Landlord Insurance
Are you a Landlord? Do you own investment property? If so, Landlord Insurance is specific insurance protection for real estate investors who do not occupy the building they own. Whether you own a duplex, apartment complex, retail, office, flex space or industrial building, the insurance concepts are the same.
Property
For an income property, your lease with your tenant dictates who is responsible for what. Your Insurance policy will look to the lease when you have a claim to determine who is responsible for what. As a Landlord who owns your building, you have two primary Property concerns that you want to protect; your Building and the Rent.
If the structure suffers damage, the lease spells out what is to happen, and how much time it can take. You want your insurance to provide the proper coverage so that you have enough money to repair or rebuild your damaged building. While your building is damaged and under construction, your lease will give the tenant the opportunity to break the lease. When this happens, your tenant is no longer obligated to pay rent. Your insurance policy can pay you the rent you expected to receive under Business Interruption, Business Income or Loss of Rents.
Given that you are not occupying the building, it would not be likely that you have any contents in the building other than property designed to service the building and premises. If you do have additional property on premises, you will need to add the appropriate amount of coverage to your landlord coverage to protect your stuff.
If the structure suffers damage, the lease spells out what is to happen, and how much time it can take. You want your insurance to provide the proper coverage so that you have enough money to repair or rebuild your damaged building. While your building is damaged and under construction, your lease will give the tenant the opportunity to break the lease. When this happens, your tenant is no longer obligated to pay rent. Your insurance policy can pay you the rent you expected to receive under Business Interruption, Business Income or Loss of Rents.
Given that you are not occupying the building, it would not be likely that you have any contents in the building other than property designed to service the building and premises. If you do have additional property on premises, you will need to add the appropriate amount of coverage to your landlord coverage to protect your stuff.
Liability
When someone gets hurt at your property, or as a result of you or one of your representatives actions, you will likely be legally responsible for the injuries or damage caused. Your Landlord Insurance provides third party liability coverage for defense and settlement for damages from instances like these. Without Liability coverage, you put your entire asset base at risk when a court awards the injured party damages. It would be a terrible loss to lose your property, the equity you have in it and the income it produces because of someone or something being injured due to your actions. The remedy, buy insurance.
Fine Print
Every contract includes the fine print that seems unimportant when signing the contract but usually contains the "gotcha" clause. Insurance contracts are no different. In a never-ending attempt to clarify what is intended, the insurance companies endorse the policy with Exclusions to define what is not covered.
Some standard exclusions/limitations included on Landlord policy:
Some standard exclusions/limitations included on Landlord policy:
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Optional Coverage
Exclusions take away coverage, so you must ensure your policy includes specific endorsements to add back coverage and eliminate surprises. Depending on the carrier and the policy form offered, working with an experienced insurance agent is necessary.
Here are some endorsements to make your policy work better:
Here are some endorsements to make your policy work better:
- Blanket Coverage
- Agreed Amount
- 18 to 24 months of Business Interruption
- Equipment Breakdown
- Building Ordinance or Law
- Backup of Sewer or Drain
How to Lower Your Cost
There are things you can do to lower your cost. The best place to start is while doing your due diligence when buying a new property. Insurance companies are concerned about a lot more than does the property makes you money. They are focused on claim avoidance, is the property in good condition and well maintained? What is the crime score? For a more in-depth understanding of what your insurance company is looking for, download Building Insurance Due Diligence Checklist.
Beyond not turning in a claim, you should actively manage and transfer your risk from the insurance company to others when possible.
All Property policies have deductibles. Your deductible is the amount of damage you are responsible for before the insurance company pays. You can lower your cost if you take on more risk and a larger deductible. A larger deductible will prevent you from turning in small claims. The insurance company will increase your future cost or possibly cancel you if you have frequent or catastrophic claims. Raising your deductible increases your participation in any claims but will likely keep your insurance cost more affordable.
Beyond not turning in a claim, you should actively manage and transfer your risk from the insurance company to others when possible.
All Property policies have deductibles. Your deductible is the amount of damage you are responsible for before the insurance company pays. You can lower your cost if you take on more risk and a larger deductible. A larger deductible will prevent you from turning in small claims. The insurance company will increase your future cost or possibly cancel you if you have frequent or catastrophic claims. Raising your deductible increases your participation in any claims but will likely keep your insurance cost more affordable.
Renters Insurance
It is a good idea to require your tenants to have insurance to cover their property and any damage they cause to you or others. For residential property, this is Renters Insurance, and for business tenants, this is Liability Insurance. More than likely, there is no additional cost to your tenants to provide you proof of coverage and to name you as an Additional Insured on their policy.
When your tenant has coverage and causes damage to your property, you can turn in a claim on your tenant's policy for the needed repairs and avoid turning in a claim on your policy. Fewer claims on your policy will work to keep your cost down
When your tenant has coverage and causes damage to your property, you can turn in a claim on your tenant's policy for the needed repairs and avoid turning in a claim on your policy. Fewer claims on your policy will work to keep your cost down
How to Shop for Landlord Insurance
Landlord insurance for a duplex you self-manage is probably easiest to buy from the same agent or company that insures your personal home and auto. If you own the rental property individually, this will allow you to easily add the property under an Umbrella for additional Liability protection.
If you are growing your portfolio or own larger properties, you will likely do better when working with an independent agent specializing in working with landlords. The larger, older, and more complex your property, will require more specialized coverage available on a commercial insurance policy. A good independent agent will have access to multiple carriers and or programs focused on investment property owners. Ideally, they will provide a comparison between two or three companies from which you can choose.
Insurance is regional. Not all carriers offer coverage in all states, and not all agents are licensed in all states. If you live in one region and are buying property in another, you need to ask your agent if they can provide coverage in the area where your property is located.
Insurance carriers are rated on their financial strength and ability to pay claims by rating agencies like AM Best, whose ratings range from a letter with a plus or minus: A+, A, A-, B+, B, B-, etc. Additional roman numerals reflect their financial size, with XV being the largest from Most lenders will not approve a policy underwritten by a carrier rated less than A-.
Based in Portland, OR, I work with investors across the USA. I'm also a real estate investor. My company is licensed in 43 states and represents multiple regional and national carriers and landlord-specific programs focused on real estate investors. If you are looking for an agent specializing in working with landlords, give me a call at 503-504-7619.
If you are growing your portfolio or own larger properties, you will likely do better when working with an independent agent specializing in working with landlords. The larger, older, and more complex your property, will require more specialized coverage available on a commercial insurance policy. A good independent agent will have access to multiple carriers and or programs focused on investment property owners. Ideally, they will provide a comparison between two or three companies from which you can choose.
Insurance is regional. Not all carriers offer coverage in all states, and not all agents are licensed in all states. If you live in one region and are buying property in another, you need to ask your agent if they can provide coverage in the area where your property is located.
Insurance carriers are rated on their financial strength and ability to pay claims by rating agencies like AM Best, whose ratings range from a letter with a plus or minus: A+, A, A-, B+, B, B-, etc. Additional roman numerals reflect their financial size, with XV being the largest from Most lenders will not approve a policy underwritten by a carrier rated less than A-.
Based in Portland, OR, I work with investors across the USA. I'm also a real estate investor. My company is licensed in 43 states and represents multiple regional and national carriers and landlord-specific programs focused on real estate investors. If you are looking for an agent specializing in working with landlords, give me a call at 503-504-7619.