Many new landlords make a common mistake of believing their homeowner’s insurance policy is good enough for their property after they rent it out to a tenant. If you rent out your home, your homeowner’s insurance isn’t going to cover you. You need very specific insurance as a landlord. If you don’t get it, you could be stuck paying hundreds of thousands of dollars from damage, medical expenses from tenants, and lawsuit settlements.
Hotel and Hospitality Policy
This coverage is what you’ll get if you’re offering short-term rentals in your property. Maybe you have a condo and you want to rent it out during the summer, but live in it during the winter. You’ll have multiple “guests” staying and not all of them will take care of your property. A hotel and hospitality policy will cover property damage and liability if a guest is injured during their stay. Their medical expenses will be paid, and you could be covered if they decide to sue. Some policies even cover loss of income if you can’t rent your property out while it’s being repaired from covered damage.
Most landlords need a landlord insurance policy, though. If you’re going to rent out your property over a long period of time, typically six months or longer, get this insurance. Physical damage to the property will be covered. You’ll also have liability protection if your tenant or one of their guests is injured on the property. Loss of income coverage may be available if you can’t collect rent on a property while it’s being repaired or rebuilt from a covered loss. You may also be able to purchase coverage for personal property you leave at the rental for maintenance or for the tenants to use.
Loss Assessment Coverage
If your rental property is located in a condo or homeowner’s association, you need to purchase loss assessment coverage. This policy will protect you financially if the HOA or COA has to levy a special assessment against all its members when the association insurance is not enough to pay for a covered loss. For example, an accident on the property resulted in a $1.5 million claim for the association but the policy limit is $1 million. The $500,000 difference will be split amongst the members to pay the difference.
With loss assessment coverage, you’ll be covered up to your policy amount, typically $5,000. When purchasing this insurance, it’s important to choose a limit that you think will cover you in an emergency assessment. The coverage is only available for purchase if your HOA or COA have good insurance in place with solid limits.
An umbrella policy is a good idea for anyone with insurance, but as a landlord, it’s an added layer of protection for liability. Every insurance has a policy limit. Sometimes, however, a claim may be higher than those limits. Without an umbrella policy, you’ll have to pay out of pocket for the difference. But umbrella coverage will pay the difference between your regular insurance claim limit and the total claim amount. It may even help pay for liability losses not covered by your insurance policy.
Require Renter’s Insurance
As the landlord you won’t purchase renter’s insurance, but you can require your tenants to have it as a condition of the lease agreement. The mistake many renters make is thinking that their possessions are covered under your insurance policy. Wrong! Requiring proof of a renter’s policy lets you know that if they lose everything, they will be able to replace their belongings while you repair the property.
Make sure to talk to an insurance agent to find the best insurance policy for you and to ask questions about what exactly is covered by each type of coverage. It may be worth paying a little more for higher limits and added peace of mind. But if you think that your homeowner’s insurance policy will cover your rental, think again. Renting out property comes with plenty of risks. Make sure you’re protected from the worst of those with the right insurance coverage.