Many real estate investors consider property insurance a necessary expense and while shopping for the lowest rate available, they often overlook what protection they truly need as a Landlord. Landlord policies are more complex and less standardized than Homeowner policies for owner occupied properties. That's why it is crucial that you understand what you need to purchase to mitigate coverage holes otherwise you risk losing hundreds of thousands of dollars. Below is a list describing essential coverage options that you should include on every Landlord policy.
Landlord vs. Homeowner's Policy
If you have a homeowner's policy form on your investment property, you need to switch to a landlord policy immediately. Your current policy has a provision in it that excludes coverage if you do not occupy the home.
Property Manager Listed as Additional Insured
This protects YOU in case of any liability claim where the property management company is named in the lawsuit. If they are not included on your policy, your insurance company will not defend the property manager at the same time. You are required to protect the property manager for all these claims and your best avenue is through your property insurance coverage to avoid paying for all damages and claims out of pocket. This protection is provided for FREE for the asking with many reputable insurance carriers.
Landlord Liability Protection
Did you know that many basic policies only cover up to $100,000 of liability per property? This may barely be enough to pay legal fees, much less to indemnify for actual damages or injuries suffered on the premises by your tenant or cause by the tenant to a third party. Coverage of at least $300,000-$500,000 is recommended.
Accidental and Sudden Discharge of Water or Steam
Coverage for hot water heater bursts, pipe breaks, and other common plumbing issues are regularly left off basic policies and are some of the most frequent claims.
Vacancy Clause
Most dwelling policies exclude coverage for any property left vacant for 30 days or longer. If your tenant has moved out and the damages happen while the property sits vacant, your insurance policy may not protect you. In this case, you need to be temporarily switched to a vacant home policy in order to be eligible for a claims payout.
Loss of Rents
If your property is significantly damaged due to a covered claim, your tenant will move out and more than likely not pay rent. With this endorsement in your policy, the insurance policy pays you rent while the home is being repaired / rebuilt. You do not lose out on rental income, which may be a huge help if you have debt service to cover.
It is imperative that you discuss this with a licensed Arizona insurance professional that understands your unique needs as an Arizona real estate investor.
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