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Accidental landlord? Check your insurance coverage

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 | May 1, 2015

If you’re one of the many homeowners who decide to rent your home rather than wait for it to sell in a slow market or while you build your home equity, you may not realize that making the transition from resident owner to landlord requires different home insurance coverage.

Before you panic at the thought of higher insurance premiums cutting into your cash flow, you should know that landlord’s insurance coverage is often similar in cost to the premiums paid by owner-occupants. However, depending on your coverage choices, landlord’s insurance can cost about 10 to 20 percent higher. Even if it does cost a little more, the good news is that your landlord’s insurance is a tax-deductible expense, unlike your standard homeowners’ insurance.

Homeowners’ insurance for owner-occupants typically protects your home, your personal possessions and your liability in case someone is injured on your property. Once you become a landlord, while you’re not eligible for standard homeowners’ insurance coverage, you have a variety of choices for your insurance coverage.

Comprehensive or named peril coverage

While naturally every landlord wants to keep their insurance costs low, you need to decide based on your investment in the home and your cash-flow, whether to opt for a “named peril” policy or “all-risk” coverage, which is also sometimes called comprehensive coverage. A “named peril” policy only covers your property for the specific issues listed such as fire or wind damage.

An “all-risk” policy works in the opposite way: you get coverage for everything except the items that are specifically excluded in the policy. An insurance agent can help you choose which coverage is best for your circumstances.

Coverage to consider

Some insurance companies sell every type of home insurance as part of an insurance package, while others sell each coverage separately. Types of insurance to consider include:

  • Replacement cost coverage. This insurance would pay for your entire home to be rebuilt if it was destroyed by a fire or a storm. You can save money on your premiums by not adding this coverage and only covering your investment in your home, but then you lose the ability to have an asset that you can use for rental income or to sell.
  • Loss of rental income. If your tenants have to move out because your home has been damaged by a fire or other covered peril, this insurance will reimburse you for the missed rent payments.
  • Contents coverage. If you have personal items in the property that you left for your tenants to use or non built-in appliances, this coverage will reimburse you if those items are damaged or stolen.
  • Liability coverage. It’s important to protect your assets against a lawsuit if your tenants or someone else gets hurt on your property.
  • Umbrella coverage. In addition to the standard liability coverage, you may want to purchase an umbrella insurance policy for greater protection.
  • Flood insurance. Flood insurance is a separate policy that you purchase through the federal government rather than from your insurance company. This coverage is particularly important if you live in a flood zone.

Tenant’s insurance

Landlords should always consider the possibility of a tenant damaging their property. You can handle this through clauses in the lease but you should also require tenants to provide proof of renters insurance. Renters insurance will cover their personal property, which is not covered by your landlord’s policy.

In addition, renters insurance includes liability coverage for the tenants if something happens to someone in the home while they are living there.

Landlord’s insurance should be an important item on your to-do list whether you are an accidental or an intentional landlord.


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