Property insurance is designed to protect owners and their investment against anticipated business risks, which ultimately create financial losses. Rental property owners know that among the essential business safeguards available to their rental property business is purchasing the right insurance. If you plan to rent out a property to a resident for at least six-months, landlord insurance is highly recommended as it helps you rent the property with greater certainty and confidence.
Insurance for rental properties will vary, but primarily, the fundamental risks needing coverage include the risk of:
Rental property insurance coverage will vary, which is why it's imperative that property owners/managers understand the exact coverage being offered.
Available insurance for rental property owners can be broadly categorized as either property protection or liability protection.
The property protection portion of a landlord insurance policy covers the physical property. Property protection, which is often called hazard insurance, generally offers these types of coverage -
Dwelling coverage reimburses a property owner who has sustained damage for the expenses needed to repair any property that may have been damaged by what the policy deems ‘a covered loss.’ Covered losses may include damage from fire or theft, or any other peril denoted as covered in the policy statement.
A rental property hazard insurance policy will also help pay for damages to structures on the property that are not a part of the dwelling or main structure. Examples of other types of structures typically covered by this type of rental property insurance include a damaged fence or repairs need to a detached garage, among others.
Typically, landlord insurance will cover a piece of equipment a landlord owns that is used to service the rental property. For example, if a snow blower or lawnmower owned by the property owner becomes damaged, this will be covered by the property owner's insurance policy.
It's important to note the following:
When renting out any property, a property owner must understand that the act of renting leaves the owner exposed to liability risks that would not necessarily be present for a homeowner living in their own residence.
A property rental owner is exposed to the very real risk that a resident (or a guest) may be hurt in the rental unit. If the property owner is found to be legally responsible, this portion of the rental property coverage may help reimburse the owner for legal expenses or any medical expenses that are incurred due to the injury.
Note, however, that if an owner wants to increase their property liability protection, it is prudent to purchase an umbrella insurance policy – with coverage that begins when your rental property insurance is maxed out. Additionally, rental property insurance is also subject to deductibles as denoted in each policy. Each type of coverage has its own deductible/limit; however, very often, these amounts are customizable by the insured.
Rental property owners may decide to add specific endorsements to a standard insurance policy that offers additional coverage. Here is a partial list of available insurance endorsements for rental property policies:
It's important to have the right insurance if you are an investment property owner, to not only protect yourself but also the residents living in your property.