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Landlord Insurance Coverage What Does It Cover

When purchasing landlord insurance what does it cover to safeguard landlords against potential risks and losses? Well, I’m going to take a deep dive into this topic to ensure those who are knew to the game realize the importance of having coverage in place to protect their investments. That said, landlord insurance coverage is crucial for protecting rental properties and mitigating the risks associated with leasing. I know firsthand how essential it is to have this coverage in place because, well, “life happens.” By this, I mean, unexpected issues are bound to occur throughout the lifespan of the rental property, and you’ll want to be prepared when they do.

In contrast to regular homeowners insurance, policies for rentals are specifically designed to cover the damage and liabilities that can occur while renting out a property. Investment property insurance provides coverage for various types of damage, including destruction caused by events like fire or wind storms. Additionally, it protects against liability claims, like a dog bite or a fall on property grounds, and may also include coverage if the landlord were to have a loss in rental income.

By properly insuring your rentals, whether they’re single or multi-family units, you’ll be safeguarding your investment, which helps secure financial stability, as well as provide peace of mind when unexpected misfortunes happen. Before moving on to the rest of the article, be sure to bookmark my related post where I share additional ways to shield your wealth – Protecting Your Real Estate Investment for Long-Term Profitability.

Now that you’ve had a brief introduction as to why it’s important to have this type of coverage in place, we’ll dive into the fine details below.

Landlord Insurance What Does It Cover?

Landlord insurance provides coverage for damage that happens to the physical structure itself, which covers repair costs, as well as rebuilds. Specific items are also covered to some extent, and this might include appliances and certain property items belonging to the landlord. Additionally, liability coverage is included in the event a tenant or visitor is injured as a result of negligence. Also, this form of insurance often includes protection against loss of rental income.

Understanding what landlord insurance covers can help ensure you’re fully protected and prepared for unexpected events, as well as keep you from having to pay out of pocket when unfortunate incidents take place.

A good policy should provide property damage and liability coverage, so let’s take a look at both:

1. Property Damage Coverage for Landlords – What’s Included?

Rental Property Insurance – What Does it Cover

Property damage coverage is a must-have when it comes to landlord insurance. It’s designed to protect property owners from financial losses brought on by physical damage to their properties. The policy coverage provides protection for damage that occurs from certain perils. In insurance terms, a peril is an event, situation, or incident that can cause property damage or loss, such as fire damage, storms, and certain types of water damage.

When purchasing landlord insurance what does it cover to safeguard landlords against potential risks and losses when property damage occurs? I’ll touch on this below…

The Property Itself & Contents

This section of the policy helps cover the cost of repairing the rental if it’s damaged from events like fire, lightning, wind, hail, or other specified perils. This would apply to such occurrences as a wall needing repair due to a fire, or roof tiles needing replacement after coming loose in high winds. Property damage coverage can also apply to appliances that would need to be replaced or repaired, depending on how the damage occurred.

Detached Structures

Coverage can also extend to detached structures, such as a separate garage, shed, or fence if they’re damaged by a covered event. Each policy provider will offer their own custom policy, so be sure to check what detached structures are included in the coverage.

Personal Property Used for Upkeep and Maintenance

Property damage insurance for rentals also includes coverage for the landlord’s personal belongings that fall into certain categories. For example, if you keep maintenance equipment like a lawnmower on-site that’s used for property upkeep, it may be covered if it’s damaged. However, personal items like a bike left at the rental property most likely won’t be covered under a landlord insurance policy.

When it comes to property damage, by covering the costs to repair, rebuild, or replace, this type of coverage ensures that landlords can quickly restore their rental units to a livable and rentable condition, which can keep rental income disruptions to a minimum.

Most times, the upkeep and maintenance are handled by a property management company. If you’re not familiar with the ins and outs of this type of service, you should head over to my detailed post titled – The Ultimate Guide to Residential Property Management. Hiring a PM to care for your properties can save you money and time; it’s well worth the reasonable fee they charge.

Common Levels of Property Insurance Coverage: Basic, Broad, and Special Perils

When sorting out the level of coverage you’ll need for your landlord insurance policy, ensure you know the differences between the various levels of coverage you can choose from. Many insurance companies label these levels as basic, broad, and special, and I’ll provide a quick overview of all three.

