Being a landlord typically means hefty monetary responsibility, property considerations and a sharp uptick in personal liability. If a property or unit is managed improperly, tenant fees, building charges and unforeseen property damage could put you in the poor house. For these and other reasons, every landlord needs landlord insurance.
Why it’s important
Just like a homeowner’s insurance policy protects from natural disasters or property damage, landlord’s insurance covers property damage from natural disasters or a naturally disastrous tenant. If a tenant intentionally or unintentionally damages the landlord’s property, the landlord does not have to carry 100 percent of the financial burden to repair or replace it.
When a claim is filed, the insurance company determines liability; deciding whether the burden of repair falls on the landlord or the tenant. The insurance policy foots the bill, charging the landlord a deductible. When the work is complete, the insurance company can also assist the property owner in collecting any fees the tenant is responsible for, so it does not impact his policy.
Landlord insurance also covers the contents and common areas of a building. For example, in a duplex or four-plex, the insurance policy covers areas like swimming pools and hallways, protecting the landlord from lawsuit in the event of damage or tenant injuries.
Like a homeowner’s policy protects homeowners against lawsuit, a landlord’s insurance policy does the same. In the event that there is negligence on behalf of the landlord, the insurance policy protects him, paying the tenant damages in the event of a lawsuit. However, that does not mean the tenant is prohibited from seeking additional damages in court.
For landlords renting single family residential units without a dedicated maintenance staff, a home service plan or warranty is a good bet for supplemental coverage. Different from landlord insurance, the average policy is about $500 annually, but covers most commonly damaged items or appliances in a rental home. In most cases, the deductible for these plans are much less expensive than filing a claim with the insurance company. However, these plans do not protect the landlord against liability. Therefore, carrying the landlord insurance policy in addition to the supplemental repair coverage is a wise move.
Just like any other insurance policy, the more claims you file, the higher your premium rises. The base premiums for landlord insurance are calculated similarly to risk assessments used when calculating home owner premiums, taking into account the property value, age, condition, and location. Before investing or deciding on a rental property, obtain a quote for landlord insurance, and make sure you are getting the most out of your investment with minimal risk.