that isn’t the result of the tenant’s own actions, wildfires, or burglary; in the case of these events, a landlord can find themself on the hook and bearing the full financial burden.
As a landlord, you may end up in situations that prevent you from monetizing your property at all, like enormous damage from natural disasters or pest infestations that prevent or delay the leasing of vacant units. This is a unique problem faced by property investors and a great example of why landlord insurance is absolutely necessary.
Pete Evering from Utopia Property Management rarely meets landlords who aren’t covered – almost never, in the case of multifamily housing. “It’s just too much of a gamble, especially when it comes to multifamily housing properties where the variety of things that can go wrong is multiplied exponentially. If we ever are contacted by interested landlords without coverage, we always strongly encourage them to seek a policy that works for them. Some coverage is better than none and makes things easier for both property owners and property managers in the event of accidents or mishaps.”
Landlord Insurance Coverage
The three pillars of landlord coverage represent the most important risks to a property’s profitability:
If a tenant, the guest of a tenant, or other visitor to the premises is injured or worse, and the cause can be reasonably traced back to maintenance failures and otherwise preventable hazards, a landlord can be sued for damages. Liability protection insulates landlords from the cost of potential personal injury lawsuits.
Lost Rental Income Protection
If catastrophic damage from natural weather events prevents you from renting vacant units in your multifamily investment property, or if a pest or mold infestation renders your property legally uninhabitable, you’ll be losing out on thousands of dollars until the problem is sorted out. That’s why any decent landlord insurance includes coverage for temporary loss of rental income, reimbursing landlords for the rental revenue they would have collected.
Also Read;- Essential Financial Tips for New Landlords
Property Damage Protection
Damage to your property doesn’t just cost you, tenants, it also costs you the money you’ll spend on replacements and repairs. That’s why landlord insurance, like homeowner’s insurance, includes coverage for property damage. Be careful, though: not all plans include the full cost of replacement, but rather determine their payouts based on the cash value of fixtures and structures, which is often lower than the real cost of replacement.
Some landlord insurance plans are better than others. Besides the aforementioned distinction between the reimbursed cost of replacement and reimbursed actual value, look for these features if you feel you need premium coverage:
As is the case with homeowner’s insurance, flood insurance is not included in most basic landlord’s insurance. That’s because floods are relatively common compared to most forms of natural weather damage, and they lead to costly repairs. If your property is in a flood-prone area, like an area at or below sea level or in a tropical locale where yearly storms and hurricanes are a regular occurrence, you should opt for a plan with flood insurance.
Guaranteed Income Insurance
As a landlord, your income is reliant on the ability of other people to pay you and pay you regularly. So what happens when rent is due but a tenant is unable to pay, or unable to pay the agreed-upon rental fee? In cases like these, you’ll be out of luck, with your only recourse being late fees that may or may not ever be paid. That’s why many extended plans come with guaranteed income insurance, which covers the difference between income expected and income collected.
It can be quite costly to interrupt your schedule and rush to your property to fix a leak or deal with some other maintenance issue or have a professional handle it for you. Emergency insurance helps to remedy the cost of fixing problems onsite outside of your usual schedule. Emergencies wait for no one, so it’s best to be ready.