How to Protect your Rental property via Insurance:
When I was considering moving into the landlord business and focusing on a passive income investment approach, I was concerned with protecting my asset and the associated income – as I was not going to be there every moment. My risk management techniques were limited and differed then other assets.
I was curious to see how I could protect my rental property via insurance. For my first rental property, it was a property I previously lived in as my primary residence and already had a homeowners policy, but many questions went through my head: for example, was this the right policy for me going forward?
What Type of Insurance Do I Need If I’m Renting Out My Home?
Here’s How to Cover It
For those of us who are focused on passive income, there are many reasons you might want to rent out your home on either a short- or long-term basis.
Depending on the rental type and situation, your standard homeowners policy may not cover losses incurred while your home is rented out, and you may require a more specialized insurance policy.
So, whether you own a second home that you lease to to tenants, or you rent out a spare bedroom in your house periodically though Airbnb, or make a little extra cash renting out your vacation home the weeks you’re not using it, you need to establish if you have coverage or need specialized policies. The best first step should be to call your insurance professional. Your insurance professional will be able to guide you through this process, highlight exclusions on your policy and work with you to obtain coverage.
Short-Term Rentals/Primary Residence
According to the III, if you are planning to rent out all or part of your primary residence for a short period of time, for instance, a week or several weekends, there will likely be two insurance scenarios:
- Some insurance companies may allow a homeowners or renters policyholder a short-term rental—assuming they have notified the company. How likely is it for homeowners or investors to interact or notify their insurer when a rental presents itself, and do you want to run the risk of forgetting to notify prior to a short term or last minute rental opportunity? That’s why other insurers will require an endorsement (or rider) to the existing insurance policy in order to provide insurance coverage.
- If you plan to rent out your primary residence for short periods on a regular basis, to various “guests.” this would constitute a business. Standard homeowners insurance policies do not provide any coverage for business activities conducted in the home. To be properly covered you would need to purchase a business policy—specifically either a hotel or a bed and breakfast policy. See our article about AirBnB owners and risk.
Long-Term Rentals/Second Home
If you are planning to lease your home to one person or a couple or family for a longer period of time, say six months or a year, you will likely need a landlord or rental dwelling policy.
Landlord policies generally cost about 25 percent more than a standard homeowners policy to pay for increased protections. If you are regularly renting out a vacation home or investment property, this would also require a landlord or rental dwelling policy. I have a landlord policy for my properties as their are mostly 1 year rental properties. This provides a lot of piece of mind for me as the asset owner and risk bearer.
Landlord policies provide property insurance coverage for physical damage to the structure of the home caused by fire, lightning, wind, hail, ice, snow or other covered perils. It also offers coverage for any personal property you may leave on-site for maintenance or tenant use, like appliances, lawnmowers, and snow blowers.
The policy also includes liability coverage; if a tenant or one of their guests gets hurt on the property, it would cover legal fees and medical expenses.
Most landlord policies provide coverage for loss of rental income in the event you are not able to rent out the property while it is being repaired or rebuilt due to damage from a covered loss. This coverage is generally provided for a specific period of time.
Other Landlord products:
There are some other good products for landlords. One example is Insurent.
Rent Guaranty Insurance. As a landlord or property owner, it can be difficult to find the perfect tenant. Also keep in mind, even if you do find a great prospect for your apartment, condo or co-op, there’s still a chance they may not meet the strict financial qualifications necessary to move into their new home.
With the Insurent® Lease Guaranty Program, you no longer have to worry about filling vacant rentals from a small pool of applicants who meet the financial requirements or can locate a suitable individual co-signer. The program reduces your vacancies, drives renters to your buildings, expands the pool of qualified renters and guarantees the full rent obligation and other items—all at no cost to you.
This is the type of product to help landlords like myself manage risk and enjoy less stress.
Rent loss is now a thing of the past.
As the landlord, your coverage is only on the structure itself and your financial interest in it. Your tenant’s personal possessions are not covered under your policy. In order to avoid disputes arising from damage to the renter’s belongings, many landlords require a tenant to buy renters insurance before signing a lease. See our discussions about Why you NEED Renters Insurance
Both tenants and landlords should be looking to protect themselves in this relationship. More landlords should consider rent guarantee type products.
I know once I move down to the beach full time – I will enjoy the benefits of property manager, rent guarantee insurance, landlord policy, and make renters insurance and proof of coverage a requirement of leasing my properties. My passive income strategy will come full swing, utilizing the benefits of my insurance career, investment expertise, and risk mitigation techniques.
I will just be focusing on fitness, relaxation, family, and leave the passive income to flow in.