Landlord Insurance for Residential Property Owners
Landlord insurance is available for both single-family rentals and multifamily properties of up to four units. It can cover:
- Damage to the building,
- Damage to auxiliary structures,
- Damage to building contents you own,
- Injuries on the property, and
- Loss of income.
When you rent a property, even a second home rented to vacationers, you expose yourself to significant financial loss. That loss could result from lightning that necessitates appliance replacement, a fire or water leak that damages the structure, an injury on the property to an occupant or visitor due to a hazard that was your responsibility, or the loss of rental income caused by a fire, fallen tree, or other disaster.
A landlord’s insurance policy can cover all these scenarios and defray the cost of repairs and medical expenses. It can also help you recoup lost rental income and will even cover accidental damage done by a tenant, though intentional destruction or defacement is usually not insured. For that, a landlord would need to turn to the renter’s security deposit.
To cover losses due to flood, landlords need to purchase a separate flood insurance policy. Know that even properties in low-risk flood zones are vulnerable to flooding due to storm pipe overflow, dam release and drainage swale surges. Also, sewer and drain backup and sump pump failure should be considered as an addition to your landlord’s policy since they are typically not included.
You may also wish to ask your agent about the value of adding equipment breakdown coverage (also known as boiler and machinery insurance) to your property policy. If you have a catastrophic failure of your HVAC system, your elevator, or any other built-in equipment, you will be glad to have financial help in getting a repair or replacement. Plus, this coverage usually includes recovery of income lost as the result of the equipment failure.
There are two key considerations for landlords wishing to obtain property and liability insurance: total insurable value (TIV) and liability limits.
TIV
Insurers are increasingly careful about getting an accurate valuation of a property, so be prepared to provide a professional assessment. You must purchase enough insurance to cover the total value of the property (and its conveyed contents, such as appliances) in order to be fully compensated if there is a claim. If it is found that you bought less coverage than the real value of the property, you are lie out and the property becomes vacant for more than 30 days, you may need a vacancy endorsement or separate dwelling policy to be assessed an underinsurance penalty when you file a claim. Also, as property values have increased in most areas, periodically revisit your insurance limits. If the current renters move depending on the circumstances.
Liability Limits
Landlords don’t typically have any government requirements for the amount of liability insurance they carry, but mortgage companies often do require it to protect their interest in the landlord’s ability to fulfill loan obligations. You can usually choose your insurance policy’s limit of liability coverage, with higher levels costing more in premium. A $1 million limit is often recommended, but your choice will depend upon your property’s location, number of units, natural and built-in hazards (such as a pool or pond), local crime rates and safety features. For landlords wishing to have higher liability limits than your primary insurer offers, it is possible to purchase excess liability insurance, which is a stand-alone policy that steps in when your landlord policy’s liability coverage runs out. It protects against scenarios such as a deck collapse or a handrail failure that result in catastrophic long-term or permanent injuries.
Rent guarantee insurance is another important type of coverage to consider. It is available to both residential and commercial landlords and protects against tenant default or non-payment. It’s an important addition to landlord insurance because a standard landlord’s policy covers loss of income only when it’s the result of a covered peril, like fire or storm damage. Rent guarantee coverage may require a 30-day non-payment period for default to be declared, but once payments begin, they can be used for many obligations, such as mortgage, maintenance and tax payments. Rent guarantee insurance companies usually require landlords to run tenants through a financial check to confirm they don’t have a history of defaulting and that they have a steady and sufficient income.
Landlord Insurance for Commercial Property Owners
Commercial property landlords have some of the same risks as residential lessors — property, liability and lost income, for example — but they also have exposure to financial loss from business interruption as well as broader liability risks due to a higher volume of visitors and the presence of employees, all of whom could be injured.
