What Landlords Need To Know About Rental Property Insurance
Navigating the intricacies of homeowners insurance is difficult enough when the home is your primary residence. It can seen even more daunting when you are trying to insure an income property.
Don’t worry! We’ve done more than 1500 hours of research in homeowners insurance in particular and far, far more than that in insurance broadly.
We live and breathe insurance because at Huntley Wealth we believe having the right policies at the right premiums can be the most important financial decisions you ever make. So in this article we’ll walk you through some of the basics of insuring a rental property.
Types Of Rental Property Insurance Policies:
- Standard Homeowners Insurance
- Landlord Insurance
- Vacation Rental Insurance
1 – Standard Homeowners Insurance
Standard homeowners insurance protects your home (dwelling) and personal property against damage or loss due to a covered claim.
It also provides liability coverage to protect you from legal repercussions in the event someone is injured in your home and pays out additional living expenses if your house is deemed unlivable.
Click here to find the best homeowners insurance for you.
Although having homeowners insurance is not a legal requirement in any state, if you finance your home through a bank or lender, you will be required you to show proof of insurance.
2 – Landlord Insurance
Landlord insurance offers all the same protections as a standard homeowners insurance policy, along with a few more things!
Landlord Insurance Also Covers:
- Provides $1M or more in liability coverage. Standard policies, on the other hand, limit the amount of liability coverage allowed.
- Covers legal costs in the event of a lawsuit.
- Protects from government regulation-related lawsuits.
- Protects from tenants who damage your property (including coverage for physical structures as well as liability).
- Provides loss of rental income if your property becomes uninhabitable.
Note: A landlords insurance policy typically costs about 25% more than a standard homeowners insurance policy, but the coverage is worth the added liability protection.
Things Not Covered Under a Landlord Insurance Policy:
- Your tenant’s personal property such as clothes, furniture, appliances, housewares
- Pet damage (to your property by your tenant’s pets)
If you own a rental property that is located in a flood, earthquake, or hurricane prone area, then we recommend you purchase the appropriate additional coverage that meets the needs of protecting your property and belongings.
For protection against floods, you will have to purchase a separate flood insurance policy.
The average cost of flood insurance is about $700 per year.
The price can vary greatly depending on where you live: low- or high-risk area.
As for earthquake insurance, check with your insurance agent to see if you have to purchase a separate policy or have the option of adding earthquake coverage to your current policy through an endorsement or rider.
The average cost of earthquake insurance is about $1.75 per $1,000 of total coverage.
Again, this can vary depending on your property’s location.
Concerning any damage caused by your tenant’s pet, you can file a claim against your tenant’s renter insurance policy to cover the loss.
When Do You Need Landlord Insurance?
- Short-Term: If you are planning to lease your property for only a week or two, check with your insurance agent to see if your carrier offers short-term rental coverage as a rider or as a separate policy. Other carriers may require you to add an endorsement or rider to your existing policy for coverage.
- Short-Term Rentals on a Regular Basis: If you operate a short-term rental property, then you should purchase either a hotel or a bed and breakfast policy.
- Long-Term: If you are planning to rent your house or a second property for more than six months, you will be required to purchase business insurance, if not for anything else but for the additional liability coverage.
Note: If you do not purchase landlord insurance and a claim is filed under your standard homeowners policy, it will most likely be denied because your property is being rented.
Landlord insurance policies typically cost 25% more than a standard policy, depending on where the property is located.
3 – Vacation Rental Insurance
It is recommended to get a vacation rental insurance policy for your property regardless if you rent it out or not.
This type of policy protects you during the different times of occupancy in your vacation home: self-occupy, occupied-renter, or unoccupied.
Vacation home insurance policies are more expensive than standard policies due to the home remaining unoccupied for longer periods of time.
The average cost for vacation rental insurance is about $2,500 per year.
The cost may be lower if you do not rent your vacation home and instead only use it for yourself.
If your condo is in a building or complex that already has a group policy, find out what is covered in that policy.
Typical condo-homeowners insurance policies only cover the interior of your condo and liability for the entire complex.
On average, condo insurance costs between $100 to $400 per year but can vary depending on how much coverage you purchase as well as the value of your personal possessions.
If you are a landlord, be aware that your policy only covers the property itself and possibly any furnishings you include in the rental agreement.
Your tenant’s personal property must be covered by their own renters insurance policy, something you could enforce by making it a condition of the rental lease.
The average cost of renter’s insurance is $150.
Homeowners Insurance In A Nutshell
We hope this article provided some insight into the complex world of homeowners insurance for the different types of rental properties.
We don’t want you to be underinsured or over-insured, and we bet you don’t either.
As you can see, purchasing the right homeowner’s insurance policy can be a challenge.
That’s why we did the homework for you.
If you want to find out more about the different carriers offering these and other types of property insurance, take a look at our Top Ten Homeowners Insurance Companies and become better informed about your options.