We don’t like to be alarmists, but the world is pretty crazy.
We don’t like to feel as though we’re always in danger, either, but there is enough uncertainty all around us today that it’s natural to constantly be thinking about how to protect yourself.
You need to protect yourself, and you need to cover your assets.
The best way to do that is with awareness, vigilance, and of course insurance.
Maybe you’re a new real estate investor in Phoenix or maybe you’ve been doing this for most of your life. Either way, you don’t have to be a property management expert like us in order to know that buying and selling, and renting out homes is not an enterprise that comes without risk.
There’s a lot of liability.
Yes, there are benefits, too. That’s why we do it. But, we believe in preparation. We believe in evaluating risk and in making sure we have the most coverage that’s available.
A strong insurance policy is the natural starting point for protecting your Phoenix rental property.
We’re talking insurance strategies today, and sharing some of our best tips for using insurance to mitigate the most harrowing risks and to cover your most valuable assets.
What Does Landlord Insurance Look Like in Arizona?
A landlord insurance policy in Phoenix can provide you with the peace of mind you need so you can rent your home with convenience and confidence. Should someone become injured on your property or if your rental is damaged by a common and covered hazard, you’ll look to your landlord's insurance policy to protect you from financial losses. You can file a claim associated with fire and smoke damage, water damage, theft, wind or storm damage, costs associated with hail and lightning, or vandalism.
Here’s a quick snapshot of what a good insurance policy will include:
Dwelling Coverage for Your Phoenix Property This is the part of the policy that speaks to the residence itself, whether you’re renting out a single-family home, a condo, or a unit in an apartment building. The dwelling in which your tenants live will be protected against loss from events such as wind, hail, lightning, fire, and other covered losses. | Any Additional Structures Think about the additional structures that are also a part of your property. Insurance will cover those fences, a garden shed, or a garage. |
Personal Items Belonging to You When we talk about your landlord's policy covering personal items, we are not talking about your tenant’s personal items. Your insurance will only cover the personal items that belong to you and are used for maintenance and upkeep. Washers and dryers and other appliances, for example. | Liability Insurance We’re going to explore liability a bit more as we move through this blog but generally, this covers you against claims. If someone is injured at your property and a court decides you’re at fault, you’ll be glad you have liability insurance. |
There is going to be additional coverage you want, including loss of rent. We’ll discuss how to ensure that your policy includes this important coverage and why it’s so valuable.
An umbrella policy is always recommended when you’re renting out more than one property.
Liability Insurance Protects You from Uncertainty
Liability is real when you’re renting out a home, and you’ll be glad you have your liability coverage when a tenant injures themselves while living in your property or a guest of theirs falls down the stairs while visiting your tenant.
Your liability insurance will protect you from the risk of claims, lawsuits, and disputes.
You need the coverage because all of those things (the claims, lawsuits, and disputes) can become pretty expensive, especially when the courts get involved.
Look for liability coverage that’s more than adequate. This is possibly the most crucial part of the insurance you buy. Anything can happen when tenants are living in your property. You can do everything within your power to make it a safe place to live, and an accident may still occur.
It’s frustrating. And it’s why you have that liability insurance.
Talk to your insurance agent about the required or recommended liability limits. If something happens and you’re sued, you want to be protected.
We don’t like to think about all of the dreadful worst-case scenarios, but as the title of this blog indicates: these are uncertain times. They’re also litigious times. You need to be prepared for any potential claim or legal action, and you need to make sure you don’t lose your property over them.
Landlord liability coverage will actually cover more than you might expect, especially if you have a good policy. Mitigate your own losses by falling back on your insurance to help you pay medical expenses for tenants who are injured at your property. It will also cover legal defenses and court judgments that might be won against you.
Look for a Policy with Robust Loss of Rent Coverage
As a landlord, the stability of your rental income is the foundation of your investment success. Safeguarding this income is important, and if unforeseen circumstances threaten this recurring and consistent income, you could find yourself in trouble. Loss of rent insurance is a landlord's financial shield against the unpredictable.
