A Quick Guide To Landlord Insurance and Rent Guarantee Insurance

Being a landlord can be stressful. It’s more than just owning a property. There are a lot of things that need to be taken care of. The list of considerations to take into account includes everything from the careful selection of tenant applicants to building maintenance and renovations, as well as organizing paperwork, managing rent payments, and tracking income and expenses.

On top of this, things can go wrong even with the best management of a property. This is why finding the right policy and insurance provider for your landlord insurance is vital. The right type of insurance will protect you against any property damage or accidents that may occur.

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What Does Landlord Insurance Cover?

Landlord Insurance is different from Homeowners Insurance or Renters Insurance. Typically landlord insurance just covers the building. Basic coverage will cover common damages from events like fire, storms, or smoke whereas more expensive coverage will even cover loss of rental income in case your tenant has to move out following an insured event.

There are often options of adding cover for items and content of the property that is owned by the landlord at an additional cost.

The coverage for these policies is broken down into three categories.

Property Damage

This includes the structure and (when added) furniture, appliances, and other major landlord owned possessions.

Note: This does not cover the tenant’s property, they need their own separate renter’s insurance policy for their own personal possessions.

We recommend that you advise (or even require) your tenants to purchase renters insurance before moving in.

Liability Coverage

This covers any expenses incurred by a tenant or guest is injured on your property. This coverage is especially important if your tenant gets injured and claims negligence of property maintenance on your part. Accidents happen, and this will cover lawyer fees and medical expenses.

Loss of Income

This is precisely what it sounds like. If your tenant is unable or refuses to pay due to one of the perils described earlier in this article this kind of insurance will protect you against revenue loss.

Do You Need Landlord Insurance?

If for example, you are renting out a spare room in your house, then you are likely covered by your home insurance. In this scenario, you may not need to get separate Landlord Insurance. However, it is always worth checking your current policy and seeking advice from your insurance provider.

On the other hand, if you own a property that you rent out, and none of the occupants are partial owners then you will definitely need Landlord insurance.

What Are The Types of Landlord Insurance?

For landlords, there are three main types of insurance. These are Dwelling Property (DP) 1, 2, & 3.

DP 1: This is the cheapest form of coverage and covers the basics that we mentioned before in this article. Things like Fire, storms, hail, riots, and smoke damage.

Something to take into consideration is that this kind of coverage only insures your belongings at cash value which takes into account depreciation. For example, you purchased an oven for $1000 you would only be covered for the depreciated value. It depreciated by 40%, for example, you would only be covered for $600.

DP 2: This is a more comprehensive coverage plan. Often including things like burglary, frozen pipes, electrical damage, and water damage.

And instead of cash value coverage, you are covered for the replacement cost. This will come with a higher premium, but it comes with the assurance that the property will be restored to the same state it was in before any damages occurred.

DP 3: The most expensive cover, but it will cover almost all possible scenarios. As well as cover you for potential loss of revenue.

What Is Rent Guarantee Insurance?

Rent guarantee insurance is a particular type of landlord insurance that covers lost revenue from tenants should they fail to pay. There is a variety of reasons that a tenant might stop paying their rent – job loss and unexpected bills to relationship turmoil. Sometimes landlords will have to take the financial hit of missed rent payments and in extreme cases evict their tenants. Under those circumstances, tenants may not pay rent for months as the eviction process is underway.

Landlord rent insurance acts as a safety net if a tenant’s payments fall through. Generally, it covers between 6 weeks to 6 months of lost revenue per year.

Rent guarantee insurance covers nonpayment of rent if a tenant defaults on any rent payments they’ve agreed to in their lease. Keep in mind that it’s separate from landlord insurance, which covers damage to property but not loss of rent.

How Does Rent Guarantee Insurance Work?

As with other landlord insurance policies, you will need to take out a rent guarantee insurance policy for each of your properties that you wish to cover. There are different policy types for things like multi-unit properties vs single-family homes vs low-income housing and accessory dwelling units.

You will need to select the type of property you want to be covered as well as the length of coverage. If a tenant stops paying rent during the tenancy the landlord can claim and collect the rent amount that is owed under the lease agreement.

If you have multiple properties you will need a separate policy for each. If your property has multiple units in it you will need to purchase insurance for all of them at once.

Landlord insurance and rent guarantee insurance is generally a deductible expense and should be tracked using a system like Landlord Studio and reported as a deductible expense at the end of the tax year.

There are a few instances where rent guarantee insurance won’t cover unpaid rent — including a landlord’s failure to comply with the lease or keep the rental property habitable.

Saving Money On Your Insurance

There are a few tricks to getting the best value for your buck when it comes to insurance. However, remember that, as is often the case, the less you pay the less you get. Not taking out the fullest coverage may cost you more money down the line.

Here are a couple of things you may want to consider to help reduce your insurance costs.

Bundle Policies: If you have other forms of insurance, for example, automobile or homeowners, you can group them all under one company. Often the insurance provider will give you a discount if you do this.

Install Safety and Security Features: These will lower the risk of dangerous incidents. Less risk means lower costing policies. Consider things like installing security cameras or updating smoke and burglar alarms.

Shop around: Insurance quotes from one provider to another vary widely, so take some time to do your due diligence and find the best value policies.

To understand your coverage properly you need to understand the different types and categories of coverage. We advise you to do your research and discuss all possibilities with your insurance provider before purchasing to make sure you get the landlord insurance that is right for you.

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