Patrick Wat
Most business owners know insurance is one of the key elements to a successful business. Paying premiums is not just about avoiding liability costs for a particular category of risk. The cost of insurance is part of the cost of protecting a revenue stream like that derived from ownership of rental properties.
Being a landlord is a business no different than manufacturing cans of soup. There are certain risks involved which must be managed through a comprehensive and frank professional process. Rental property owners at some point must ask the question “what insurance do landlords need?” Here are some of the kinds of insurance a landlord should consider in order to protect their property and their tenants.
Landlord Insurance
This category of coverage is very similar to the homeowners policy that a family might purchase to cover their residential property. The key difference is rental properties provide their owners with regular income. Any insurance policy meant to protect a landlord has to take this into account.
Landlord insurance broadly covers property damage, including fire, storm damage, theft, and so forth. Property coverage can even be expanded to include replacement of the property in the event of a total loss. It can also cover lost rental income due to property damage and even include property inside the apartment or home like furniture, fixtures and carpeting.
Liability Insurance
How much liability insurance should a landlord have? If someone is injured on your property, you will need coverage for their injuries, lost wages, property damage and so forth. This kind of insurance is called liability insurance. It is most commonly obtained as a policy separate from coverage designed to protect your property against loss or damage.
Many insurance companies set up liability and landlord coverage in an interlocking policy that creates a virtual firewall around all possible common contingencies.
One important sub-category is called landlord insurance public liability. The public liability insurance definition covers injury or damage to your property or tenants if they are injured. Some liability policies may exclude your tenants in certain circumstances so it is a good idea to discern between the two.
Umbrella Policy
Liability coverage can also be obtained through something called an “umbrella liability” policy. This kind of insurance is usually triggered in the event your basic coverage limits are reached. Because it essentially uses your existing insurance and its limits as a deductible, umbrella liability coverage is often far less expensive than a standard liability policy.
One reason umbrella coverage is useful is because it often has extraordinarily high policy limits, meaning in the event of a catastrophic loss, it can often provide relief far beyond what a regular policy can.
Renters Insurance
Many landlords choose to avoid disputes with their tenants by requiring renters insurance before offering a lease or rental agreement. Renters insurance covers loss and damage to a tenant’s personal property. The reason this relatively inexpensive coverage is so valuable is because it heads off the obvious case any tenant would have if something were stolen from the property they are renting.
Because renters insurance is so inexpensive, it can often be used as a good incentive for move-ins. Landlords could just as easily require a policy and pay for it themselves. Even with many tenants, the value of peace of mind would likely far exceed the premiums, especially when the chaos of trying to manage dozens or hundreds of property disputes is taken into account.
Insurance is one of those things that seems like a nuisance until it is needed. Then it becomes the wisest decision you’ve ever made. Navigating the often confusing marketplace for commercial policies can be a considerable burden. It is often an excellent idea to consult a certified financial planner or a business attorney before you begin shopping for policies. Either will likely be able to not only advise you on what kinds of coverage make sense for your particular situation, they will also be able to recommend policy types, limits and carve-outs that might enhance the value of your policy without significantly increasing your premium.
This kind of policy improvement is a common recommendation when it comes to things like auto and homeowners insurance. Just managing your optimum deductibles can go a long way towards reducing your premium and narrowing your policy to only the things you are likely to need coverage for and avoiding insurance for things you may never need coverage to avoid. A competent and recommended insurance agent or insurance broker can also help considerably in this process.
