Recently, I was speaking with someone about the woes of being a landlord. Landlords are presented with circumstances, especially during these tough economic times, that prevent them from using their property to earn an income. These circumstances include legal disputes between a landlord and tenant. If legal expenses are purchased as a part of the insurance coverage, landlords will be compensated for any related legal fees. In cases where the property is damaged to the point that it is uninhabitable, landlord insurance will help cover the costs to repair the damages as well as compensate the landlord for the loss in rent collected during the rebuilding. Like all contracts, the precise language of the insurance coverage must be carefully reviewed to understand precisely what is and is not covered. Coverage may be limited to damage of the interior or exterior of the property.
Landlord insurance provides similar protection to homeowner's insurance, but with expanded coverage to ensure your needs as a landlord are met. If you want to be a landlord, you should spend time evaluating policies and factor that expense into your budget.
Here's what landlord insurance covers:
First and most important, landlord insurance covers your property from most damage. If your building is destroyed in a fire, landlord insurance covers the cost of rebuilding it. Make sure you provide an accurate estimate of what it would cost to rebuild; if you insure for too little, you might be stuck paying for the remainder of the repairs. Read your landlord insurance policy carefully to determine what is and isn't covered; some landlord insurance policies don't protect against flooding in a flood plain, other natural disasters or "acts of God."
Lost Rental Income
Landlord insurance policies typically go above and beyond the coverage offered in homeowner's policies, including coverage to reimburse you for any lost rental income due to building damage. If a fire renders your building uninhabitable for months, some landlord insurance policies reimburse you for the lost income during this time. If you rely on your rental properties as a source of income, buying landlord insurance that covers rental income can be a worthwhile investment.
Your Property Contents
While landlord insurance policies don't insure your tenant's belongings, they do typically cover your own belongings that tenants might use. If you rent your apartment furnished, or if you leave contents on-site for the easy maintenance of your apartments, these items might be covered. Landlord insurance can also protect your carpet, shed, landscaping equipment or furniture. Make sure to take an accurate inventory of your contents on the premises, and purchase enough landlord insurance to cover all of your belongings.
Legal Fees and Liability Protection
As a landlord, you may be liable if your tenant is injured in your property. Whether you're liable or not, most landlord insurance policies cover legal fees in the event that your tenant sues you. Your landlord insurance policy also pays out in the event of a judgment against you, protecting your personal belongings and assets if your tenant should make a successful suit. Depending on the landlord insurance, your policy may also cover medical payments in the event that your tenant is injured. Determine what your landlord insurance covers and make sure it provides adequate personal protection to you and your assets.
What happens if you don't buy landlord insurance?
If you don't have landlord insurance, you aren't covered for any of these potential incidents. If your building is never damaged, your tenant never injured and your contents never suffer any harm, then you won't miss the landlord insurance. However, if you don't have landlord insurance and any of these problems occur, you can lose your valuable investment and be on the hook for hundreds of thousands of dollars in repairs or legal fees and judgments.