Four Reasons Why You Need Landlord Insurance
If you rely on income from a rental property, you may be temped to skip out on added protective costs such as landlord insurance. If you don’t, you run the risk of encountering serious legal and financial troubles which could devastate your investments and destroy your finances. If you want to avoid catastrophe from a lawsuit involving a tenant, you need to understand why this insurance is so important. Your standard homeowners’ insurance isn’t enough protection. In fact, here are four reasons why you need more comprehensive coverage when acting as a landlord.
- Homeowner’s coverage has limited application
In the situation of a rented property, homeowner’s insurance may not apply to damages or incidents involving tenants. Often an insurance contract specifies the homeowner as the recipient of coverage aid, and by not keeping full-time occupancy on the location, it may jeopardize any coverage applicability.
Some policies may allow for short term rental arrangements but check the details before leasing your property.
- Landlord insurance offers more liability coverage than traditional homeowners’ insurance
If a tenant is injured while on your property, they may file a lawsuit for personal damages. Although many homeowner’s policies have coverage for personal damages, these are related to the homeowner and not a third-party tenant.
If the actions of the tenant, their property or their pets injure another individual or piece of property, there can be no expectation of help from a simple homeowner policy. Liability applies to the homeowner, and without proper coverage, you will be left in a financial bind.
- Liability coverage limits are higher when choosing a policy for landlords
Homeowner’s policies typically have coverage limits averaging between $250,000-$500,000. Depending on the incident, the medical costs and even legal potential, landlords need to be prepared for a significantly higher financial liability. Landlord insurance policies often have coverage starting at 1 million dollars. As much as it would expensive, having expanded coverage only costs a few hundred more dollars over the course of a year.
- Legal trouble can arise from tenant/landlord disputes
Even though you may take precautions such as a background check, references or asking for a hefty deposit before renting out a room or property, legal troubles are common for landlords. Some common disputes include noise ordinance violations, property damage, non-payment, or failure to vacate. Legal representation and the ensuing battle can be extremely costly for the landlord.
If you have an insurance policy tailored to the landlord/tenant relationship and challenges, the carriers often include legal defense aid by including the clause “duty to defend.” This clause shows the obligation for the carrier to provide assistance when the insured can show potential for liability coverage.
What Landlord Insurance May Cover
Now that we have established why it is necessary, let’s look at the specifics of a landlord insurance policy. Most often, a comprehensive policy will cover:
- Unintentional/accidental vandalism or damage done by tenants or their guests
- Robbery or theft perpetrated by the tenants or guests
- Lost rental income in case of tenant payment default
- Assistance with legal expenses necessary for eviction
While the thought of having this coverage may seem expensive, there is good news. Being an expense, the premium cost is tax deductible (check with your tax professional). In addition to this benefit, you are proactively saving thousands in liability costs if something went wrong in one of these areas.
What Landlord Insurance May Not Cover
As with anything, the pros of having landlord insurance are balanced by the cons. For the landlord, these cons deal with tenant issues and uncovered situations. If there are maintenance issues or equipment malfunctions and breakdowns, the financial responsibility isn’t typically covered by landlord coverage. Appliance malfunctions or similar problems caused by wear and tear generally aren’t included in policy coverage. However, if these appliances are damaged during a fire or other peril such as lightening or hail, they may then be a part of a claim.
While accidental damage from a tenant is covered, intentional vandalism is not. Scratches or dents from moving furniture or normal activities may be considered for policy assistance, but targeted damage and destruction from angry tenants or their guest is may not be included.
Landlord insurance is a proactive way to protect your property and income investment. Understand why you need it and check your policy coverage to fill in the gaps. Contact us today to help you with your Landlord Insurance at 410-305-9796.