If you are a landlord, choosing the right type of insurance policy can be a hassle. Rest reassured, we have come up with a simple and clear set of guidelines to assist you in choosing the best insurance policy for your rental property!
Step 1: Sign a landlords’ insurance policy
Let us start with the obvious: if you plan to rent your property, you need to let your insurance company know that you need a landlords policy to cover any financial losses that you will incur with respect to your rental property. The policy usually covers damage to the building, but there are also options to cover damage to the contents of the building that belongs to you. One asset is that you do not need to insure the land on which the property is built.
Step 2: Get a liability insurance
Typically, the landlords’ insurance will not protect you in case you are sued for claims deriving from a loss or accident that someone suffers on your property. Let us assume that a tenant steps on a loose ladder and falls. If that tenant sues you, you are likely to be found guilty of negligence, and have to pay the amount specified in the claim. The best way to avoid this is to sign a liability insurance with at least 300k coverage, which is triggered in such cases, and indemnifies any victims of accidents on your property. If you want to add extra protection, we also recommend you get an additional umbrella policy with $1 million coverage.
Step 3: Verify endorsements and exclusions on your policy
Another way in which you can get more coverage to your insurance policy is to add endorsements. These are additions to your original insurance contract that enlarge its scope and coverage. What type of endorsement should you get? We find that one of the most important endorsements is for loss of rent. If your property becomes uninhabitable, your insurance company will still pay the normal rent as if your property was habitable, for as long as the issue continues.
Just as much as endorsements, exclusions on your policy can make a huge difference for your pocket. We cannot stress how important is to pay attention to the exclusions on your insurance policy and to understand your risks. As a landlord, your biggest risks are usually those that insurance companies want to exclude from your policy. In our experience, issues surrounding dogs, such as dog bites, trampolines and accidents deriving from them, and pool accidents are the commonest issues excluded from insurance policies, so you want to make sure that your policy provider includes these.
Step 4: Make sure your tenant holds a renter’s insurance
A landlords’ insurance and liability insurance will not cover the damage caused to personal property belonging to tenants, and neither protect the interest of tenants, so ask your tenants to acquire and maintain renter's insurance with coverage of at least $100,000. The product will also act as a first line of defense in case of accidents, before your liability insurance.
Step 5: Know your costs
We have talked so far about different types of insurances, but let’s talk money. How much do these cost?
- Landlords’ insurance - typically 40c/$100 property value/year
- Liability insurance - $100/year
- Umbrella policy - $200/year
The landlords’ insurance is a bit more expensive than a regular homeowners policy and sits at about 40 cents per $100 house value. The liability insurance costs about $100 per year, and an umbrella policy would cost you about $200 per year.
For example, for a 200k property, you can expect to pay about $800 worth of landlords’ insurance annually. If you add the liability insurance and the umbrella policy, you end up with a total expense of $1100 per year.