With many of the world’s billionaires having amassed their wealth through real estate, there is no doubt that real estate investing can be lucrative. If you play your cards right, it has the potential to provide you passive income for many years to come.
Nevertheless, just like any other investment, for you to succeed, you need to do proper diligence. For example, investing in the right investment property, purchasing in the right location, and knowing how to manage it well.
And it doesn’t end there. Just as you would with your residential property, you also want to protect your investment against common perils by taking an insurance policy. After all, buying an investment property isn’t cheap and the last thing you’d want is for it to get blown away overnight.
So, what kind of insurance do you need for your investment property? Well, that’s what this article is going to teach you about.
Do I Really Need a Landlord’s Insurance?
Below are a couple of questions that an insurance firm may ask you to help determine whether you need the policy or not.
● Will you provide a furnished rental property?
● Who will be responsible when it comes to finding tenants?
● Who will be responsible to carry out property maintenance?
● When the rental property is not rented out, will it remain vacant?
● Will you require your tenants to get renter’s insurance?
● Will you need your tenants to sign an agreement prior to living there?
● For how long do you intend to rent out the premises?
Your insurance company will then be able to determine whether or not you need it based on how you answer these questions.
Won’t My Standard Homeowner’s Insurance Cover Be Sufficient?
A homeowner’s insurance policy may be able to cover your property depending on the time you are looking to rent out your home. Suppose, for instance, there is an upcoming event in your hometown and you are looking to take advantage of it by renting out some space.
In such a case, since it’s just a short-term thing, a standard homeowner’s policy cover will suffice.
However, if you are new to the real estate investment and looking to rent out the home for an extended period of time, then you will need additional protection. And that’s where landlord insurance comes in. A standard landlord’s insurance cover will help protect you against perils such as:
● Structural Damage: If your rental property gets damaged from things like the water heater, vandalism, or fire, your landlord’s insurance will help cover the resulting damages.
● Loss of Income: Some policies may be able to even shield you from sudden or accidental loss of income. For instance, if your tenant is a serviceman and needs to leave immediately because they have received a change of station orders.
● Flood: Water damage can come in a myriad of ways. For instance, from busted pipes, rain, or negligent plumbing issues. Your landlord insurance cover will help compensate you for any damage resulting from any of these.
● Acts of Nature: Examples of acts of nature include earthquakes, hurricanes, and tornadoes. A typical landlord’s insurance will help cover for any damage resulting from any of them.
● Personal Property: Do you offer furnished premises? If you do, then by having a landlord’s insurance, you may be able to get compensation in the event they get damaged.
How Much Does a Landlord Insurance Policy Cost?
According to HouseLogic.com, a landlord insurance policy costs anywhere between 15% and 20% more than a homeowner’s insurance. With the average homeowners cover costing $822 a year, so expect a landlord’s insurance cover to cost you up to $986.
What is a Renter’s Insurance?
Sometimes referred to as “tenant insurance”, a renter’s insurance policy helps cover a renter against potential perils and liabilities. Below are some of the things a renter’s cover may be able to cover.
● Property Damage: Common perils include fire, wind, or theft. A renter’s cover will help compensate your tenant against any damage arising from such perils.
● Personal Liability: This will help protect your tenant in the event someone brings a claim or lawsuit against you for injury or loss of personal property.
● Additional Living Expenses: Otherwise known as loss of use coverage, this will help cover your tenant should the property become uninhabitable. It will help cover expenses such as the cost of food and hotel accommodations.
● Medical Payments: Here, your tenant will get insured against any liabilities arising from getting injured while on the property.
At anywhere between $100 and $250 a year, a renter’s insurance cover is quite affordable to tenants. That said, many renters are still unaware of some of the benefits it offers or erroneously thinks that a landlord’s insurance covers them.
Always require your tenants to be insured by the renter’s policy prior to signing the lease. It can save you tons of trouble down the road.
So, back to the original question – what kind of insurance policy do I need for my rental property? Evidently, if you are looking to rent out your rental property for the long-haul, then you need a landlord’s insurance policy.