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As time passes and our lives change, the insurance coverage we need changes as well. As an example, let's say you get a new job in another state. Instead of selling your home, you decide to keep the house and rent it out, as you've seen a number of your neighbors do. You think your home's value is protected by your existing homeowners policy, and it doesn't occur to you that your insurance coverage needs have changed with your move. But, in this scenario, like any change in circumstance, you must review and adjust your coverage to protect you from the new exposure and liabilities you face as a landlord.
Homeowners insurance vs. landlord insurance coverage
The key difference between homeowners and landlord insurance is that homeowners insurance only protects an owner-occupied dwelling, insuring the value of the home against disasters like fire or storm damage. While it includes some liability coverage, homeowners insurance does not cover claims associated with running a business from the home, nor does it cover liabilities and potential lawsuits that tenants and their guests might bring. Landlord insurance, on the other hand, insures a rented property against disasters, plus it provides liability coverage to protect against lawsuits and judgments. In our example above, if a tenant's guest falls on the stairs at your newly rented home and then sues you for medical bills and damages, homeowners insurance is likely to deny claims since the policy doesn't cover landlord/tenant situations. Without the protection of landlord policy, you would have to pay damages and judgments out of pocket.
What's covered by landlord insurance?
Though coverage varies by policy and carrier, typically, landlord coverage insures the value of the rental dwelling in case of disaster and provides rental property owners with other important financial protections:
Landlord insurance often pays replacement cost if the building is burned to the ground or otherwise destroyed. This means you receive an amount that covers building another property like the one destroyed, even if the cost exceeds the insurance policy amount.
Landlord insurance protects you from liability claims like slip and fall accidents and negligence claims resulting from property conditions. Since tenants and their guests usually do not have a personal relationship with their landlord, and they sometimes assume the landlord is well off, lawsuits and liability claims are brought against landlords far more often than homeowners. A landlord insurance policy will pay for injuries, property damage, judgments, and court costs associated with a covered claim, up to the policy limit.
Just like homeowners insurance, landlord insurance covers your personal property left at the premises, such as appliances, tools, and outdoor maintenance equipment. It's important to note that tenants' personal property is not covered by landlord insurance; tenants must buy renters' insurance to cover their belongings.
If your property suffers covered damage that requires you to empty the rental unit while you make repairs, your landlord insurance often will pay loss of income benefits, reimbursing you for the rental income you missed.
Some landlord policies provide personal injury protection, which covers you for allegations of slander, libel, discrimination, and wrongful eviction.
Tips when purchasing a landlord policy
Aside from looking for broad coverage that will protect your property and personal bank account from damage, lawsuits, and liability bills, here are a few items to discuss with your insurance agent:
When insuring your building, don't forget to include any detached garage, shed, or other structure. Note any equipment you intend to store in the structure.
If your property uses equipment that's expensive to repair, consider a landlord protective policy to cover breakdowns of high-priced equipment, such as a furnace or boiler.
If you offer reduced rent to tenants in exchange for work, like yard maintenance or snow removal, add workers' compensation insurance to cover injury claims and medical/disability payments in the event a tenant is injured while performing the work.
If you own multiple rental properties or a rental property plus another business, talk to your agent about whether an umbrella policy would provide you with the best protection.
Like homeowners insurance, having a landlord policy in place is not required by law, but most lenders require proof of landlord insurance before issuing a loan to purchase your rental property. Given the huge investment of a real estate property, proper insurance coverage is imperative to protecting your finances. Without adequate coverage, you must pay out of pocket if your property is damaged or you are sued.
To make sure your insurance coverage is right for your changing needs, review your coverage regularly and anytime you move or experience another life change. For help, schedule a coverage review today! And, don't forget your landlord insurance is a tax-deductible business expense.
Charlie Amato is the Chairman of SWBC. With more than 40 years of experience in all aspects of insurance operations, underwriting, and product development, Charlie is known in the business community for his innovative, relationship-building approach.