The basics of becoming a landlord are straightforward: Buy a property in a promising neighborhood, fix it up, find tenants, and start charging slightly more than youre paying in regular costs. But if you want to protect your assets and ensure youre following every applicable law, things get more complicated.
Consider insurance. The right insurance policy should be able to cover any unexpected financial losses or massive expenses, protecting the profitability of your operation. It can also protect you from legal trouble. But what types of policies do you really need as a landlord?
Legal Requirements
Technically, landlords arent legally required to have any type of insurance. However, if youve taken out a loan on the home, you may be required by the lender that youhave a basic homeowners insurance policy. Just note that a conventional homeowners policy may not protect you if youre renting out the property to other tenants.
Related:Safe, Not Sorry: 7 Insurance Policies Landlords Should Discuss With Their Providers
4 Types of Insurance to Consider
There are many types of insurance that you should consider:
Building and property insurance. First, youll want a policy that protects your building and property from unexpected damage. Your building is the most significant portion of your investment, and therefore, your biggest financial liability. If something happens to it such as a roof caving in or a destructive event from a tenant who lives there youll want a comfortable policy that can cover the damages. Otherwise, youll end up paying tens of thousands of dollars, possibly compromising your profitability.Liability insurance. You should also have some type of liability insurance in place. Landlord liability varies depending on where you live, but for the most part, youre responsible for keeping your property in a safe, livable condition. If one of your tenants trips and falls or hurts themselves while living in the property, they may have grounds to file suit against you. Liability insurance protects you from these events, covering your defense costs and compensating victims.Loss of income and business interruption insurance. Landlords may also be able to get a form of business interruption insurance, protecting them from possible interruptions to their stream of rental income. For example, if youre injured and unable to fulfill your responsibilities as a landlord, you may earn compensation that allows you to keep things running. This type of insurance may also help you secure rental income from tenants who are unable to pay.Protection from specific threats. Property insurance doesnt cover anything. Youll want to read your policy closely and get coverage for other specific threats. For example, you might need a separate policy to protect your building from natural disasters like floods or earthquakes.Landlord Insurance
If youre looking for a comprehensive policy, you may be able to find a provider who offers collective landlord insurance, which offers coverage in several areas, including the four listed above. For the most part, these insurance policies are flexible; youll be able to pick the types of coverage and extent of coverage you need, so you can protect yourself from the majority of threats and still stay within your budget. If youre interested in this type of insurance, its advisable to talk to an insurance agent, who will have more insight into the types of policies you need (and the total costs you might face).
Related:10 Great Property Insurance Tips for Landlords to Save You Cash, Headaches, and Time
Renters Insurance
Its also important to note that your property insurance policy and liability insurance policy wont protect any of your tenants possessions. For example, if leaky plumbing causes water damage to a tenants television, your insurance policy may not cover the damages (though it may cover you, if it offers liability coverage). For that, your tenants will need to get a renters insurance policy.
Conclusion
As a landlord, you arent required to have insurance, but its well worth the investment. At a minimum, make sure you have property insurance to protect your house and a liability policy to protect yourself in the event of tenant-related damage. Each new policy will only marginally increase your monthly premiums but may offer substantial additional coverage. So plan conservatively, and protect your investments as comprehensively as you can afford to. One enormous loss could be enough to negate any profit youd otherwise stand to make.
As a landlord, what types of insurance do you use?
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