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Do Landlords Need Different Types Of Home Insurance On Rented Properties
2010-01-13
In the last decade, Americans have been investing in income-producing property in record numbers. Buildings that can create cash flow are the "Holy Grail"of buying real estate property. One of the costs of doing business as a landlord is a comprehensive property insurance package that will protect you from the unique risks of owning a rental property.
Most of us are familiar with homeowner's insurance policies that protect the property owner from the risks that revolve around damage, loss and liability. However this basic coverage falls short of the landlord's need for protection. A landlord must consider loss and damage, so dwelling coverage is common to homeowners and landlords alike. However, the landlord must also protect his/her "business"from loss of income and exposure to lawsuits. A landlord's insurance package will typically include enhanced liability coverage, since there is a greater risk of a lawsuit for owners of rental property. In addition, a landlord needs coverage that will pay legal fees in the event of a frivolous lawsuit. Such protection insures against non-auto liability claims and property damages that might occur on the property. These insurance policies offer coverage to provide legal defense counsel if the landlord is sued. In the event that the property is damaged and not rentable, the landlord faces a loss of fair rental income. He/she will want insurance that covers them from such a loss. If the damage is due to a covered event, such a policy will reimburse the landlord for lost rental income they would have received. A landlord will have up to 12 months to repair the rental unit without being deprived of the income it would have produced.
In short, a good rental property insurance policy will cover the things that a new landlord might not think of. For example, most multi-tenant properties have common areas like a parking lot. A landlord will want a policy that covers the costs of accidents and incidents in common areas that could include, debris removal, emergency removal of property, or damage to trees and lawns. In the event that emergency services are summoned to the property, a policy that covers things like arson rewards and fire department charges is also a good idea.
Even with the very best commercial property insurance policy in place, the landlord should have an excellent umbrella policy. Americans are a litigious society and an umbrella policy will provide additional coverage beyond the basic policy. Of course there is no policy that will prevent a lawsuit, but a landlord who covers him/herself completely and encourages their tenants to obtain their own renter's insurance has done all that can be done to protect themselves.