Is Your Landlord Insurance Up To Date?
Many people who are renting their home for the first time don't know that their home owners insurance doesn't cover their new rental property! Having insurance is an important part of your business. Just like when you are protecting your primary residence, you need to protect your rental property. All insurable assets should be insured. However, for your insurance to be effective, it needs to be the right kind of insurance.
Homeowners Insurance Won't Cover Your Rental Property
Homeowners insurance policies are created and standardized for owner-occupied homes. That means, that policy is only effective, if the owner is also living there. If someone is renting the house out, the insurance company does not have to cover any losses from damage or destruction to the property. Owner-Occupiers have a different risk profile than renters. Many first-time landlords who are renting out their first house or previous primary residence don't get the right kind of insurance and then try to file a claim and find out that they aren't covered and have to eat the entire expense related to the damage. This can be financially devastating. If you think that you can get around this by thinking the insurance company won't find out, they will and it won't take very long. A simple investigation will reveal the truth about the property and a claim will be denied.
How to Properly Insure your Investment Property
To make sure that your rental property is properly insured, you'll want to seek out quality landlord insurance. The company that offers your homeowners policy will often offer landlord insurance. You can also consult the RHAWA Vendor Directory (also in the back of the CURRENT newspaper and in the book we send out annually) for an insurance broker who can help you with the right policy. Landlord policies cover your property for situations that are unique to rental property like squatters, long-term vacancy and lost rent. A landlord policy covers these situations.
Some things that landlord insurance will cover:
- Loss of Use (funding your tenants stay while your rental is repaired)
- Unit Rented to Others (perfect for ADUs and DADUs because it's a homeowners endorsement)
- Other Structures (for things like garages, carports, sheds)
- Personal Property (Maybe be added on for appliances and other items)
- Loss of Rents
- Guaranteed Replacement Cost (additional, most policies only cover actual cash value)
- Liability (coverage for judgments and settlements, may include legal costs and/or a lawyer)
As a best practice, we recommend that all RHAWA members require their tenants to carry renter's insurance. Renter's insurance is very inexpensive (less than $30 a month in most cases) and covers the tenants personal possessions as well as other liability.
How Landlord Policies Work:
Landlord policies usually have 3 parts:
DP-1: Basic coverage that covers common occurrences like renter vandalism and fires. These policies are often actual cash value, not replacement value. This means that you will get the depreciated cost of the affected items, not the actual cost to replacement.
DP-2: Broader coverage for named perils to the rental property you will have to check your policy for specific perils
DP-3: This is usually called Open Peril and this part covers all perils not excluded by the policy. Exclusions usually include Earthquake (unless you get an endorsement), flood, power failure, neglect, war, nuclear disaster, intentional loss, and mold.
If you are renting a furnished dwelling, it maybe helpful to add a benefit for damage to contents.
It's also important to note that the coverage we've talked about here is for properties that rent to 1 - 3 families. Multi-family properties of 4 or more are covered by commercial coverage.
Being properly insured is an important part of your business! Having great insurance can save you money and protect you from catastrophic loss. If you have the wrong policy or haven't reviewed your policy in awhile, now is a great time to get out your insurance policy and make sure that it is up to date and serves all your needs.