By: Ryan Green
As a landlord you should be well aware of homeowners insurance, but have you done your homework on dwelling insurance?
It should come as no surprise that there are differences between having homeowners insurance, and the kind of coverage you need if you rent out your property. It is especially easy to overlook this in cases where you become an “accidental landlord” by having to keep a property that won’t sell, and using tenants to cover the added cost. No matter how the situation occurred the risk is still the same for your assets.
As a landlord you encounter more risks such as lost rental income, property damage and liabilities due to natural disasters. Make no mistake in realizing that the same problems that can plague you as a homeowner will only intensify once you take on tenants. The good news when you own a couple of properties, you can generally get coverage easily through the same company that holds your homeowners policy. You should just be sure that you are protecting yourself with the essential coverage that won’t break the bank on your rental income.
- Protect the Structure
Also known as “dwelling coverage” this is your most important type of coverage for your property since it is the insurance that will rebuild the home if something destroys it. The key part of this coverage to look for is that it will cover everything needed for rebuilding the home, sometimes known as guaranteed replacement cost. Be sure to ask your agent because this type of coverage is not available in every state, and some companies will attempt to limit how much they will cover to rebuild the structure due to inflated construction costs.
This kind of insurance coverage is in place to protect a variety of financial costs related to structural damage of the property. Typically this could be issues related to utility lines (plumbing, gas, electric), but can extend to cover internal and external fixtures as well.
- Cover Your Rental Income
As a landlord you are accepting various risks regarding your personal financial well-being. Assuming you have an outstanding loan associated with your rental(s) that is owed each month in addition to taxes and fees, you rely upon your tenants to pay their rent on time. Anytime renters miss payments or a property sits vacant for an extended period of time the burden of covering all costs falls squarely on your shoulders.
Having some kind of rental default insurance can offer you comfort in knowing there is protection should you suddenly be accountable for multiple loans without residual income. This coverage is generally inexpensive to keep and can be built into the rent each month until you may feel comfortable enough with the payment habits of your tenants to remove it.
- Accidents Happen – Protect People, Including Yourself!
Our society is sue happy – don’t ignore it and hope for the best in people; embrace it and prepare for the worst. Tenants will spend the majority of their time on your property which exponentially increases the odds that someone will get injured bad enough to require medical assistance. If this happens there is every possibility the bill can be sent to you, the property owner. Having coverage for medical bills, legal fees and liabilities may be one of the best things you ever do.
This coverage may also extend to protect contractors you may bring in to work on the property when problems arise. A policy covering these incidents may already be a requirement by your lender as well which should demonstrate its importance.
- Require Renters to be Accountable
Renter’s insurance may or may not be common knowledge for your applicants, but it should be well understood by you. While it is always recommended to have, it is not always a requirement by landlords that renters possess this insurance. To better protect your assets you should consider adding a provision to your lease agreement requiring proof of renters insurance before applicants are approved. While some applicants may not be thrilled about it you are doing them (and yourself) a favor by having the added protection.
Acting as a landlord is like managing any other business. You should do everything in your power protect your investments and limit your liabilities. Remember that the biggest liability in your rental property is your renters, and be sure to conduct thorough screening on applicants before making any decisions.
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As with any changes to your business and investments, you should consult a professional before modifying your policies. Insurance regulations may vary by state.