Each New Year marks a great chance for landlords to review and adjust their insurance policies to save money or provide better protection. The month of January is usually the time most landlords review rental income projections and plan for the next year. I will discuss what each rental property owner should review on their insurance policy and what questions to ask your agent.
Before I get into the details each landlord should have a rental property insurance policy or sometimes called landlord insurance. If you don’t have this specific type of policy on your rental you face the risk of losing a lot of money if something happens to that unit or its tenants. The difference between a standard homeowner’s insurance policy and a landlord policy is the protection you need for an income property. This includes loss of rental income and liability protection with having tenants in that home. If you don’t inform the insurance company that the property is rented to others they can deny a claim so be sure to get the proper protection.
The number one goal of a landlord usually is to make a profit from their rental property but many landlords don’t realize that having proper insurance can secure that profit. Let’s assume a landlord makes $400 per month in profit on his/her income unit but during that year the unit has a broken water pipe and causes massive damage. If that landlord has the proper insurance coverage expenses like lost rental income and property damage during that claim won’t wipe out all that year’s profit. Here is a checklist to use while reviewing your landlord insurance policy in 2011:
Dwelling Coverage – This protects the structure of the house you rent including anything directly attached to it. It is a good idea to get estimates from builders in your area for reconstruction cost to ensure proper coverage. Most insurance companies will increase this coverage by inflation each year but if you add-on or remodel your home be sure they have this new information.
Landlord Liability Coverage – It makes sense to get the maximum amount of liability coverage since it usually is inexpensive to increase. Expect $1 million in landlord liability coverage to add another $30 per year to the policy. This is very cheap when you think about the amount of protection it provides. In the event you have assets greater than $1 million you should consider getting an umbrella policy which will protect you from liability claims on all your policies.
Loss of Rents Coverage – If your tenants ever have to move out while the home is being repaired for a covered loss this coverage provides the loss of rental income up to one year. Some companies offer longer periods of protection but the key is to take the current annual rental income and make that the loss of rents limit. Most tenants will come back to your property if they know you have corrected the problem and other to break the lease during reconstruction.
Renters Insurance – None of your tenant’s personal property will be covered on your landlord policy so make each tenant have renters insurance while they rent from you. They will be happy you informed them of this in the event something is stolen or damaged by a covered loss. Have a required level of coverage such as $20,000 personal property and $100,000 in liability. This will ensure your rental property is covered in the event they cause damage to the unit.