Rental properties can be a great way to diversify your investment portfolio and build wealth. Unlike stock market holdings, you can protect your investment against huge losses with rental property insurance.
The policy is similar to the homeowners’ coverage you might be familiar with, but the insurance required for rental property does differ a bit to account for the vastly different use of the building and grounds. It’s a key piece of figuring out your costs and cash flow for managing a property, and not one you want to overlook.
Let’s walk through what you need to consider when choosing landlord insurance for a rental property.
Carrier Considerations
As you start to shop around, which carrier you buy coverage from is going to be your first decision. Your choice will be limited by those that offer coverage in the area of your rental property. This is especially important if you invest in different parts of the country.
Pay attention to how the carrier describes the coverage. You want a clear explanation of everything that’s included and excluded so you know exactly what to expect should you have to file a claim.
It’s also worth noting that while you can buy coverage through certain carriers, you might not actually be getting insurance from them. For example, Geico outsources all its homeowners’ insurance, which includes those for rentals.
Coverage Considerations
Not all coverage is created the same, but the differences come in ways you might not expect. Chief among these is the amount of coverage you can buy or have to buy. Some carriers make you insure the property for replacement cost, while others will let you do it for the purchase price.
Certain other restrictions might surprise you, like whether you must have certain coverage added like personal property. Some carriers even limit the number of properties you can cover. Since most landlords have three or fewer properties to their name, this isn’t always an issue.
Ask about whether loss of rental income is included as standard coverage or if you have to add it on as an extra. Some carriers will allow you to add on coverage for loss of uses and inflation protection.
Cost Considerations
Insurance carriers assume that tenants pose more risk than a homeowner. The risk factors include loss of rental income or the injury liability from only having strangers in your home.
As a result, you can expect your rental property insurance cost to be about 25 percent more than a regular homeowners policy for the same property.
Shopping around can help you keep the costs down. Be sure to check if your current carrier might give you discounts for bundling the policy with your auto and homeowners policies.
Rental Property Insurance is a Must
A rental property has a very different purpose and life from your own home, so rental property insurance covers it differently. Make sure your insurance policy for rental property provides adequate coverage for liability and property damage and expect to pay more for it than your homeowner’s policy. Working with a broker rather than a single carrier can often help you find the best coverage and cost combination for your property.
Need help with managing the various aspects of your rental property? Contact us to talk about our management services that can keep your property working smoothly and your tenants happy.
