If you’re thinking of becoming a landlord, you’re probably aware of the potential passive income rental property brings. You may or may not be as aware of the risks. You’re probably aware of homeowner’s insurance to protect your own home.
However, you should be considering getting landlord insurance, as well. Let’s review what landlord insurance is and why you should consider it.
What is landlord insurance?
Landlord insurance is similar to general homeowners’ insurance. It covers the brick and mortar structure when it is damaged. If the property burns down, the insurance pays for the reconstruction. Depending on the clauses, if the property is damaged by a flood, it pays for the repairs. It typically covers the cost of repairing damage by vandals or losses due to theft.
You will probably need a rider or expanded insurance policy for the insurance to cover outbuildings like sheds. Accidental coverage may be part of a landlord insurance policy or a separate rider; this coverage pays for things like pet accidents on the rug or broken windows from kids playing ball outside.
Who must have landlords insurance?
If you use a mortgage to buy a property to let, your mortgage lender may require you to have landlord insurance. You can also secure insurance even if you own the property and are not legally obligated to have it. Note that this insurance doesn’t cover the cost of your tenants’ possessions, though the policy issuer could require you to ensure tenants have renters’ insurance.
Why should I consider landlord insurance?
Landlord insurance can cover a number of things. A thorough policy covers not only accidental damage and damage to the building but provides money if you lose rent because the property is vacant as repairs are made. Loss of rent coverage ensures that you receive income with which to pay the mortgage or your own bills while the damaged property is being rehabbed.
The insurance by default covers the cost of structural repairs. Review the policy carefully to make sure it pays for building a new, similar building, since the policy may only pay out a lower amount. Most insurance doesn’t pay for replacing the contents of the home like furniture unless you take out a separate landlords’ contents insurance. Landlords’ contents insurance is invaluable if you rent out a fully furnished property. Landlord insurance policies with a “new for old” basis will buy new furniture or appliances if they are ruined versus paying you the current market value of items, which may be a fraction of their replacement value.
The policy may or may not cover replacing kitchens and bathrooms when building code changes make this mandatory or plumbing problems make it necessary. You want landlord insurance policies that cover everything you want it to. It’s worth researching and finding a provider that meets all of those needs. You can use sites such as Compare My Insurance to find insurance that covers everything you want it to and make the job easier. You can find the balance between cover and price.
Landlord insurance protects the landlord’s investment, the property. It is a wise investment if you’re a landlord, but it may be mandatory if you have a mortgage against the rental property.