Basic Form Insurance Coverage

Basic coverage applies to only specific, named perils listed in the insurance policy. This means if damage or a loss occurs due to an occurrence that’s not listed, it won’t be covered.

When it comes to landlord insurance, what does it cover in a Basic package? Let’s take a look:

  • Fire Damage Requiring a Partial or Total Rebuild
  • Lightning Damage
  • Property Damage as a Result of a Windstorm or Hail
  • Damage from an Explosion on Property Grounds or from an Outside Source
  • Smoke and Ash Damage to Walls, Carpets, etc.
  • Vandalism – Purposeful Damage by Others Such as a Smashed Window
  • Destruction Caused to the Property by Motor Vehicles or Falling Aircraft
Broad Form Insurance Coverage

Broad coverage is one step above Basic, as it includes all the Basic named perils, but also includes additional protection. Examples of perils that are generally included in this middle-tier coverage are:

  • Burglary Damage and Loss of Contents
  • Destruction Caused from a Fallen Object Such as a Tree
  • Impact of  the Ice and Snow as it Pertains to Weight Damage
  • Certain Types of Water Damage
  • Issues Stemming from Frozen Plumbing Pipes
Special Form Coverage

This third-tier of rental property insurance coverage comes with much more protection, as well as a higher price tag. Unlike Basic and Broad Forms, which only cover specifically named perils, Special Form Coverage, also known as “Open Perils” coverage, protects against all perils except those that are specifically excluded in the policy.

What if Your Rental Property Catches Fire?

If you’d like some insider information on what to do if your property suffers fire damage, watch my video, where I provide a few helpful tips:

 

2. Liability Coverage for Landlord Insurance What Does It Cover?

Liability coverage is a crucial aspect of being prepared and protected as a landlord. Why is this the case? Because it provides protection against financial losses stemming from lawsuits that are a result of injuries or damages that occur on the premises. This type of insurance typically covers incidents where tenants or visitors take on injuries due to certain conditions, such as a slippery walkway or a broken staircase, which the property owner is held responsible for due to negligence.

Without good liability coverage, a property owner can end up being financially liable for tenant medical expenses, as well as legal fees, and any monetary damages awarded to the other party by the court.

In my opinion, the first step in protecting yourself, as it pertains to tenants, would be to ensure you are placing good reliable renters. I recommend reading through my latest article to get some pointers on this – Safeguarding Your Investment: Understanding Tenant Background Checks.

3. Expanding  Protection – Additional Coverage Options

Landlords can add supplemental policies to their coverage to expand their protection. Here are a few typical add-ons that insurance companies may offer:

  • Flood
  • Earthquake
  • Service Lines – Underground Damaged Piping or Wiring
  • Equipment & Mechanical Breakdowns
  • Rental Income

Regarding rental income, some insurance companies include this in their main policy, while others provide it as an add-on. Below, we’ll cover some details on this specific policy type.

Loss of Rental Income Coverage

When considering landlord insurance what does it cover in terms of rental income? Well, this specific coverage, sometimes labeled fair rental income protection, compensates you for the rent you lose when your investment property is unusable because a covered loss occurred. Rental income protection covers the timeframe in which repair work is being carried out, or up to a specified number of days. It’s important to know that rental income insurance payouts are usually based on the current market rate for rent instead of the amount the landlord was charging.

For example, if your tenant rents a unit for $2,500 per month but the market rate is found to be $2,000, you’ll receive $2,000 per month until the repairs are completed or until the coverage period ends.

Consider Additional Coverage Based on Property-Specific Needs

When deciding if you should add supplemental coverage, it should be based on property-specific needs. For instance, a fellow investor of mine resides in an area that sits close to a large body of water, and he added flood insurance to his policy to cover all his bases. Another example would be the fact that those who have properties in California should consider adding earthquake coverage, while those with rentals in the state of New York wouldn’t be in need of it.

For additional information on landlord insurance plans, see this brief article on the topic – Choosing an Insurance Plan for Your Rental Property.

What’s the Cost of Landlord Insurance?

