A wise way for homeowners to make additional income is to invest in properties to rent, manage, or renovate and sell. But without the right kind of insurance, these properties could potentially lead to lawsuits that could put homeowners’ other properties and assets on the line.
Many landlords don’t realize they need additional insurance policies once they purchase additional properties to sell or rent to residents. Making sure you choose the right kind of insurance for your investment properties is an essential part of the purchasing process. If you’ve recently acquired an investment property, keep these five tips in mind while looking for the right insurance policy.
1. Purchase the right insurance type.
The investment properties you buy will determine the insurance you need. If you are purchasing a home with the intent of renovating it and selling it — with no plans to rent the home to other residents — you may be able to cover it with a home insurance policy separate from your current policy.
However, if you are renting the property to residents — as is the case for most investment properties — you’ll need a landlord insurance policy. This type of policy is usually required for investment properties and protects owners from damage to the property and liability damages to residents.
2. Select a policy with the right coverage.
If you are purchasing landlord insurance, you’ll want to consider the coverage types included in your policy. Numerous types may be included, but each policy will differ. The most important types are dwelling and liability coverage.
Dwelling coverage covers costs related to property damage in the event of a disaster. A few different levels for this coverage include basic “perils” such as fire or theft — all the way up to earthquakes, tornados, and floods. Depending on where your property is located, you may want to pay more for a more comprehensive coverage policy.
A liability policy will cover physical injuries to residents and their guests that occur on your property. If they sue for damages and you aren’t covered, you could be held responsible.
Other types of coverage may include rental income protection, which covers a certain amount of income lost in the event of uninhabitable conditions, and personal property coverage, which covers personal property you leave in the rental unit for your residents to use.
3. Lower your premium with extra property protections.
You can control certain things affecting the amount you pay for your landlord insurance policy. Insurance companies may lower your premium if you can prove you’ve installed fire sprinklers and other protective systems, such as flood lights, deadbolts, or security systems. Additionally, maintaining property upkeep can be another potential money saver.
4. Understand the differences between landlord and renters insurance.
One major difference between landlord insurance and renters insurance exists. Specifically, landlord insurance will not cover damages to your residents’ personal property. Therefore, you should encourage residents to purchase separate renters insurance. To be safe, you may even want to require proof of renters insurance when leasing.
5. Talk to your provider to purchase landlord insurance.
Many options exist for landlord insurance, but working with the insurance company you already have policies with may help you lower your premium. However, not all companies will offer landlord insurance because investment properties come with significant financial risks. Be sure to check with your provider as soon as possible to make sure you don’t need to find an alternative.
Once you decide to purchase your next investment property, don’t delay in contacting an insurance provider to discuss your options for keeping your assets safe. Consider the type of property, its location, and what you can do to lower your premium to ensure you’re getting the right coverage.