There is no worse feeling than experiencing something unexpected, like dropping your phone, and realizing you never got insurance on the item that got damaged. When making a big purchase, you don’t want to think about the added cost of coverage for it, but it’s important that you do when it comes to your investment properties. Here are some reasons why all landlords should purchase landlord insurance.
What is Landlords Insurance and What Does it Cover?
Landlords’ insurance is exactly what it sounds like: insurance for landlords. Think of how people who purchase homes have homeowner’s insurance, which protects you against unexpected circumstances like vandalism, natural disasters, or fires. Landlord insurance covers many possible liabilities that could occur to your investment properties.
Landlords’ insurance varies from plan to plan, so it’s important that you decide what type is the most fitting to your needs as a property owner. Do your research on different companies and coverages and keep in mind that the cost landlord insurance incurs depends on your property’s location, hazards, and what specific coverage is important to you.
Typically, if you ask an insurance company, “What does landlords insurance cover?”, the answer you’ll get will include the following:
- Physical property damage – Any damage to your property from storms, break-ins, or natural disasters is included.
- Lost rent – If your property is uninhabitable following damage from one of the causes listed above, you will lose rent money since your tenants will be forced to find alternative housing while your rental is repaired. Landlord insurance will usually reimburse you for any rent you lose out on during that time.
- Liability – Landlords can be sued by their tenants for a multitude of reasons. A tenant could receive an injury for a freak accident involving one of your appliances, for example, and take you to court. Landlord insurance will cover reparations you may be required to pay along with the cost incurred by hiring an attorney.
Keep in mind that what is covered in landlord insurance also depends on what you value personally, and sometimes additional protection is more valuable than anything. Landlord umbrella policies serve as a second layer of insurance that provides a supplement to your traditional insurance plan.
Many landlord insurance policies will cover up to $1,000,000 in liability coverage, but what happens when you exceed that policy limit? If you have an umbrella policy, that policy will cover the charges you incur beyond that initial coverage limit. Legal fees and other court costs alone can cost a fortune, so having an umbrella policy as your safety net is a great idea.
How Much Will You Have to Pay?
As previously mentioned, the amount you pay for landlord insurance depends on a variety of factors, including where your property is located, its condition, the type of building it is, and how much coverage you need.
On average, landlords pay around $2,000 a year for landlord insurance. The National Association of Insurance Commissioners estimates that premiums can range anywhere from $913 to $2,484, depending on what state you own property in. If your state is particularly susceptible to natural disasters, you’re more likely to pay a higher rate. However, speak with an insurance agent who will send you more accurate estimates.
Additionally, keep in mind that this sum is not required upfront. You will usually pay your premium in monthly installments, spread out over the year. Although the numbers listed above may seem daunting, you would pay much more in the case that any of those liabilities happen to your property or tenants, so the cost of landlord insurance is well worth it.
Should You Get Landlord Insurance?
It’s very unlikely to never experience property damage or liability throughout your landlord career. So, when the inevitable happens, you will definitely want to have insurance. The monthly insurance bill may seem burdensome between all the other fees and charges you take on as a new landlord, but the most detrimental thing to your business is suffering from a devastating disaster and having to pay completely out of pocket.
The long-term success of your business relies on your ability to mitigate risk with your properties. There are a number of liabilities that could happen while investing in real estate, so be prepared and get your investments properly insured.