Some investors about that the insurance will cut into their ROI.  But when you really look into landlord insurance what does it cover in terms of financial losses, and is it essential for property owners, you realize you could end up having a bigger loss if you don’t have coverage in place. In addition to this, it’s not really that expensive in the grand scheme of things.

The national average cost of a landlord insurance policy at this time is estimated to be around $1,516 annually. The exact cost of the policy would be determined by a variety of elements. A few examples include the size of the rental property and its value, its location, and the building materials used to construct the rental.

Additionally, the neighborhood’s crime rate, as well as environmental factors such as being located in a high-risk area that’s prone to fires, is also factored in. Any specific add-ons the landlord needs would raise the price also. Most insurance companies will have an online feature where you’re able to request a quote, which will provide you with an estimate for your specific rental property needs.

Insurance Coverage Limits & Deductibles Explained

When you make a claim for a loss, you might need to cover a deductible. A deductible is a predetermined amount of money that goes towards the cost to cover the damage. For instance, if your rental unit catches fire, causing $5,000 in damage to the walls, and your deductible, which is the amount you would be responsible for paying, is $500, your insurance would payout the remaining $4,500.

As for the coverage limit, this represents the most the insurance company will pay for a claim. Each element of your landlord policy has its own limit, but you can determine these limits when creating your insurance policy. It’s important to determine the value of your investment property and the rental income it generates to be able to select the right coverage limits.

My clients who purchase rental properties from us often ask for recommendations on where to find the best landlord insurance. Of course, everyone should conduct their own research based on their specific needs, but for me, I use and recommend National Real Estate Insurance Group (NREIG).

Because they’re my main insurance company and the bulk of my clients use them as well, Morris Invest decided to partner with NREIG. This way, when I recommend them, my clients get a discount. They’re a great company that specializes in landlord insurance coverage, and we’ve definitely put them to the test. To have a discount applied, let them know we referred you by heading over to their site through our custom NREIG URL. You can easily contact them to inquire about pricing, as well as what their rental property insurance covers, and so on.

Here’s a video I put together that discusses NREIG:

Power Resources for Real Estate Investors

Securing the right insurance for your turnkey property is just one piece of the puzzle; increasing your investment knowledge base is another. If you’re new to the game, it’s crucial to learn from those who have been around the block more than once. Additionally, if you’re a seasoned professional, continually growing and learning to up your game will help you build the kind of wealth you’re striving to reach. That said, no matter what level you’re at in your real estate investment journey, you’ll benefit from the resources below:

You’ll also want to head over to my article – Risk Mitigation Strategies for Real Estate Investors, for additional tips on safeguarding your investment. And for those who don’t own a rental yet because you’re on the fence on whether or not you should take the plunge, I suggest you grab a cup of coffee and dive into my article that might be just what you need to move forward – Turnkey Properties: Why They’re a Wise Choice for Investors.

Protecting Your Investment with Rental Property Insurance

Through my article, “Landlord Insurance What Does It Cover?”, my hope is that you now realize how rental insurance is an essential tool for property owners. One that protects your investments by safeguarding against the various risks that come with being a landlord. From covering property damage caused by a fire to protecting against liability claims brought about from an injury, as well as securing rental income when a property isn’t operational – a well-rounded landlord insurance policy certainly provides the financial protection you’ll need, as well as peace of mind.

Investing in Rental Properties Through Morris Invest

If you have questions regarding what rental property insurance covers and how to obtain the best policy, the team at Morris Invest can help. Also, if you’re interested in growing your portfolio, we offer new construction investment properties in lucrative markets. Our team even works with you, free of charge, after your purchase is finalized. By this, I mean, we’re there for you for the life of the property whenever you have questions or need advice, and we also provide ongoing education to help you grow your portfolio and net worth.

On top of this, rental properties purchased through Morris Invest typically have lower than average mortgage rates, come with a cost segregation analysis that can save you thousands of dollars in taxes from the very first year of the property, and will have a tenant and property manager placed for you. The bottom line is that we take care of all the details for you, making placing a rental property in your portfolio super simple. If your interest has been sparked, feel free to schedule a complimentary call with our team to get the ball rolling so you can start the wealth-building process.

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