Rental property insurance guide
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Operating a commercial or residential rental property requires tremendous responsibility. To protect your assets, your property and its tenants, you need adequate rental property insurance. This type of coverage can offer more than property protection. It can also ensure your income flow following a loss and offset the cost of replacing the systems that keep your property running smoothly.
Rental property insurance doesn’t come in a one-size-fits-all package. Insurers offer flexible policies to fit your needs. Some rental property owners need the full protections offered in a rental property insurance policy, while small-time landlords may only need to add additional coverages to their home insurance policy. If you’re unsure if you need a rental property insurance policy, this article can show you what you need to consider.
What is rental property insurance?
Rental property insurance – more commonly referred to as landlord insurance – protects non-owner-occupied commercial and residential rental properties. To qualify for a landlord insurance policy, the owner must live offsite. A landlord policy can cover a building rented to commercial tenants or to families and individuals. Residential properties covered by a landlord insurance policy can include an apartment complex, condo, house or vacation property.
These flexible policies can provide different levels of property and liability protection. Typically, a landlord policy works in concert with other types of insurance policies, which may include tenants’ business or renters policies, as well as a business policy held by the property owner.
Who needs rental property insurance?
Several types of property owners need rental property insurance. If you own an apartment building, but don’t live on the premises, a landlord policy can provide property and liability protections. Also, if you move out of your home and rent it to another family, the property will no longer qualify for homeowners insurance, so you’ll need to switch to landlord coverage.
Commercial property owners also need landlord insurance. Commercial properties come in various forms; some are designed only for businesses, while others are mixed-use, with a combination of commercial spaces and residential units. Nonetheless, non-owner-occupied commercial properties require rental property insurance.
What does rental property insurance cover?
Coverages included in a landlord policy can vary by insurer. Common coverages offered in standard landlord policies include:
Physical structure coverage
This type of coverage protects the building’s structure, like its foundation, roof and walls. For example, if a storm damages an apartment building’s roof, the owner can file a claim against his or her physical structure coverage. This type of coverage also covers detached structures on the property, like garages and maintenance buildings.
Liability coverage can help pay medical expenses and legal costs when a tenant, customer of a tenant or guest at a residential property sustains an injury. Typically, this type of coverage doesn’t cover everyday misfortunes of tenants, such as a tenant slipping and falling in his kitchen. But if a leaky roof causes a guest to slip and fall in a common area such as a lobby, liability coverage can pay medical costs and legal bills.
Insurance carriers may offer any number of optional endorsements to standard landlord policies, including:
Air conditioning or heating loss reimbursement coverage: In some locations, local laws require landlords to reduce a tenant’s rent if the building suffers a loss of basic services such as heating and air conditioning. This type of endorsement can reimburse the landlord for some of the lost rental income.
Equipment breakdown coverage: Landlords can face big repair and replacement cost bills if a power surge damages a building electrical system or a heating boiler explodes. Equipment breakdown coverage can help a landlord repair or replace damaged equipment.
Fair rental value coverage: This type of coverage can help pay for lost rental income if a building becomes uninhabitable due to a covered loss. For instance, if tenants must move out of an office building to repair tornado damage, fair rental value coverage can reimburse the landlord for a portion of the lost rental income.
Ordinance of law coverage: Oftentimes, older rental properties don’t meet current building codes. If a property sustains a covered structural loss, ordinance of law coverage can help cover the additional cost of reconstructing the building to meet current codes.
Personal property coverage: Standard rental property insurance doesn’t cover theft of or damage to items such as lawn equipment and office equipment used in the management of a rental property. However, by adding a personal property endorsement, the landlord can protect all types of personal items. This type of endorsement can also cover appliances included in rental units.
Tenant move-back expense coverage: Following a covered structural loss, tenants may need to temporarily relocate during reconstruction. Tenant move-back expense coverage can help pay the cost of moving tenants back into a rental property after construction is complete.
Rental property insurance vs homeowners insurance
The primary difference between rental property insurance and homeowners insurance is whether or not the residence is your primary place of occupation. Non-owner-occupied properties are rented or leased to commercial or residential tenants and are distinctly different from your primary dwelling, which is covered by homeowners insurance.
Typically, landlords require commercial tenants to carry business insurance that includes liability coverage, and may also require residential renters to purchase a renters policy. This helps offset liability risk so it’s not solely on the shoulders of the landlord. For example, if an apartment tenant’s guest sustains an injury in the unit, the tenant’s renters insurance liability coverage can pay the medical expenses.
