What to Look For in Your Landlord Insurance Policy
The word 'insurance' comes from the latin word securus, which means 'free from care'. Since then, the word has evolved to new levels, as insurance becomes an inextricable part of our daily lives. Insurance providers are therefore around every corner, offering policies to protect almost anything imaginable. And because as humans, we're naturally risk-averse, insurance companies are used by almost everyone across the world as a way to protect themselves and their assets against the unexpected.
With real estate being such a significant investment in our lives, homeowners insurance is an indispensable part of the real estate investment journey. As the name itself suggests, this type of insurance covers losses and damages to an individual's residence, and provides monetary coverage against accidents in the home or damages to the property.
Although this is an essential form of insurance to have as a homeowner, there is and added layer of complexities when you become a landlord and start renting out your properties, since your homeowners insurance may not cover the liabilities that come with doing so. (It's advisable that you discuss with an advisor to determine exactly what is covered in your policy).
Therefore, the first step to cover before renting our a property is to ensure you have landlord insurance. An all-inclusive landlord insurance should address three major components:
Property Damage: This protects your assets, including the property and any furnishing, from natural disasters, including any fires and earthquakes, electric or gas malfunctions, vandalism, or damages from irresponsible tenants. For this component, it is important to find or negotiate an insurance plan that pays for replacement costs instead of actual value because the fixtures or furnishings in the property may be older than expected, which may bring a lower-than-expected payout.
Loss of Rental Income: This would cover any month’s rent where you are unable to earn money from renting to a tenant because the property becomes uninhabitable due to an insured event. Make sure to clarify what is considered uninhabitable, and in general, understand the scope of what would be covered. While an added cost, it would allow for stability in monthly cash flows, making monthly finances easier to manage.
Liability Protection: Liability protection covers any medical or legal costs from injuries that a tenant or visitor suffers due to a maintenance issue on the property. This is important because it protects your from excessive fees that are out of your control.
Overall, it is vital as a landlord to have a comprehensive landlord insurance that allows you to operate and run your business smoothly without the lingering fear of the unexpected. Without insurance, you are essentially exposing yourself to major legal and monetary consequences that could substantially drive down the return on your investment.