When the subject of landlord insurance for rental property comes up, property owners may wonder what a landlord policy covers and if having insurance for a rental property is really necessary. After all, do you need a landlord insurance policy when you have a homeowners insurance policy?
Some first-time real-estate investors are surprised to learn that homeowner’s coverage is only available for owner-occupied properties. A claim could be denied if the dwelling is used as a rental. Where do you turn if you have rented out your house, do not live there, and are faced with damages? Your landlord insurance coverage, of course!
This article takes a deeper look into this coverage to ensure you understand what it means, why it is essential, what it covers and how much it might cost you.
Landlord insurance coverage is designed for individuals with rental properties. Even if it is your residential property you moved from and rented out, you will need this coverage. That’s because renting out property exposes it to more risks and leaves you vulnerable to potential liabilities. Landowner insurance is the most suitable coverage if you do not live on the property and have tenants.
Landlord insurance policies come with varying coverages. However, a comprehensive policy generally covers 3 main categories of risks:
Property coverage protects you against damages to the property's primary structure, detached structures, and in some cases, personal property such as household furnishings and kitchen appliances if you are renting out a furnished home. In addition, the coverage generally protects against damages caused by some natural disasters, fire, burglary, vandalism, and negligent tenants.
There are several coverage packages available - DP1, DP2, and DP3. As a rule of thumb, it’s a good idea to get a landlord insurance policy with replacement cost value (RCV) coverage rather than actual cash value (ACV).
This is because ACV factors depreciation into the amount of claim paid out, while RCV makes a payout based on the actual cost to repair or replace a covered item based on current prices. In other words, having an insurance policy based on actual cash value could leave you with a higher cash bill to foot, especially if you have an older property.
Did you know tenants can sue a landlord for injuries incurred while on the property? The same applies to any guest of a tenant or service person injured while on the property. That's where liability coverage comes in.
Liability coverage in a landlord insurance policy can cover legal fees, medical bills , lost earnings, and other applicable compensations if a tenant or a third party gets injured on your property.
What would happen if your property became uninhabitable? It could be from an electrical fire, a burst pipe, or natural disaster. If you had tenants, they would have to move out while doing the repairs or maintenance.
Apart from the cost of repairs and maintenance, a top concern would be the loss of income. As long as the property is unoccupied, you cannot collect rent. This can prove financially disastrous. But with loss of income coverage, the insurer offers reprieve with rental income reimbursement.
As stated earlier, there are different coverages for landlord insurance policies. For example, insurers will sell these policies under varying packages, DP1, DP2, and DP3. While all of these packages are for landlords, they are meant for different types of landlords and situations.
DP1, for instance, is the most basic and affordable package. It offers limited coverage, only covering nine perils, and doesn't include liability and loss of use coverage. It is ideal for any landlord with vacant rental property. DP3, on the other hand, is the most comprehensive package. It covers damages to the property and other additional structures, personal property, loss of income, and liability. Additionally, it is best for landlords with tenants and not vacant properties.
In addition to the items already mentioned, most insurers allow you to add additional coverage to your policy. These are referred to as riders or endorsements. They might not be as crucial as those discussed above but could come in handy in some circumstances:
Protecting one's investment against possible risks is an essential business practice. That's why landlord insurance coverage is a must-have for property investors.
As a landlord, your property faces numerous potential risks, including liability claims from a tenant or guest or destruction by forces of nature. Damages caused by either of these could set you back thousands of dollars in repairs, liability costs, and loss of income.
A comprehensive landlord insurance policy reduces the risk of having to spend a significant amount of cash out of pocket. Instead, your insurer compensates you or the third party from covered property damages or liability claims.
Landlord insurance is costlier than homeowner's insurance coverage, varying between 20% to 25%, due to the potential risks that come with renting out a property. Companies like Obie, which specializes in landlord insurance, are a good option for learning how much landlord insurance costs for your particular property.
You can enter your property address directly on the Obie website, get an instant landlord insurance quote, and compare policies from multiple insurers online. The process is simple and transparent, with no paper applications or lengthy waits.
When shopping for landlord insurance, the cost of a policy will be affected by several factors, including:
Riders or endorsements: if you add coverage to your policy you’re getting more coverage than the standard policy includes, driving up your overall insurance cost.
Regardless of your policy's coverage, having the right insurer is critical. When faced with property damage that leaves you with no rental income, the last thing you need is to deal with an insurance company that doesn't honor your claim. So, how do you get the best landlord insurance?
Working with an online insurance broker like Obie can help save you time and money. Obie can help ensure you get a policy that meets your specific needs at an affordable price (on average, Obie customers save 25%).