Understanding Landlord Insurance
When it comes to insuring your investment properties, it’s critical that you have adequate coverage. This may be an expense you like to skip, but seeing your hard work and money go up in smoke literally is a nightmare that can ruin years of work.
Inadequate property or liability coverage may be just as damaging to your business as no coverage at all. Working with an agent that understands the unique needs of real estate investors and rental properties can go a long way in making you feel comfortable with your coverage.
A traditional homeowners insurance policy is not appropriate for an investment property. Homeowners policies often exclude business ventures and come with much lower limits of liability.
For investment properties, you should have dwelling coverage and premises liability.
A dwelling policy covers direct physical property damage.
Premises liability can birkin bag hermes replica
protect you in case of accidental injuries on your property.
We recommend a commercial property policy and a commercial general liability policy. Personal dwelling policies can contain exclusions or limited coverage that can be harmful to you as an investor.
How do you choose the right insurance policy?
Basic vs. special form coverage
The two most common levels of coverage are basic and special. These options determine what causes of loss are covered on your property policy.
Basic coverage is a “named peril” policy, which means that in order for a loss to be covered, its cause must be named in the policy.
Special form coverage means that unless a cause of loss is listed as an exclusion on the policy, it is covered.
When choosing your coverage form, consider your appetite for risk, your property occupancy status, where your properties are located, and any insurance lending requirements that may exist. For instance, basic coverage does not include water damage, which is often caused by burst pipes in cold climates. It also does not include coverage for theft, which can be more common in vacant properties.
Be sure you carefully review your policy to be familiar with and comfortable with the covered causes of loss and exclusions.
Actual cash value vs. replacement cost
These two options determine how your claims payout is settled in the event of a loss. The method available to you depends on the insured value per square foot, and every carrier has different thresholds at which each is available.
Actual cash value
In exchange for allowing you to insure your property to a lower insured value per square foot, which can save on your insurance costs, actual cash value (ACV) factors in depreciation that is not recoverable when calculating your settlement.
The downside for those insured with an ACV policy is that if the structure sustains major damage, there likely won be enough money paid out to rebuild. In a worst case scenario, you may have only enough money to pay off the loan and be left with a vacant lot or a damaged building.
Regardless, an ACV policy is still better than nothing and will often be sufficient for small losses, especially if you are prepared to pay a bit more than the deductible or do some of the work yourself. With this type of policy, you will first receive the actual cash value settlement (minus your deductible) based on the adjuster’s report. Then once you complete the repairs or rebuild, you submit receipts for costs above and beyond your initial payout to recover the depreciation levied against you, up to your insured value.
For most insurers, the property must be in good condition, with the roof, paint, structure and premises in good shape and well maintained. Other problem issues may include a lack of gutters, uneven pavement, and debris left in the yard. Don’t let your renters leave an old appliance or broken down vehicle in the yard. An insurance inspector can cancel the policy if they see that.
Loss of rents (or business income coverage)
Commercial property policies for investors can include loss of rents coverage. This provides reimbursement for your loss of rental income if your tenants are forced out of your property due to a covered loss.
Many carriers allow you to choose the level of loss of rents coverage, usually three, six, or twelve months that the property is uninhabitable. Either way, this is protection all tenant occupied property owners should have.
Other structures and business personal property coverages
Don’t forget to protect against loss of detached structures, such as garages, sheds, and outbuildings. If they are not specifically listed on the policy, a loss in the detached structure may not be covered. If you partially or fully furnish your rental units, be sure to include business personal property for your owned assets. Policies designed for landlords do not include coverage for the tenant’s personal possessions they will need their own renters insurance policy for that.