Before you sign a lease agreement, you should purchase proper insurance, advises Sheldon Dietz of RCPM Solutions. Then you can relax, knowing that you are protected against liabilities while any damages get coverage as well.
In the following blog, learn all about the insurance needs when renting out your property.
Why do I need rental property insurance?
Do you have another property besides your principal residence? If so, you probably rent this out for additional income. And you might have bought the property intending to grow your investment.
Owning a rental unit means you need insurance to protect yourself against unexpected situations. Without proper insurance, you could face significant expenses when something goes wrong.
Rental income property insurance covers many aspects. Here are the two main points of coverage:
- Liability coverage. This means that you aren't held responsible for damage or injury to someone else or their personal belongings. Say, for example, your tenant slips and falls down the stairs in your property. When you get sued for damages, your liability coverage protects your finances.
- Property coverage. This is the main coverage area. Any damage to structures or your personal belongings on the property receives adequate coverage. Usually, the policy is in place for specified perils or all perils. The former includes specific risks, such as fire, floodwaters, theft, and vandalism. The latter covers anything that damages or completely destroys your property.
How does this insurance policy differ from regular property insurance?
Landlord insurance isn't the same as regular property insurance. Many insurance products created for landlords protect against lost rental income. When something serious happens to the rental unit, the dwelling won't provide the minimum living standards. In many cases, this results in lost rental income for the owner.
As you may have a mortgage on your rental property, this protection is a vital part of the insurance. Otherwise, missing rent payments for long enough could affect the ability to settle the mortgage payments.
Rental income protection depends on the time it takes to repair your property. Insurers use the term "reasonable repair time". You'll get compensation for this defined time period.
For example, you rent the property for $2,000 a month and the repairs take a month and a half. In this situation, you'll get compensation for up to $3,000 in lost rent payments.
What situations aren't covered with rental property insurance?
Here is the list of things that aren't covered with your rental property insurance. It's similar to a general homeowner's insurance.
- Normal wear and tear
- Damage caused by insects, rodents, and termites
- Damage resulting from frozen indoor plumbing or pipes
- Damage or destruction from criminal or otherwise intentional acts
- Damage that has been caused by landslides and similar events
Are my tenants 100% covered by this insurance?
That's why it's a good idea to list all your personal belongings on the property. Creating this overview before anything happens is a good way to lower the accompanying stress in the long run.
Some landlords add a clause to the lease agreement, which makes renters insurance mandatory. This benefits the landlord. The property owner will have fewer disputes and arguments after an unexpected event that resulted in damages.
As a landlord, you can explain that your insurance won't cover their personal belongings. In case of theft, your tenant has to pay all the associated expenses out of their own pocket. Plus, many renter’s insurance covers the cost of a new rental during repairs and the hefty legal costs when any damage has been caused to others.
The bottom line: what kind of insurance do I need for my rental property?
This will cover expenses connected to unexpected events, such as flooding or fire. Moreover, it will cover your lost rental income. When the property is under repair, you'll get compensation for the lost income.
But the landlord's insurance won't provide adequate protection to your tenants. They should get renters insurance to cover their personal belongings. You could even put this stipulation in the lease agreement.