Insurers offer landlord coverage for all types and durations of rental scenarios.
A long-term rental typically requires the tenant to sign a six- to 12-month lease. When renting an apartment for an extended period, a renters policy is usually required. Renters policies include liability coverage, but also protect the tenant’s personal belongings, like clothing, furniture, electronics and sports equipment. Landlords who rent units for extended periods definitely need the protection of rental property insurance.
Infrequent short-term renting
If you rent your home to a tenant for 62 days per year or less, you can add short-term rental coverage to your existing home insurance policy. Your homeowners insurance will protect your home’s structure at any time and cover your personal belongings while you’re occupying the residence. During rental periods, your short-term rental coverage will cover your personal belongings, like furniture and artwork, in case of damage or theft.
Frequent short-term renting
Services such as Airbnb have made frequent short-term home renting popular. If you occupy the home and frequently rent an attached apartment or room, your homeowners policy will provide basic protection. However, adding a home-sharing policy or endorsement gives you another level of protection. Home-sharing policies can cover your personal belongings, like appliances and entertainment equipment, from damage or theft.
How much does rental property insurance cost?
In 2017, U.S. homeowners paid an average annual home insurance premium of $1,211, according to the Insurance Information Institute. Landlord insurance for a single-family home costs about 25% more than a standard homeowners policy.
The cost of landlord insurance for other types of properties varies widely. Factors that impact the cost of rental property insurance can include:
- Absence or presence of safety devices such as a sprinkler system
- Absence or presence of security features, like a burglar alarm
- Age and construction of the building
- Age of electrical system
- Number of units
- Property features such as a swimming pool or gym
- Size of the building
- Smoking policy
- Types and amounts of coverage
- Value of the building
Rental property insurance considerations
Landlords have a lot to consider when deciding the types and amount of rental property insurance they need. Here are a few of the priority considerations to keep in mind:
Furnishing appliances and/or the property, either in whole or part.
Standard landlord policies don’t usually cover things like kitchen appliances that are included in a unit. A tenant’s renters insurance policy will cover her personal property, but not property owned by the landlord. To protect personal property, a landlord needs to add an endorsement to the rental property insurance policy. When determining the amount of personal property coverage, calculate how much it will cost to replace the items you want to cover.
Protecting rental income.
If your building suffers a covered loss such as a fire, chances are some or all your tenants will need to move out while crews work to restore it. By adding a rental income endorsement to your landlord policy, you can recoup some of your lost rental income.
Maximizing your profit from rental income by making smart insurance choices.
Maintaining a consistent rental income means making smart business decisions. To cut back on costs, consider raising your landlord insurance deductible to lower your premium. Take advantage of multi-policy and bundling discounts by purchasing your auto, homeowners and landlord policies from the same carrier.
Choosing between replacement cost and cash value insurance
Consider your needs carefully when choosing between actual cash value or replacement cost coverage. Actual cash value will only pay the depreciated value of your loss, while replacement cost coverage will pay to restore your property at current market prices. You can also choose personal property replacement cost coverage to cover the cost of replacing damaged appliances following a covered loss.
Liability if your tenants or their guests are injured.
Require tenants to purchase business or renters insurance, whichever is applicable, to reduce your risk of filing a landlord insurance claim. A tenant’s business insurance or renters policy can meet liability responsibilities if one of their customers or guests sustain an injury in their rental unit. Discuss various liability scenarios with your insurance agent to come up with an insurance policy that will provide the best protection for your specific needs.
- Landlord policies cover commercial and residential non-owner-occupied properties.
- Most standard rental property insurance policies include property and liability coverages.
- You can add endorsements to your landlord policy to protect your rental income, cover personal property and pay to rebuild your property to current building code following a covered loss.
You can only qualify for a landlord policy if you don’t reside in the property you wish to insure. Homeowners who only rent their homes occasionally, for short periods of time, can often add a short-term rental coverage rider to their existing home insurance policy. And property owners who frequently rent rooms or apartments to travelers can cover their personal property with a home-sharing policy.
Landlord policies offer flexible coverage, which you can enhance by adding endorsements. Choose between optional coverages to protect personal property such as appliances or add an endorsement to cover lost rental income following a covered disaster. If you plan wisely, choosing the right amount of coverage, while requiring tenants to share the liability risks with their own policies, you can create an insurance plan that protects your valuable property and the tenants that live and work there.