Rental properties are a lucrative investment, but with everything that could go wrong, from damage due to plumbing issues to personal injury, it’s important to keep yourself protected with the right insurance. But choosing the right insurance for your rental property often feels challenging. Read this blog to discover various types of rental property insurance, their coverage, and pick the right one for your investment property.
Rental Property Insurance: What Does it Cover?
Rental property insurance also known as landlord insurance, rental insurance policies safeguard you from the risks involved in renting out your property. Its coverage varies depending on your chosen insurance policy, but generally, rental insurance covers the following:
#1 Dwelling Coverage
Similar to a homeowner’s insurance, landlord insurance covers structural damages to your property. This includes damages to your walls, floor, roof, and so on. This type of coverage accounts for damages caused by certain perils such as fire, lightning strikes, hail damage, falling objects, motor vehicle collisions, and much more. Dwelling insurance policies typically don’t include damage caused by you or your tenant’s failure to perform regular property upkeep.
#2 Landlord’s Personal Property
Landlord insurance doesn’t cover your tenants’ personal property, but it does include coverage for the landlord’s items. For instance, if your rental property is furnished with couches, beds, and dining tables, and your furniture perishes in a fire, your insurance policy will cover these damages. However, if your tenant purchased other furniture which got destroyed in the same fire, your rental property insurance won’t cover their belongings. Do note that some insurance policies only provide coverage for functional appliances that are essential to the property, such as washing machines, dishwashers, and refrigerators.
#3 Personal Liability Coverage
If your tenant gets injured within your rental property, and you’re found to be responsible for the injury, personal liability coverage can help you pay for their medical bills as well as legal expenses should your tenant sue you over the incident. This insurance policy also protects you from injury claims if workers such as handymen, plumbers, electricians, etc. get hurt while on the job. This policy usually limits coverage to $100,000 but if your real estate investment includes high-risk amenities such as pools and dog parks, you should consider increasing the liability coverage.
#4 Loss of Rent Coverage
If perils such as fire, earthquakes, and other insured events, result in damage to your rental property, making it completely uninhabitable, this coverage guarantees protection from a potential loss of rent. Since your tenants no longer have the obligation to continue paying their rent, and will most likely be required to move out, this insurance policy helps you claim the income you would lose. Whatever type of investment property you own, adding this to your insurance policy ensures that you won’t experience a financial loss.
How Much is Rental Property Insurance?
Although rental property insurance, or landlord insurance, is typically 25% more expensive than a homeowners insurance policy, the added cost will be worth it. The average cost of landlord insurance is $1,300 a year but the total amount largely depends on how much your property is worth, as well as how hazardous it is. Your insurance company will consider a variety of things, such as:
- Age of the building
- Size of the building
- Risky amenities (eg. swimming pools)
- Security features (eg. sprinklers, security cameras, etc.)
Higher rates indicate that your property poses additional risks to both the landlord and the tenants or guests, such as potential loss of rent, personal injuries, and so on.
Is Rental Property Insurance Different from Homeowners Insurance?
We mentioned homeowners insurance above, but what is it, exactly? Homeowners insurance covers damages to assets inside one’s home. If you’re renting out a room in your single-family home, but you’re also living there, homeowners insurance would work best for you since it provides coverage for your personal belongings and not just appliances used to service the property.
However, if you plan on renting out your entire property to tenants, acquiring rental property insurance would be a more appropriate choice. The key difference between homeowners insurance and rental property insurance is this: homeowners insurance protects your home, while rental property insurance protects any property that you lease as a landlord.
Homeowners insurance does not cover the unique risks that come with renting out a property, such as injuries and loss of life. To avoid messy lawsuits and financial disasters, consider protecting your investment with rental property insurance.
Types of Rental Property Insurance
#1 Long-Term Rentals
Ideal for rental property investors who have properties they intend to lease for long periods, such as six months and longer, this type of rental property insurance protects you from risks and liability issues such as structural damage, calamities, and so on.
#2 Infrequent Short-Term Rentals
Planning on renting out your property for a week or over the weekend? This coverage is ideal for landlords who wish to temporarily rent out their property. This coverage may have to be added to your insurance policy — be sure to ask your insurer about this endorsement.
#3 Frequent Short-Term Rentals (Commercial Property Insurance)
This coverage usually applies to vacation rentals such as listings on Airbnb and Tripping.com. This type of insurance covers properties that are rented out to multiple groups of people at different times. In this case, your property may qualify as a business, which means you will need to acquire commercial property insurance instead.
What About Renter’s Insurance?
It is your tenant’s responsibility to get renter’s insurance. While your rental property insurance will cover loss and damage due to unforeseen disasters such as fire, earthquakes, and vehicular accidents, it won’t provide coverage for your tenant’s possessions and actions. For example, if a tenant’s dog bites a neighbor’s child, their insurance can pay for the medical expenses. If they don’t have renter’s insurance, the liability could be on you.
Always remind your tenants to get renter’s insurance. If possible, require tenants to acquire a fully paid renter’s insurance policy before you hand over the keys to the property. While it is not legally required, it’s typical for landlords to require it before they allow tenants to sign the lease agreement. If a potential tenant does not have an insurance policy, your property manager can assist them in finding a reputable insurance company.
Rental insurance protects you from the risks that come with this lucrative investment. Before renting out your property, be sure to obtain the necessary insurances. Only by managing your risks can you enjoy the rewards of rental property ownership.
If you’re a landlord or property investor, contact Luxury Property Care to learn about the insurance policies you need for your real estate assets. Get in touch with us today by calling (561) 944-2992 or filling out our contact form.