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Rental Property Insurance: Coverage, Claims, & What to Look for in Rental Insurance

by Editor | ezLandlordForms
rental insurance paperwork

Having the appropriate insurance coverage is an essential if you own rental property. Not only does your insurance company assume the risk for damages to your premises, but it also covers you against any injuries or accidents to others that may occur there.

The type of insurance coverage landlords need falls under the umbrella term “property and casualty insurance,” which covers anything other than life and health, says Tom Shriver, vice president of NetQuote.com, a company that connects consumers with multiple insurance agents who compete for their business. However, there is no such thing as a property and casualty policy. You can purchase car insurance, homeowners insurance, and in the case of landlords, landlord protector insurance, also known as landlord protection insurance.

While a landlord protector insurance policy appears on paper to be just like the standard homeowners insurance policy, there is one significant difference between the two, says Tom. Homeowners insurance mainly includes coverage for the contents of the house, while landlord protector insurance has much less coverage for contents. Its focus is damage to the property and liability for injury. Landlord protector insurance policies are written on a structure that has four units or less. Anything above that, says Tom, becomes a commercial risk, which requires a commercial policy known as a habitational policy.

The policy is written as a package policy, meaning that it covers a number of what insurance companies refer to as “perils.” These are causes of loss, like fire, theft, tornado, hurricane, wind, and water. The assumption of risk is covered under the named insured, which is the landlord. This is an extremely important point because when a claim is filed, a determination is made as to who is liable for the damage. For example, if a fire broke out in the house as a result of faulty wiring, then the landlord would be liable, and their insurance would pay for repairs and the replacement of any of the tenant’s possessions that were damaged. However, if the fire was caused because the tenant fell asleep with a lit cigarette, then the tenant is liable not only for their own possessions, but for the damage to the house as well.

Another important aspect to landlord protector insurance, according to Tom, is coverage for loss of rent while the unit is being repaired. As long as the damage was caused by a covered loss, landlords are reimbursed because the unit isn’t in a habitable condition.

In addition to the dwelling itself, part B of the landlord protector policy covers any detached structure on the property like a garage or a storage shed. These structures are covered for 10 percent of the amount of coverage on the dwelling.

In terms of coverage limitations, there are two important things to remember. With fire damage, which is a covered peril, the landlord’s contents would be covered, but not the tenant’s. Also, there is a high limit of contents coverage, explained Tom.

Secondly, with loss caused by theft, another covered peril, it is important to review the coverage limitations in the policy. Most of these policies have a $1000.00 limitation on theft for jewelry. If you don’t a have a floater on your policy, meaning a type of insurance that provides additional coverage above the policy limit for property that is easily transportable, you will have to settle for the $1000,00 no matter what your actual loss is.

There are causes for loss that aren’t covered by landlord protector insurance, like earthquakes, which require a separate policy. Floods are another natural disaster that isn’t covered. By definition, a flood is water that hits the ground before it comes into your house. This is an important distinction when the insurance company makes the determination if the cause of loss is covered, because although a flood isn’t covered, water damage is. Tom used the following illustration to explain, “If the window blew out in a garden apartment or a basement apartment and water came into the unit as a result of that broken window, then the damage caused by that water would be covered.”

There is the additional issue of water damage caused by backup from sewers and drains. These types of water damage have specific coverage in a landlord protector policy, but there are limitations to that coverage.

When it comes to the question of whether or not all landlords should carry flood insurance, Tom believes that only those landlords who own property in the federally identified flood zones need to carry it. Flood insurance is only written through the federal government’s National Flood Insurance program, but it is sold through insurance companies. That’s why flood insurance policies are the same from insurer to insurer. You can find out more about the program, and check to see if you are in a high-risk area, at their website (see the Resource Box below).

Tom noted that buying landlord protector insurance can be expensive. The reason for the high cost is that a landlord doesn’t have any control over a tenant’s actions. Because that implies a high element of risk, insurance companies charge a high premium. In spite of the high cost, landlord protector insurance can be made more affordable through discounts for having security alarms, especially monitored ones, burglar alarms, deadbolt locks, and fire extinguishers.

While it’s important to have the protection insurance provides it’s just as important to reduce your dependency on it by taking a number of steps to reduce loss. Here’s what Tom recommends:

• Insist that tenants buy renter’s insurance. The cost for coverage isn’t that expensive. To purchase $300,000 -worth of liability coverage costs less than $200 per year.

• Make sure tenants have working fire extinguishers that are easily accessible, like under the bed. Most fires happen between 11:00 pm and 5:00 am, which isn’t a time frame when most people are alert enough to remember where they put the fire extinguisher.

• Instruct your tenant in the correct way to turn off the water main. The number one cause of damage is water.

• Conduct a semi-annual property inspection to be sure you don’t have any hazards, like loose handrails or broken boards on the deck that could lead to a liability suit.

An ounce of prevention is worth a pound of cure; so eliminate the risk, and you won’t have to file that claim.

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