When you own rental property, it’s essential to protect yourself legally and financially. Property damage, liability lawsuits, and lost income can erase years of equity in an instant. Standard homeowners insurance doesn’t typically cover rental properties, so you’ll need to get the right set of policies to cover yourself if something goes wrong.
If you don’t know what insurance policies to get, ask your property management company what they recommend for their clients. And if you haven’t started working with a property manager, put it on your list because it will help control risks that affect insurance costs and rental income stability. For instance, Georgetown property management company Green Residential strictly adheres to the law, so owners don’t need to worry if a tenant files a lawsuit.
Whether you’re a new or seasoned landlord, the following insurance policies are essential.
- Landlord insurance
Landlord insurance, also known as rental property insurance, is specifically designed to cover risks that standard homeowners policies don’t, like rental income loss, property damage, and certain liabilities. This policy is often required by lenders and is an essential part of your risk management strategy. It covers:
- Physical property, like the walls, roof, floors, and built-in components if they become damaged by fire, windstorms, or vandalism.
- Liability protection against personal injuries sustained on your property.
- Lost rental income if your property becomes uninhabitable or major repairs require your tenants to move out.
- Structures like detached garages, sheds, and fences.
- Your personal property like appliances and furnishings.
Premiums for landlord insurance are higher than homeowners insurance, but it’s an essential part of your protection plan.
- Flood insurance
Standard insurance policies don’t typically cover flooding from rainstorms, rising rivers, or atmospheric river storms. Flood damage is serious, and you don’t need to be in a flood zone to get hit. About 40% of National Flood Insurance Program claims come from outside high-risk, 100-year floodplains. Without flood insurance, you’ll be on the hook for repairs and lost rental income until those repairs are complete.
If your property is in a flood zone, insurance is likely required. However, flood policies have caps and exclusions, so it’s crucial to understand your policy options before purchasing.
- Storm insurance
Properties in coastal areas or areas that get high winds are at risk for hurricanes, storms, and tornadoes. Depending on your area you might need separate windstorm and hurricane insurance. However, you might be able to get a reduced premium by upgrading your roof or installing storm windows.
- Vacant property insurance
When your property sits empty for an extended period of time, your standard insurance policies may restrict or deny coverage altogether. Vacant property insurance fills this gap between renters.
Vacant properties are targets for vandalism, squatters, and theft. With vacant property insurance, you’ll get coverage that will help pay for repairs and legal costs to evict squatters. It will also cover personal injuries sustained on the property, damage from water leaks, and other types of damage.
- Earthquake insurance
Most standard homeowners insurance policies exclude damage caused by earthquakes. If your property is in an area prone to earthquakes, this insurance policy is essential. It will cover rebuilding or repairing your property, like fixing cracks in the foundation or a collapsed wall.
- Umbrella insurance
An umbrella policy will provide you with additional liability protection when a claim exceeds the limits of your standard policies. This policy typically adds $1 million or more to your base policies and is great for covering legal fees and lawsuit judgments.
- Specialty coverages
Every rental property comes with unique risks and you might need additional policies not mentioned here for complete coverage. For example, you might find the following policies helpful:
- Rent guarantee insurance. This protects you if a tenant defaults on the rent by paying you a portion of lost rent after a certain waiting period.
- Equipment breakdown insurance. This covers repairs and replacements to mechanical systems like HVAC units or water heaters after an unexpected failure.
- Code upgrade coverage. If local building codes change and require upgrades after a loss, this insurance will cover some of that.
- Mold and sewer backup coverage. These issues are typically excluded from standard insurance policies but are common issues landlords face.
- Short-term rental insurance. If you’re running an Airbnb or vacation rental, this is the coverage you need.
Creating a custom insurance policy portfolio ensures you don’t end up paying for everything out of pocket should you experience unexpected costs.
Insurance is a smart strategy
Every rental property owner faces risks, but they can be mitigated with the right insurance policies in place. Don’t guess at what you need. Assess your properties fully to understand your risks and then build an insurance plan that covers your unique needs.