Insurance Policies for Landlords (What You Need To Know)

Insurance Policies for Landlords (What You Need To Know)

As a landlord, you need to get the best insurance protection for all your rental properties. Clearly, the year 2017 woke up many American real property owners about the perils of natural disasters. For instance, the shocking hurricane flooding in southwest Florida. Likewise, the California wildfires destroying many homes.

Landlords need the right protection covering property damages, lost rents for inhabitable units, and liability claims.

Homeowner’s insurance differs from the types of policies a landlord needs. Especially, if you recently moved out of your primary home and converted it into a rental.

The Insurance Information Institute points out that landlord policies cost around 25% above a standard homeowner’s policy paying for increased protections. Getting a loan to purchase a rental property where your lender requires proof of an existing landlord insurance policy. Don’t forget that insurance premiums are tax-deductible for landlords.

 

Insurance Policies for Landlords

 

Let’s explore some of the most important landlord insurance policies available.

 

1. Property Protection

 

Typical landlord insurance policies provide coverage for damages caused by:

• Lightning;
• Fire;
• Wind;
• Ice;
• Hail;
• Snow; and
• Other types of incidents.

However, some standard landlord insurance policies don’t include flooding. Since 2018, the State of California requires full disclosure of any known flooding risks in every lease or rental agreement for residential properties. This includes properties located in an area of potential flooding.

So, getting flood insurance makes sense if any risk of flooding exists.

 

2. Liability Protection

 

Make sure that your landlord policy includes liability coverage. If a guest or one of your tenants gets injured on your property, liability protection includes medical expenses and legal fees.

How much personal injury protection do you need? A million dollars according to some attorneys as serious injuries and death easily end up with a million dollars lawsuit settlement or jury verdict.

 

3. Personal Property Protection

 

Your landlord policy should cover on-site personal property left for maintenance or tenant use. For instance, appliances, tools, and lawnmowers.

Landlord policies don’t cover the personal properties of your tenants. They need to take out renters insurance to cover their damaged personal properties.

Also, landlords requiring their tenants to get renters insurance as a condition in their lease makes sense. The best part about renters insurance avoids disputes over who pays for replacing a renter’s personal property if damages occur.

 

4. Rent Loss Protection

 

When severe damage makes your rental uninhabitable your landlord policy covers the lost rents and pays you for future lost rents. This coverage allows you to continue paying your loan and debt obligations on your rental.

Especially in California where wildfires often destroy homes. In addition, labor shortages in the construction industry cause rebuilding delays. Rent loss protection helps lessen the financial loss with a vacant property until rebuilt. 

 

5. Acts of Nature Protection

 

Some insurance policies contain limits to certain types of damages or exclude some types of peril. For example, earthquakes, tornadoes, and hurricanes acts of nature not covered in many landlord insurance policies. For your rentals located in any of these types of perils areas, consult with your insurance provider for extra coverage.

Also known as “Acts of God”, getting acts of nature protection makes sense.

 

6. Flood Insurance

 

The federal government maintains flood insurance policies through the National Flood Insurance Program (NFIP). This coverage is not included in a standard landlord insurance policy.

Adding flood insurance includes coverage for your building, contents, and replacement costs. Talk to your insurance agent about purchasing flood insurance from the NFIP.

 

7. Cash Value vs. Replacement Costs

 

When purchasing a landlord insurance policy you must compare cash value vs. replacement costs if you file a claim.

Cash value pays you the actual cost minus its depreciation for the damaged item. For example, if you bought an appliance for your unit that becomes damaged during a fire, your policy pays the appliance’s actual cost minus depreciation and pays you that amount. Thus, if you purchased an oven for $800 two years ago, the policy depreciates the cost applies the value of a two-year-old similar oven, and pays you that amount. It does not pay you for a new replacement oven.

Replacement value pays you the actual cost for replacing the damaged oven. Therefore, the replacement cost policy pays you what it costs to buy a new oven.

On the other hand, the cash value policy pays you $800 minus two year’s depreciation is less than what a new oven sells for today.

The cash value policy may be fine if you don’t mind paying the out of pocket difference to buy a similar new one. But, if you prefer a policy that buys you a new one instead, the replacement cost policy works best.

 

Conclusion

 

So many things to consider to include in your insurance policies for landlords.

Always read the policy carefully and talk about options with your insurance agent. As you read here, anything can happen. It’s best to prepare for all types of damages and buy policies to fully protect your investments.

 

Protect Your Rental Income

 

Besides buying good landlord insurance policies consider what happens when you rent to bad tenants. No insurance coverage exists to protect you from “Bad Tenants”. For instance:

• A bad tenant never pays rent on time;
• Let’s your property go to waste; and
• Skips out before the lease ends leaving you with more repairs and clean up than the deposit covers.    

Protect your rental income by hiring an experienced Property Management Company to:

• Screen your tenants before renting to one;
• Collect rents on time;
• Follows up with late-paying tenants;
• Gets periodic maintenance done to your appliances, water heater, furnace, and air conditioners;
• Evicts bad tenants when necessary;
• Inspects units when tenants move out and deduct deposits to pay for damages;
• Gets necessary repairs done; and
• Advertises for new tenants. 

WeLease provides all these services for landlords in the Greater San Diego area.

Contact Us for all your professional property management needs.

 

Steven Rich, MBA – Guest Blogger

 

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