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Home » Property insurance » Why and How Much Landlord Insurance Do I Really Need?

Disaster can strike at any time. As a real estate investor, it’s vital for you to be insured – after all, who knows when a fire will burn down your house, a tree will fall on your roof, and so on? Don’t make the mistake of thinking that your homeowner’s insurance is enough to cover the costs of repairs. We hate to break it to you, but it’s not! There’re many reasons. In this post, our property management agents will walk you through everything you need to know about landlord insurance, including why you need it, and how much landlord insurance do you need? and more.

What Is Landlord Insurance?

It is a type of insurance policy for people that rent out a residential property that they own. It protects property and people against a covered peril, and saves you from facing financial ruin. Landlord insurance costs more than homeowner’s insurance by about 25 percent, with U.S. landlords paying around $1,481 per year. If you’re not so familiar with landlord insurance, first go through our landlord insurance introductive guide for a better understanding.

How Much Landlord Insurance Do You Need?

How much insurance do you need?

It’s hard to say how much insurance you need, as it largely depends on the type of property that you own, and the number of tenants that you’re renting it out to. Below, we’ll break down the basics, but you should still ask an expert property management firm – they should be able to tell you exactly how much you need.

Liability Coverage

Again, this coverage protects you against lawsuits, and in case your tenant (or any other person) is harmed on your rental home. For instance, if your tenant falls down the stairs after the step breaks, they may be able to seek damages against you.

In general, a single-family home or a small, four-unit property should have about $1,000,000 in liability coverage. You should buy more liability coverage over time, or as you rent out to more tenants.

Building Coverage

Earlier, we mentioned that your insurer will pay for the costs to repair or replace the property, following today’s construction costs. That’s why it’s vital to determine the replacement cost of your real estate investment.

Partner with a property management company to help you find out how much your home costs, and how much it would probably take to rebuild it. Keep in mind that its replacement cost is not the same as the price you paid for it. For instance, if you purchased it for $300,000, its replacement cost is not also $300,000.

If all you need is $200,000 to rebuild your rental, then that’s the number you should go for in your insurance coverage. In general, you should not go overboard when it comes to your insurance coverage, because you will have to pay greater premiums.

Why Does Landlord Insurance Cost More?

If you’re wondering why landlord insurance costs more than homeowner’s insurance, it’s that there are fewer claims in owner-occupied properties. This is due to the fact that property owners are more likely to take care of their properties properly. Meanwhile, tenants won’t be as responsible when it comes to taking care of the property because they don’t own it, anyway.

In other words, from an insurance carrier’s point of view, rental homes are riskier.

In addition, landlords are responsible for their tenants. Should there be an accident, they will have more liability than the average homeowner. This is true for South Florida rental properties that house multiple tenants at a time.

Why Do You Need Landlord Insurance?

Why do you need landlord insurance?

The moment that you decide to be a landlord, you need to buy landlord insurance as soon as possible. there are a few reasons; first and foremost your homeowner’s insurance covers owner-occupied homes. Your rental isn’t owner-occupied (in short, you don’t live there), which would mean that your homeowner’s insurance can’t cover it. In case of an accident, if you don’t have insurance, you will have to pay for repairs and the like out of pocket. As a result, you’ll find yourself at a financial loss.

Secondly, you must keep in mind that the United States has been nicknamed the “land of the lawsuits”, so you’d better protect yourself and your South Florida rental property. Your insurance won’t only cover the costs of repairs, but also the legal costs in case your tenant decides to sue.

What Does Landlord Insurance Cover?

In general, your landlord insurance includes three “coverages”:

  • Property Damage. This protects your property in the event of a covered peril, such as a fire, natural disaster, or malfunction. It also applies to damage that’s due to negligence – for instance, if your tenant starts a fire for fun, but accidentally burns down the house. If possible, buy insurance that covers the replacement cost. This is the amount it will take to repair or rebuild the property based on today’s construction costs.
  • Rental Income. In case you have to stop your rental operations, your insurer can provide you with temporary rental income to cover the rent you would’ve received.
  • Liability Protection. If you’re found liable for an accident on your rental property, liability coverage will cover the costs of your tenant’s hospital bills. It will also protect you in case your property harms another person outside of the property (e.g. a tree falls on a passerby).

Should You Also Buy Renter’s Insurance?

No, you don’t. Your tenants should ensure that they’re insured. Your insurance may protect your tenants, but it does not protect your tenant’s property. In other words, whatever your tenant owns won’t be protected. They will need to purchase a separate renter’s insurance to ensure that their insurer will pay for repairs and replacements.

Consider requiring your tenants to obtain renter’s insurance. Not only will it protect your tenant’s property, but it will also prevent you from having to deal with tenants that don’t have insurance. You can request your property management company to share with your tenants the importance of insurance.

Want To Protect Yourself From Liability?

If you want to prevent landlord liability for whatever happens to your tenants, consider partnering with a property management company. That’s one way to be liability-free. Not only will your property management company assume responsibility, but they’ll also make sure that your property is as risk-free as possible.

At Luxury Property Care, our team of experts will make sure that your tenants are safe, and that your property is well-maintained to avoid perils over time. We’ll also implement a few property improvements that will lower your insurance premiums.

For more information, feel free to call us at (561) 944 – 2992 or complete our contact form.

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