So, what happens if you lose that rental income, through no fault of your own or your tenant’s?
If the landlord insurance policy you buy doesn’t already include loss of rent coverage, consider adding it. This coverage, in most landlord insurance policies, is typically called Fair Rental Value Coverage. It will cover lost rental income due to your property being declared uninhabitable due to a covered loss.
Think about what might happen if you can no longer rent your property out to tenants because your roof collapsed or a fire in the kitchen burned down a large part of the house. What will you do without rental income if your tenants have to move out while extensive repairs are made?
It’s important to cover yourself in case you have to move your tenant out of the property.
When your existing tenants are not able to stay in your rental property, you may have to put them in a hotel or move them into another property. If they can’t live in your property for an extended time, you’ll lose a lot of rental income in addition to paying out of pocket for costs like hotel bills.
The Case for Loss of Rent Coverage:
It Protects Your Investment Property maintenance and mortgages don't cease because a house is untenanted. Loss of rent insurance can cover your expenses while you're not receiving rental payments, keeping your investment safe. | Legal and Repair Costs If an insured event leads to legal disputes or the need for repairs, the costs can escalate quickly. Loss of rent insurance could cover these additional expenses, ensuring you're not out-of-pocket during these challenging times. |
Business Continuity Your rental property is a business, and continuity planning is essential. Loss of rent insurance supports your business's financial health, ensuring that you can cover costs and plan for the future without interruption. | Supporting Long-term Investment Success In the rental business, sustainability is key. Ensuring you have a long-term financial plan that includes loss of rent insurance means you can withstand temporary setbacks and prosper over time. |
Have You Thought About Inflation Protection?
Not a lot of landlords are thinking about inflation protection insurance.
A growing number of insurance policies, however, are offering inflation coverage or inflation protection, and we’re glad to see landlords and investors taking it seriously.
Inflation is a risk. And, we’re talking about how to protect yourself from risk and uncertainties.
Your property value has almost certainly increased over the last few years, with prices for everything being driven higher and higher. When you have inflation protection built into your policy, you’re mitigating a risk that isn’t always present but can certainly throw you a curveball if you do file a claim and you find that your insurance limits don’t quite cover what it costs to make repairs or replacements.
When your property increases in value, you need more insurance to cover those repairs and replacements that may be necessary. You’ll find that this type of insurance automatically adjusts your coverage limits to keep pace with inflation. This adjustment will usually include premium discounts.
It’s a good deal. Your coverage will likely increase at a higher rate than your premiums do.
Why We Always Recommend Renters Insurance
We always recommend that landlords require renters insurance from the tenants who rent homes from them. As Phoenix property managers, we know its value. Renters insurance can sometimes be difficult to enforce, but it helps us to mitigate a lot of risk and it also means that your insurance policy will not be the first point of coverage if a tenant causes expensive damage to the property.
We believe that tenants should have their own protection and insurance. It’s not just for their benefit; it’s for yours as well.
A renters insurance policy is not expensive, and you can tell your tenants that if they have automobile coverage, most companies will offer them a bundle that brings down costs quite a bit.
Educate your tenants on the need for this coverage. Most of them don’t know that their own personal electronics, clothing, and other belongings aren’t covered by your insurance.
Most landlords and property managers are now requiring renters insurance, so it should not come as a shock to the applicants who are inquiring about your property and the lease requirements.
There’s also tenant liability insurance. It’s a little different than your basic renter's insurance, and not quite as common. This is especially useful if your tenant is moving in with a pet or if there are extra risks associated with the tenancy.
The difference between a renters insurance policy and a tenant liability insurance policy comes down to this: renters insurance protects a tenant’s personal property and possessions. Tenant liability insurance protects your tenant financially from any damage they may cause – accidentally or otherwise.
Let’s take a closer look so you’re better informed when you’re counseling your tenants on how to choose the policy or policies that mitigate the most risk.
