A common misconception is that a property insurance policy is the same thing as a landlord
home insurance policy. The key difference between the two types of policies is that a standard home insurance policy only protects you if you live on the premises of the rental property. However, if you live offsite as most landlords do, you’ll require a separate landlord home insurance policy.
While it’s not required to have landlord insurance, it provides peace of mind should things go awry. If you ever file an insurance claim on a rental property and it’s not listed as a landlord policy, you may be denied coverage.
A Few of the Most Important Clauses to Have in a Landlord Insurance Policy
The bad news is that all landlord insurance policies are different – there’s no such thing as a standard policy that applies across the board. The good news is that armed with the following tips, you can do a bit of research into different policies, and protect yourself against the most common and costly types of damage.
Guaranteed Replacement Cost for Dwelling Coverage. While some insurance policies provide cash value payouts, it’s preferable to have replacement cost payout instead. Why? Because replacement cost is valued at today’s dollars, whereas cash value is appraised at the date you took out your policy. In most cases, replacement cost is more accurate and provides a greater sum.
Dwelling coverage protects you against standard structural damage to your rental such as piping, fixed appliances, plumbing and exterior fixed items such as awnings. As a landlord, you need to be prepared to encounter some type of damage to your property; this is the meat-and-potatoes clause that any good policy should have.
Flooding and Water Damage. Water leaks and flooding can wreak havoc in a home resulting in damaged flooring, furniture, walls and more. Plumbing problems such as a burst pipe are typically covered in a basic policy; however, flooding is usually not. If your rental is located in a flood plain or a region with heavy rainfall, consider getting flood coverage.
Acts of Nature. Unforeseen and unpredictable acts of nature such as earthquakes, hurricanes, tsunamis and tornadoes are covered under this optional clause. Don’t make the mistake many homeowners make by assuming your home is covered by your insurance policy when natural disaster strikes — be proactive and check to see what your landlord insurance policy covers.
Fair Rental Income Protection. If your rental property ever becomes uninhabitable due to property damage, this clause ensures you receive fair rent for a reasonable amount of time for repair work to be completed. Unfortunately, this clause doesn’t protect against deadbeat tenants, or the occasional rental vacancy.
Personal Property (Contents) Insurance. Whether you rent out a fully furnished suite or not, protection against personal property damage includes any furniture, curtains, fixed appliances, carpets and light fixtures.
Legal Liabilities. This important clause protects you from things out of your control such as if a tenant or a contractor working on the rental property decides to pursue legal action if they become injured while on the premises. Examples include falling or slipping. Many lenders actually include this clause as a requirement as out-of-pocket expenses can quickly skyrocket.
Consider the probability and likelihood of your rental property requiring these types of clauses against the cost. Being proactive in protecting your investment will save you from financial headaches down the road.
Find out how Insurance by Castle can help you with your Landlord Insurance needs at 800.644.6443.