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Which Insurance Policies Are Important in the Rental Business?

Which Insurance Policies Are Important in the Rental Business?

Insurance is essential in many situations since it protects you from unforeseen circumstances. The same can be said for rental property insurance, and there are many variations you need to consider as a landlord. Each insurance policy comes with different coverages appropriate for various situations, so which one should you get?

Renters Insurance

Renters insurance is a type of property insurance that’s designed to protect the tenants in the rental property. As such, the tenant covers the cost of these policies. 

The coverage depends on the premiums paid for by the tenant, and it is sometimes required by landlords for properties like apartments, single-family homes, and condominiums. However, it is not required by law to get one of these policies as a tenant.

What It Covers:

Renters insurance covers the tenant's personal belongings from common risks like fire or water damage, theft, or damage caused by natural disasters. It can also pay for legal fees and medical costs when an incident happens to a guest within the rental unit, except if the injury is caused by structural damage from the property.

Homeowners Insurance

Unlike renters insurance, a homeowners insurance policy mostly protects the property itself but also has liability insurance with limits. Landlords tend to purchase this rental property insurance policy since it protects their investment from elements they cannot control like natural disasters or other unexpected damages, and it benefits owner-occupied homes the most.

What It Covers:

A homeowners policy covers different specific events and high-value properties depending on the insurance provider. Interior damage, exterior damage, loss of assets, as well as liability coverage for injuries caused by structural damage can be paid for by the insurance coverage. Some policies may even offer vandalism coverage.

Landlords Insurance

The landlord policy is the best option for property owners who don't live in one of the dwelling units of the rental property, seeing as the circumstance nullifies a homeowners insurance policy.

What It Covers:

Landlord insurance typically covers building and personal property damage from natural disasters, fires, electric and gas malfunctions, and a tenant's unpaid rent. Similar to homeowners insurance, it also provides liability protection from legal issues and medical costs when an injury is caused by structural damage or property malfunctions.

Factors to Consider When Purchasing Insurance

Rental Property Type

You should consider what kind of property you have. For fully furnished rentals, for instance, you'll want insurance that covers residential properties and their furnishings. With short-term rentals, it'll be harder to contact renters who damage your personal property and you might have to rely on homeowners or landlord insurance.

Risk Tolerance

You should carefully research which insurance plans offer the right coverage for your property to reduce the risks that come with the rental business. Some landlords insurance policies provide guaranteed income insurance, preventing lost rental income. Of course, it all depends on the insurance carriers you buy insurance from.

Costs

The kind of insurance you purchase will have different costs, depending on what the insurance covers and the insurance company that provides it. Landlords insurance commonly costs between $800 to $1,200 per month.

Location

The location of your rental property should affect the kind of insurance you get. Flood insurance can be crucial for flood-prone areas like California. Research how much coverage plans have before purchasing one.

Deductibles

There are deductibles with rental property insurance that you can take advantage of. Homeowners insurance can provide off-riders that increase coverage for certain circumstances and can be deductible amounts. Keep in mind that a higher deductible can lower premiums but might increase out-of-pocket costs.

Why Is Insurance Important in the Rental Business?

Property Damage Protection: With natural occurrences and human-caused damages being inevitable, you need to be prepared to get coverage for repair or replacement costs, as it will help protect your business from additional costs.

Liability Claim: In the event of accidents caused by furnishings and other structures from your property, plans like landlord insurance cover personal liability costs like medical or legal costs.

Loss of Income: Tenant screening can only go so far in ensuring that your renters pay their rent on time. In the event that they don't, rent amounts are included in the covered loss, which means you won't have to make up for costs out of pocket.

Tenant Protection: Requiring renters insurance isn't for the landlord but for the tenant since it mostly focuses on protecting their belongings, as well as covering costs when they are held responsible for incidents within their rental unit.

Factors to Consider When Choosing Insurance Companies

Financial Stability: You can check the ratings of the insurance carriers you're considering to determine whether they are capable of paying claims even during economic downturns.

Coverage Options and Limits: The coverage may vary depending on the company, and researching what each can offer helps you make the best out of your payments. Pay attention to the exclusions, limitations, and deductibles.

Ease of Claims: Even if the insurance company is capable of paying claims, it might not be as easy to file one. You may be able to see this through ratings as well. You'll be better off making a deal with a company you can easily reach out to.

How a Property Manager Can Help You

While having a contingency is essential for a business, managing your rental property is still of utmost importance. For instance, you can avoid using insurance for liability coverage if you keep the property in the best shape and maintenance is just one aspect of it.

At Income Property Advisors, we offer services that cover marketing, tenant screening, leasing, rent collection, maintenance, accounting, and eviction. All you have to do now is contact us for your free consultation, and we can help you earn true passive income and maximize the value of your property.

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