Why landlords need landlord’s insurance? | Get $20 off your quote
When you rent out a home, of course you’ll have it insured. But do you have the right home insurance policy for a rental home?
Landlords have different insurance needs than regular homeowners, not to mention the fact that home insurance providers treat rental units differently than primary residences.
Read on to find out exactly why it’s worth finding the right landlord’s insurance policy for your rental home.
What does landlord’s insurance cover?
Like a regular homeowners’ policy, landlord’s insurance includes building coverage. That means if the rental home itself is damaged in an insured loss, the policy will help cover the costs of repairing or rebuilding.
Not all policies are created equal; building coverage can protect against a limited number of things (a named perils policy) or against a very wide range (a comprehensive policy). It goes without saying that a comprehensive policy is almost always your best choice.
There are also a few different ways the policy can calculate payment in the event of serious damage to the home. Some policies pay the guaranteed replacement cost, meaning they’ll cover the cost of repairing or rebuilding the home even if the cost exceeds the policy limit. Guaranteed replacement cost is one of the features to look for on a landlord insurance policy.
In addition to building coverage, landlord’s insurance includes premises liability coverage. If someone is injured at your rental property and you’re found liable, this coverage can help pay legal costs and damages. You could be found liable for injuries if they’re caused by something you’re responsible for as the property owner—a poorly-maintained balcony, for example.
Landlord’s insurance policies also include coverage for the landlord’s property. Much like contents coverage in a regular insurance policy, this coverage protects movable property inside the rental home that belongs to the landlord: window coverings, major appliances, and so on. Though landlord’s property coverage is common on landlord policies, the quality of that coverage varies a lot from provider to provider.
Much like building coverage, landlord’s property coverage might insure said property for the full replacement cost or a depreciated value—make sure you find a policy that features the former. And,most landlord’s policies will not cover property you leave behind in a furnished rental, like couches, beds, and more. If you’re renting out a furnished property, make sure your landlord’s policy will cover those items as well.
There’s another coverage that’s unique to landlord policies, too: rental income coverage.
What is rental income coverage?
Rental income coverage can help you cover the costs of lost rental income if your tenants need to move out following damage to the home.
Some insurance policies include a percentage of the building limit to cover lost rental income. While this works in some scenarios, it doesn’t leave any coverage if the home is damaged badly enough to use the full amount of building coverage—and that’s exactly when you’d want to have coverage for your lost rental income.
Instead, you should find a landlord’s insurance policy that includes dedicated rental income insurance. You can choose a limit of coverage that fits you specifically. For example, if you normally rent out your property at $1,500 per month, you could choose an $18,000 limit. Then you’d have rental income coverage for a full year if you needed it.
There are a few stipulations with the coverage:
Rental income coverage usually covers the fair rental value, meaning the amount of monthly rent that’s covered by the policy should be roughly in line with what other rental units are going for in the area—you can’t claim $2,500 a month if every similar home in the neighbourhood rents at $1,200.
Rental income coverage covers the same perils as the building coverage. So, if the home is destroyed by an earthquake and there is no earthquake coverage on the policy, neither building nor rental income coverage would be available. Another reason that it’s advantageous to find a comprehensive landlord insurance policy.
Rental coverage only applies for the reasonable amount of time that it takes to complete repairs. So, you can’t let your damaged rental property sit empty and keep collecting payments. A rental property is an investment, and the right landlord’s insurance policy is the best way to protect that investment.
Where to get landlord’s insurance
Most home insurance providers can offer landlord’s insurance, but it’s worth shopping around to find a comprehensive policy that includes rental income insurance.
Square One is a home insurance provider that offers both, as well as extra features for landlords who are renting out a condo—something that adds a bunch more complexity. Square One also offers optional extras like legal protection insurance, which can help cover legal costs associated with tenancy disputes or other legal issues you may encounter as a landlord.