How to Protect Your Rental Properties with the Right Insurance Coverage
Protect with the right insurance coverage
Lending institutions typically require you to purchase “hazard insurance”. This type of insurance is essentially a contract that covers the physical structure for most types of damage, with a bit of landlord liability for good measure.
When possible, always purchase the broad or special form contracts. Coverage exclusions include but are not limited to: earthquake damage, flood damage, occasionally theft of building items, wear & tear, mold, animals (including rodents, birds, etc.), war, and illegal, and intentional acts.
Extended replacement cost
Hazard Insurance is generally written to incorporate enough insurance to replace the structure following a devastating fire. But the best policies include extended replacement cost, the extra protection that is over and above the policy limits. Extended replacement cost gives extra protection by providing additional limits in the contract.
Our featured Safeco product provides 125% of the dwelling value as total structure coverage. If you are insuring a rental home for $200,000, you will have up to $250,000 to replace the home. Safeco is one of the very few insurance companies that offers this protection nationwide. Most policies outside of California do not offer this type of protection.
Building ordinance protection
Extended replacement cost protection can also include coverage for changes in building codes. Note that policies that claim to offer replacement cost will usually only replace with “like kind & quality” of materials.
So, what happens when your local building inspector tells you to upgrade roof lines, garage structures, plumbing, or electrical, in the middle of your property repair, before he is willing to sign off on the approval papers? Unless you have building ordinance protection, you will have to pay for this out of your own checking account. This can mean thousands of additional dollars. Or, you can purchase building ordinance coverage, which is part of our Safeco program.
Additional insurance coverage options
- Hazard policies can also provide loss of rental income protection, for loss that results from insured damages. This is not automatic in all insurance policies, so make sure to ask for it.
- Landlord’s liability endorsement is typically included to protect you against bodily injury or property damage claims from another person. A minimum of $300,000 (preferable $500,000) landlord’s liability protection is recommended.
- Safeco policy includes personal injury coverage in the landlord’s endorsement. But many companies will not give it to you; always request it.
- If you move your properties to an LLC, be sure to add the LLC as an additional interest to your policy through your insurance agent
- Deductibles are a good thing. We recommend minimally a $1,000 deductible or more on your rental property’s insurance policy.
- Depending upon where your property is located, you may be required to join a wind or flood pool or sinkhole pool.
- Earthquake & flood insurance are extra and not a part of a regular property insurance policy
(This is a general discussion of policies for rental properties and is thus brief. It is not to be interpreted as the final word. Please refer to your policy for a complete coverage review. And always ask questions of your insurance agents to ensure proper protection)