Renting out a residential property comes with some inherent financial risks. When an appliance breaks or a structural failure occurs, the financial burden falls on the landlord. Without the right landlord insurance (also commonly referred to as DP3 insurance), however, landlords can enjoy some additional protection and peace of mind against certain liabilities and financial losses.
Heath Ritenour, CEO of Insurance Office of America (IOA), sees firsthand just what a wise investment the right landlord insurance policy can be and explains the intricacies of this often-overlooked type of coverage.
The first thing Heath Ritenour wants current and prospective landlords to understand about landlord insurance is that it is not the same as home insurance. Yes, carrying homeowners insurance is important. All too often, however, landlords make the mistaken assumption that a homeowners insurance policy purchased on a rental property will protect them against liabilities and damages related to renting out the property.
In reality, this is not the case. That’s because homeowners insurance policies are designed only to cover homeowners who are using the properties as permanent residences. As soon as the homeowner begins renting the property out to tenants (even on a short-term basis), this coverage no longer applies.
Enter landlord insurance, which is specifically designed for residential property owners who are renting homes or other structures out to tenants. With this in mind, landlord insurance coverage is always good for landlords to carry—regardless of whether they’re leasing a property out for a few weeks or for the entire year.
While each landlord insurance policy can vary in the exact coverage offered, there are a few specific types of coverage that can be found in most policies. This includes:
- Loss of income – covers lost rental income in the event that a tenant needs to move out due to a loss (such as a major property damage claim).
- Liability – covers costs related to liability claims on the property, such as lawsuits/legal fees, medical costs, and settlement expenses.
- Property damage – covers damages to the structure itself caused by things like inclement weather, vandalism, or fire.
Some landlord insurance providers may offer additional coverage beyond what is considered “standard.” For example, while flood insurance is not included with most landlord insurance policies, a “water and flood” coverage add-on may be available. Likewise, landlords who have included furnishings with a rental unit may opt for additional coverage for furniture and other fixtures.
There’s a lot that is covered by a typical landlord insurance policy. However, as an insurance expert, Heath Ritenour explains to his landlord clients that there are also some exclusions to be aware of.
For starters, landlord insurance typically doesn’t cover appliances that break down. Instead, these types of repairs or replacements must generally be paid by the landlord out of pocket unless another arrangement has been made in the lease agreement. This means that, if a tenant’s refrigerator breaks down, the landlord typically is responsible for repairing or replacing the unit altogether.
Likewise, landlord insurance does not cover a tenant’s personal belongings. Even if a tenant’s possessions are damaged or destroyed by a covered event (such as a fire), a landlord insurance policy will not pay to replace these items. For this reason, Heath Ritenour encourages all tenants to carry renters insurance for added protection and peace of mind.
Last but not least, landlord insurance coverage is not available to those who are renting out a portion of their homes. For example, those who live in a home and rent out a single room or floor to a tenant generally are not eligible for landlord insurance coverage; the entire property/dwelling must be rented out.
There are many factors that can influence how much a landlord insurance policy premium costs beginning with the geographical area where the rental is located and the inherent risk factors found in that area. Landlord insurance carriers also may charge higher premiums for properties with a history of liability or property damage claims—especially if they are relatively recent.
It is also worth noting that landlords who rent out their properties to short-term tenants tend to pay higher premiums than those who rent out to long-term tenants. In fact, according to a HouseLogic article, landlords renting a property out weekly can expect to pay nearly double in insurance premiums compared to renting out the same property for the entire year.
The reason for this? Short-term renters are considered less likely to notify landlords of small problems as they arise. As a result, small issues can snowball into larger claims and repairs down the road. This creates an inherently higher risk for insurance companies, which gets passed onto the policyholder.
For landlords who are ready to shop for a landlord insurance quote, the process can feel a little overwhelming. With so many different carriers and policies available, it can be difficult for landlords to know whether they’re getting the best value for their money. Fortunately, there are a few things landlords can look for when shopping for landlord insurance to be sure they’re getting quality coverage at a fair price.
Landlords should begin by considering the type of coverage they need for their properties. No two properties will have the exact same insurance needs, after all. In addition to the three main types of coverage included in a landlord insurance policy (liability, loss of income, and property damage), landlords also are encouraged to consider riders that may provide additional protection.
For example, if a landlord’s property is located in a known flood plain or flood zone, it may be wise to purchase a flood/water damage rider. Unfortunately, flooding and water damage are typically not included with a basic landlord insurance policy.
Coverage amounts can also vary based on a landlord’s needs. Obviously, the more coverage a property needs, the higher the premium will be. However, it is important to make sure that a landlord insurance policy has at least enough property damage protection to cover the current estimated rebuilding costs of the structure itself.
Like many types of insurance, a landlord insurance policy also will have a deductible; this is the amount of money that the policyholder will pay out of his or her own pocket before coverage kicks in for an approved claim. Deductible amounts can vary greatly—and choosing a higher deductible can be a sensible way for landlords to pay less in premiums. The most important thing to remember when choosing a deductible, however, is to select one that can be paid comfortably if a claim needs to be filed.
Some landlord insurance carriers will offer special discounts and savings to help policyholders save money without sacrificing coverage in the process. One common discount to look for when shopping for landlord insurance is one for bundling policies. Many landlords, for example, will choose to bundle their home, auto, and landlord coverage with the same carrier to save a pretty penny on their premiums.
When choosing a landlord insurance policy, it’s always a good idea to ask about discounts and how long they are offered. If a discount is good only for six months, landlords are encouraged to find out how much their premiums will increase when the promotional period expires so they can plan accordingly.
When shopping for any type of insurance, including landlord insurance, selecting a policy that is backed by a knowledgeable and accessible broker is a must. This way, when landlords need to file claims or have questions about their policies, they can get the answers they need quickly and confidently. Having a broker who responds to inquiries promptly can save landlords a great deal of time, stress, and hassle down the road.
A great broker can also help make the claims process go more smoothly by walking policyholders through the exact steps needed to submit a claim. This can speed up the process so that landlords can get the reimbursement or funding they need to repair covered damage and get on with their lives.
Anyone renting out a residence to tenants on a short- or long-term basis should be protected with a comprehensive landlord insurance policy. For those who need assistance choosing the right landlord insurance coverage to meet their needs and budget, Heath Ritenour’s team at IOA is always available to help. From educating shoppers on their coverage options to matching landlords with the best insurance products, IOA’s knowledgeable team has more than 60 offices across the United States. Landlords shopping for this type of coverage are encouraged to reach out today and learn more about landlord insurance or begin building a personalized policy.