Landlord insurance doesn’t replace business insurance that shopping center, office park or industrial park tenants should buy. But it does protect the landlord from financial loss due to perils named in the commercial landlord’s insurance policy. Because liability insurance can be dramatically affected by lease contracts, have your agent review your lease terms to see whether there are unintended landlord liabilities. Most landlords require commercial tenants — or at least strongly encourage them — to purchase business insurance that covers their own business property, equipment, inventory, liability and income. If you own and rent multiple commercial buildings, you may be able to use a master policy or scheduled commercial property policy to include all the properties, and then add an excess liability policy to provide higher overall limits.
Ask your insurance agent and legal counsel review your contracts for building codes in your state or locale so you obtain proper coverage for ordinance or local law requirements. An ordinance or law clause will help you pay for renovations to wiring, plumbing, sprinklers, roofing, and other mandated upgrades if an undamaged portion of your building must be improved after damage to another section of the structure.
Commercial Landlord Coverage
Commercial landlord insurance can help owners of:
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Office parks,
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Strip malls,
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Shopping centers,
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Stand-alone retail stores,
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Office buildings,
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Industrial parks,
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Storage centers,
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Warehouse facilities,
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Medical parks, and
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Townhouse offices.
Your commercial landlord policy typically doesn’t insure your property against flood or earthquake, and in some regions, hail or wind damage may be subject to a separate deductible. Both flood and earthquake insurance can be purchased either on the private market or through a government program. Your insurance agent can help you find options.
If you use a property manager, you may wish to list that company as an additional insured on your landlord insurance policy. Many property managers require it because they can be drawn into legal claims against the landlord. When the property manager is an additional insured, the same policy governs the defense and settlement of the claim, and the property manager doesn’t have to sue the landlord for its legal defense or award costs. The property manager may also require being added as an “additional interest” to your policy, which allows that company to be informed of any changes to your landlord insurance coverage (such as cancellation or change of terms).
Loss Control Suggestions for Landlords
Although landlord insurance is vital to protecting your financial survival, there are steps you should take as a property owner to prevent claims in the first place. It’s particularly important to take these actions, because wear and tear and negligence can often be used to deny claims.
Safety First.
Handrails, decks, stairways, and entryways are prime factors in injuries. All should be maintained to the highest standards and landlords should put notices, caution tape or other alerts to warn residents, tenants, and visitors of hazards that are awaiting rectification.
Lighting, security cameras, and working locks or access controls can greatly reduce crime, injuries and theft, so invest in quality devices and ensure they are always in working order. This goes for all common areas as well as unit doors.
In residential settings, fencing around pools or other attractive nuisances, such as water features and jungle gyms, is sometimes mandated by law or insurance. In all cases, it’s an excellent way to prevent child injuries.
Landscaping as Prevention.
Many landlords successfully use landscaping to reduce ease of access to windows in order to prevent break-ins or vandalism. They also use landscaping to drain rainwater and snowmelt away from structural foundations.
Seal Exterior Gaps.
Rotting fascia board, holes in siding, and settlement cracks in foundations can be hard to spot by the casual observer, but rodents and insects find them easily and can do enormous, uninsured damage. Make a quarterly review of your structural exterior a habit.
Maintain Roofs, Appliances & HVAC.
Roofing leaks, gutter backups, icemaker, water heater, washing machine and dishwasher leaks, and HVAC failures are common causes of water and mold damage. Hiring a maintenance company to do a half-yearly check on these systems can help you identify problems in seals, pumps and roof elements before a disaster occurs. Note that ignoring wear and tear or needed repairs could invalidate an insurance claim. Installing sensors on appliances to detect and quickly halt water leaks is one very good way to reduce water-leak damage.
Help Getting the Right Landlord Insurance
When looking for insurance for landlords, you may be overwhelmed by the options out there. An insurance agent who specializes in landlord insurance can help you find and evaluate multiple policy choices. Your agent can also help you check your lease and property management contracts for wording that opens you up to uninsured property and liability costs. Locate an insurance agent near you who can help you find landlord insurance that fits your needs and budget.