Rental properties are an amazing way to grow wealth over time and earn (mostly) passive income each month. Owning a rental property also comes with a lot of responsibility, however, including additional insurance responsibility. Here are the key things to keep in mind when insuring a rental home property:
Landlord Insurance is Different from Homeowner's Insurance
Homeowner's insurance policies are written with the assumption that you live in the home you are insuring, rather than renting it out. That's why a rental property (whether it's a long-term rental or a short-term vacation rental) calls for a different type of policy. A landlord policy ensures your rental property is adequately insured and protected in a way that specifies that you do not occupy the home.
This is crucial because without a landlord insurance policy, if something unexpected happens and you file a claim under your regular homeowner's insurance policy, it is likely to be denied because you are not the primary occupant.
Landlord Insurance Includes Unique Clauses
Being a landlord involves unique financial risks that go beyond the risks involved in living in your own home. After all, even with adequate tenant screening services, as a landlord you run the risk of damage to your property, an unexpected plumping or other structural issue making the home temporarily uninhabitable, or a renter suing you after they injure themselves in the home. For these reasons, landlord insurance often includes unique clauses including:
- Liability insurance. Landlord insurance usually includes liability insurance that goes beyond the typical liability insurance included in a homeowner's policy. You want to make sure that if a tenant or renter slips and breaks an ankle walking on your icy patio, for example, and then chooses to sue you for damages, that you have enough liability coverage to account for medical and legal bills.
- Loss of Income. An optional clause in some landlord policies is a loss of income protection clause that will provide you with lost rental income if something unexpected happens that makes your rental property uninhabitable for a period of time. If your rental property is an older fixer upper with some structural issues, it may be worth it to include this clause in your policy.
- Personal Property Coverage. If your rental is short-term (like an Airbnb) it most likely comes fully furnished and you may wish to add on a clause to protect your personal furniture, kitchenware, and other belongings from damage. If your home is a long-term unfurnished rental, you may still decide to include this type of clause to protect your carpeting, window blinds, etc. Keep in mind that if your rental agreements include a damage deposit, you may decide this additional insurance coverage is not necessary.
Consider a Higher Deductible
For most landlords, the main purpose of a rental property is to provide income and grow wealth. One way to ensure this happens is to minimize your monthly expenses and maximize profits. To that end, if you have the savings to easily absorb a higher deductible, it makes sense to raise your deductible and save on your monthly premiums. This way, if you never need to file a landlord insurance claim, or only very rarely, you will save more money long-term. Having a thorough landlord policy will provide you with peace of mind, knowing that if something unexpected happens at your rental property, you will be protected financially.