Not all insurance policies are created equal.
Standard property insurance policies assume that the homeowner lives in the property. Then there’s renters insurance. Landlords, on the other hand, rarely live in their rentals and therefore need a different type of policy—a landlord insurance policy.
Most landlords don’t realize that if they file an insurance claim on a rental, but the policy isn’t listed as a landlord policy, the insurer can deny the claim.
It’s essential to have the proper insurance policy to keep you from losing money or assets that may be impossible to recoup. In order for your existing home insurance policy to fully cover the property, you need to inform your insurance carrier that the property is a rental, and you’re not occupying it as your primary residence.
Make sure you include the following clauses in your landlord insurance policy.
Six key clauses in a landlord insurance policy
1. Legal, liability, and medical coverage
If a tenant or employee—or even a contractor working on a part-time basis—sues you for damages, legal and liability coverage can keep you from paying out-of-pocket. In general, every landlord should have this coverage.
Most of the time, lenders require that you have liability coverage to protect their investment/loan.
As with any policy, this coverage has its limits. If you have multiple rental properties, you might want to consider getting an umbrella policy to cover you and your personal assets (if a liability claim goes beyond the limits of your landlord policy).
2. Dwelling coverage with “guaranteed replacement cost”
Dwelling coverage is the most basic type of home insurance, and if you don’t own your property outright, your lender will probably force you to have this type of coverage.
Dwelling coverage insures the rental unit. It will protect you against financial costs related to structural damage of your property. This typically covers structural issues, plumbing and gas systems, fixed appliances, cables and piping, internal fixtures and fittings, and outdoor items like exterior blinds and awnings.
You should also consider getting “guaranteed replacement cost” coverage, which will pay to replace or rebuild the property, even if the cost of building materials exceeds the amount you were originally insured for.
Shop around. Without guaranteed replacement insurance, you’ll only be covered for the value of your home at the time you took out the policy, which doesn’t always cover the cost to replace it.
3. Water and flood coverage
Water and/or flood insurance is typically an extra policy that you add to your base policy. It covers water damage to the building or anything inside is the property. Most basic dwelling policies will cover broken pipes or water heaters, but the extra flood policy is needed to cover floods, rains, sewer backups, and water issues from natural disasters.
Prices and rates are regulated by the U.S. Government’s National Flood Insurance Program, therefore the cost will be the same no matter who the insurer is.
4. Acts of nature
Acts of nature include tornadoes, hurricanes, earthquakes, and floods.
In some cases, this clause isn’t included by default, and you have to ask for it. Some types of insurance may not include all types of coverage—for example, California insurers wouldn’t offer tornado coverage, but that clause is necessary in Kansas.
Again, weigh the pros and cons of each add-on. For example, hurricane insurance can be so expensive in Florida that it might be cheaper to rebuild your house out of pocket than carry an hurricane insurance policy.
5. Fair rental income protection
Rental default insurance, sometimes known as “loss of income,” is a type of insurance that allows landlords to collect the rental amount of the property for a certain length of time if you are unable to rent the unit due to repairs or a catastrophe.
However, most standard policies won’t cover the lost rent due to an eviction or renters who don’t make the rent payments––the coverage only works in conjunction with a damage claim that makes the property uninhabitable.
Loss of income insurance might seem expensive. Determine how much your premium will go up for this coverage, and weigh the benefits. If you can self-insure, and can live without rental income for a month or two, paying for years of loss of income coverage may not be a wise financial decision.
6. Personal property protection
Coverage typically protects you against damage to carpets, curtains, furniture, domestic appliances, household goods, and light fixtures.
Personal property coverage is essential if you’re renting a furnished apartment, and many landlords prefer to have it even if they rent empty units. As with every clause and add-on, weigh the potential benefit of having the insurance against the monthly cost of the added coverage.
Then you can create the exact policy that works for you and your rental!