Renters Insurance: Protecting Tenants and Their Property Renters insurance is essentially a product that serves and protects the interests of the tenant, but it also protects you, too. Renters insurance will protect the tenant’s electronics, clothing, furniture, and other personal belongings that might get damaged or destroyed during a covered loss. Landlord policies do not cover anything belonging to the tenant. | Tenant Liability Insurance: Protecting You from Liability and Lawsuits No one likes being sued. What if your tenant accidentally leaves a stove on and they end up burning down your kitchen? Your insurance company will likely look to your tenant when it comes to covering the costs of repairing and replacing the damaged kitchen. Liability insurance reduces the risk that comes with living in someone else’s house. Tenants can protect themselves and their own finances. |
I’m Renting Out the Home I Once Lived In
Can I Just Keep My Homeowner Policy in Place?
No.
We work with a lot of landlords who have not purchased an investment property, but are instead renting out a home that they lived in themselves, or that they inherited from a family member. This is a great way to begin a real estate investment career.
But, you need new insurance.
If you’re renting out a property that was once your primary residence, your first insurance task is to switch your homeowner insurance policy to a landlord insurance policy. The homeowner policy is no good to you anymore. This insurance will only cover you when you’re an occupant of the property. Once you move out, you’re still the homeowner but you’re renting it out to tenants, which requires a different type of coverage for both you and the property.
Don’t risk having a claim denied because you never converted your policy. Talk to your insurance agent, and if you don’t have an insurance agent - let us give you a referral.
Homeowner v Landlord Coverage:
What’s the Same?
What’s Different?
We Might Look the Same The structural coverage is pretty similar between a homeowner's policy and a landlord's policy. You can expect to be covered for anything that happens to the home. The landlord insurance, like your homeowner’s insurance, will pay for repairs or replacements that are necessary after a covered loss. | Here’s Where We Differ The main difference between your landlord insurance policy and the homeowner insurance policy you have on the home you live in is that your landlord policy covers the structure of the home and the costs to repair and replace it. However, it doesn’t cover any personal belongings that aren’t yours. |
The most delicate part here is the possessions and whose are covered and whose are not.
Once you convert from a homeowner’s policy to a landlord policy, your own possessions are covered, such as appliances. But, your tenant’s personal items are not the responsibility of you or your insurance policy.
A landlord policy generally provides more liability coverage than a homeowner policy as well. This is necessary due to the added risk that you assume as a landlord.
Q&A Time Continues: Who Should you Include on your Insurance Policies?
Q: Who is covered by your policy? Who do you need to include when it comes to coverage and information?
A: Good question, and it illustrates the importance of making sure you’re covering and naming everyone who needs to be covered and named.
On your landlord policy, always include your Phoenix property manager as an additional insured. This isn’t because we need the coverage - we have our own insurance - but because it allows us to better protect your investment. With everyone protected by the same policy, we can advocate better for you. It also helps us form a unified defense when necessary. If your tenant decides to sue you, they will likely sue us, too. When we’re both defended under one policy, we’re in a stronger position against the claim.
Our tenants are also instructed to include us as an additional insured. This allows us to monitor the policy and ensure it’s kept current. We recommend that you have your tenants add you as an additional insured if you’re not working with a management company.
What Does Insurance Cost?
Good news. The cost of landlord insurance coverage in Arizona is lower than the national average. Many of the estimates we see as Phoenix property managers are that basic landlord insurance should run you less than $1,000 per year. That’s a rough estimate. The exact cost of your insurance will depend upon:
Your property’s age and condition
The terms and length of your lease agreement
Whether or not the property has features like pools and fireplaces
The specific coverage policy being purchased
The size of the property
The number of rental units you own
More Good News…Taxes!
Here’s a happy thought: Insurance premiums paid on your rental property are tax deductible. This should help you feel better about the cost of covering yourself and your property.
This is a huge topic, and we’ve provided a lot of information here. If you’d like us to summarize it for your unique situation, we’d be happy to talk about your properties and your position. Contact us at Service Star Realty.
Service Star Realty
2929 East Camelback Road #119, Phoenix, AZ 85016
(480) 426-9696
