Renting out your vacant property can yieldgreat supplemental income, but it also means you are at the mercy of your tenants. If they smash a hole in the wall or fail to pay rent, you couldas their landlordbe financially liable. As a property owner, you want to cover all your basesand that means purchasing a landlord insurance policy.
Landlord insurance is a vital add-on for anyone planning to rent some or all of a property to another party, says James J. Whittle, assistant general counsel and chief claims counsel for the American Insurance Association.
Lets look into some of the specifics.
Coverage varies based on your location and your insurance company, but most basic policies will protect the house, apartment, or condo you are renting out against "covered perils," which typically include severe weather, natural disasters, and vandalism.
Check your policy carefully to know exactly whats covered; in some areas you may need a flood or earthquake rider, for example. Besides the main structure, abasic policy usuallycovers sheds, garages, retaining walls, and fences.
More significantly, landlord insurance covers the owner if someone is injured on-site. This can be useful in a multitude of situations, from your tenanttripping on the entry stairs to their suing you for damage to their couch caused by a burst pipe.
In addition to offering these basic protections, somepolicies also cover the following contingencies:
Living in your own home carriesa different risk than allowing someone else to occupy your home.
"Think about it: Your home insurer has chosen to insure you, but they don't know anything about that third party," Whittle says. Plus, mosthome insurance policiesare unlikely to cover a property that is rented on an ongoing basis. That's why it's necessary to look into landlord insurance if you plan on renting out your property.
Have we convinced you of the importance of landlord insurance? Good! Now lets dig into the logistics.
The cost of policies will vary widely based on your location, the condition of your home, and a slew of other factors you'll learn about once you start shopping. Many of the contingencies mentioned above are optional and therefore cost extra.
As a ballpark, expect to pay about 25% more than you would for homeowners insurance for a basic policy, with rates varying according to your geography, property age, deductible, coverage limits, and more. One perk is that you can deduct your landlord insurance on your tax return as a business expense.
Make sure you do your homeworkyoull want to compare coverage and prices on an apples-to-apples basis. Start with your own home insurance company if youre pleased with the service. Sometimes you can snag the best rate by bundling different types of policies; owning multiple properties or units; or adding alarm systems, sprinklers, and other security features.
As with any insurance policy,its smart to shop around to make sure youre getting the most valueat the best price.