Real estate investing can be a lucrative business. If you play your cards right, your rental property can provide a steady stream of income for many years.
As OmniKey Realty, points out, it only makes sense to do all you can to protect your property.
As a new investor, you’ve probably asked yourself – what kind of insurance do I need for my rental property? Is it a homeowner’s insurance, a landlords’ insurance or renter’s insurance? With all the different options, figuring out the right insurance for your property can be overwhelming.
Fortunately for you, this article aims to answer these questions to help you decide which insurance to get.
Can my homeowner’s insurance cover my rental property?
A homeowner’s insurance policy, just as the name implies, is meant for homes and not for investment properties. However, one exception is when you temporarily convert your home into a rental property.
A homeowner may want to rent out his property temporarily. For example, there is an upcoming huge festival in the neighborhood, and the homeowner wants to cash in on it. Since it’s only a short-term rental, you don’t need to get extra insurance protection aside from your homeowner’s insurance.
However, the same cannot be true if you intend to rent out your property long-term. In this case, you will need to get a landlord’s insurance. Now you might be asking yourself – what does a landlord’s insurance policy cover? Well, you can expect protection against:
· Structural damage -This is any damage that has an effect on the structural integrity of your home. Damage to it can be caused by fire, water, and even vandalism.
· Income loss - Some policies may help shield you from any accidental or sudden income loss. One example is when your tenant breaks the lease agreement for legal reasons. For example, your tenant breaks it due to military service or domestic abuse.
· Floods - Your landlord insurance may also protect you from any flooding that occurs in your rental property. The flood may be caused by various reasons, such as plumbing issues, heavy rain or busted pipes.
· Nature acts - These include damages resulting from natural calamities such as hurricanes, earthquakes or tornadoes.
· Property damage - A typical landlord’s insurance can also help shield you from any damage to your personal property. These includes any personal property which you left in the rental home. One example is furniture, if in case you provided the tenant a furnished rental property.
· Liability cover - This is coverage for legal or medical costs incurred if the tenant or visitor gets injured. And the injury was caused by a property maintenance issue. Some examples include a hive of bees that became out of control, a collapse of a structure or icy walkways.
How much does a typical landlord’s insurance cost?
According to a study done by ValuePenguin.com, the average American homeowner pays anywhere between $800 and $1,100 every year. But since an investment property is prone to more damage, expect to pay up to 20% more.
Based on the estimates above, expect to pay between $960 and $1,320 for the same property annually. Costs can, however, fluctuate quite quickly depending on a variety of factors. Such factors include the location of your property and the type of rental property you operate.
Short-term rentals, for instance, have higher annual premiums. Generally speaking, the shorter time you rent out your property, the more premiums you should expect to pay.
The reason for this is that tenants living in short-term rentals may not be particularly keen on maintenance issues. Because they are only staying short-term, they may be a bit negligent with the property. And they may not pay attention to crucial things like electrical wiring, load-bearing supports or plumbing.
This increases the probability of maintenance issues with the property, which in turn raises the insurer’s risk.
What is a renter’s insurance?
Renter’s insurance helps protect your tenant’s personal property from unexpected circumstances such as fire, theft or sewer backup damage. It can also help shield your tenant from any liabilities when someone is injured while on property premises.
So, what does renter’s insurance cover? Typically, it covers perils such as a frozen plumbing system, vandalism, theft, hail, windstorm, lightning or fire.
Should you require your tenants to get a renter’s insurance? Yes, you should! Most renters won’t get one unless their landlord requires it. Some benefits of requiring your tenants to have renter’s insurance are the following:
· It can help you weed out potentially troublesome tenants. If a tenant can’t afford $25 to protect themselves, chances are that they might have trouble paying rent too.
· There might be less claims against your landlord’s insurance policy, as the renter’s policy will cover damages to your tenant’s property.
· If your property is pet-friendly, a renter’s insurance policy might be helpful. This is because it lessens the risks of injuries and damages the can be caused by the tenant’s pet.
· It can help cover the cost of relocating to a temporary residence due to for instance, natural disasters or fire.
Protecting your investment property is key to realizing your long-term investment goals. If you have additional questions, please feel free to contact a professional insurance agent.