Types of Insurance Real Estate Investors Need Winston Rowe and Associates
The basics of becoming a landlord are straightforward. But if you want to protect your assets insurance is essential.
The right insurance policy should be able to cover any unexpected financial losses or massive expenses, protecting the profitability of your operation.
Technically, landlords aren't legally required to have any type of insurance. However, if you've taken out a loan on the home, you may be required by the lender that you have a basic homeowner's insurance policy. Just note that a conventional homeowner's policy may not protect you if you're renting out the property to other tenants.
Types of Insurance to Consider.
There are many types of insurance that you should consider:
Building and property insurance.
First, you'll want a policy that protects your building and property from unexpected damage. Your building is the most significant portion of your investment, and therefore, your biggest financial liability. If something happens to it, such as a roof caving in or a destructive event from a tenant who lives there, you'll want a comfortable policy that can cover the damages.
Otherwise, you'll end up paying tens of thousands of dollars, possibly compromising your profitability.
You should also have some type of liability insurance in place. Landlord liability varies depending on where you live, but for the most part, you're responsible for keeping your property in a safe, livable condition. If one of your tenants' trips and falls or hurts themselves while living in the property, they may have grounds to file suit against you. Liability insurance protects you from these events, covering your defense costs and compensating victims.
Loss of income and business interruption insurance.
Landlords may also be able to get a form of business interruption insurance, protecting them from possible interruptions to their stream of rental income. For example, if you're injured and unable to fulfill your responsibilities as a landlord, you may earn compensation that allows you to keep things running.
This type of insurance may also help you secure rental income from tenants who are unable to pay.
Protection from specific threats.
Property insurance doesn't cover anything. You'll want to read your policy closely and get coverage for other specific threats. For example, you might need a separate policy to protect your building from natural disasters like floods or earthquakes.
If you're looking for a comprehensive policy, you may be able to find a provider who offers collective "landlord insurance," which offers coverage in several areas, including the four listed above. For the most part, these insurance policies are flexible; you'll be able to pick the types of coverage and extent of coverage you need, so you can protect yourself from the majority of threats and still stay within your budget. If you're interested in this type of insurance, it's advisable to talk to an insurance agent, who will have more insight into the types of policies you need (and the total costs you might face).
It's also important to note that your property insurance policy and liability insurance policy won't protect any of your tenant's possessions. For example, if leaky plumbing causes water damage to a tenant's television, your insurance policy may not cover the damages (though it may cover you, if it offers liability coverage). For that, your tenants will need to get a renter's insurance policy.
Published by Winston Rowe and Associates. They can be contacted at http://www.winstonrowe.com