We will be posting additional articles on the subject of insurance for real estate investors and their properties. We asked Kimberly Adams, an insurance specialist with Liberty Mutual to provide advise and thoughts on the subject of insurance for investment properties and owners of such. Below are her observations.
The Importance of Landlord’s Insurance
As a real estate investor, or more specifically a landlord with the tenant-occupied property, you have to whether you are protected from or wide open to the biggest risks of owning a property you do not live it. To keep it simple, the biggest concerns of a landlord are: the structure, your liability, and potential loss of rent as a result of a circumstance that has rendered the house unlivable.
Sure, you may not live there, but someone and their loved do. Is the property covered for losses caused by fire only, or do you have a broader amount of perils insured against? (i.e., vandalism, wind, hail, accidental overflow of water, and so.) Based on the cost of the policy, you may have selected a basic policy not realizing that other than a fire, all other losses are your out of pocket expense. In Arizona, there are 3 types of Landlord, or Dwelling policies – basic, broad, and special. Take the time to know which you have.
Your next biggest concern is…what if my tenant sues me? Your responsibility is to know that your property is in the utmost safe & sound conditions structurally, electrically, and environmentally. Why? Should for any reason a situation arise due to substandard property maintenance or even a fraudulent claim, you could find yourself in an overwhelming lawsuit, costing you all value in this investment, and possibly more. Your liability coverage is intended to protect you and your assets from large verdicts or settlements due to accidents, and/or malicious tenants.
You can never have enough liability protection when it comes to investment homes! After all, you don’t have to be a millionaire to be sued for a million dollars. Selecting the maximum limits or taking an Umbrella policy is wise, if not imperative.
It is also suggested that Renter’s Insurance be mandatory in your lease agreements. This requirement simply adds a layer of liability protection and insures your tenant's possessions are protected.
What happens if the property becomes unlivable due to one of the perils/losses named on my policy? Can you afford to pay that mortgage without incoming rents? Loss of Rent coverage buffers you from the burden of lost rental income for the duration of time required to restore the property back to livable conditions. Typically, Loss of Rent coverage is 10% of the dwelling/replacement cost coverage of the structure. If your property is insured for $100,000, you have $10,000 for Loss of Rent. Know confidently what your situation would look like in the event of the worst-case scenario.
Ultimately, know with certainty that you can sustain the great unknown. Don’t bog yourself in the infinite “what ifs”, but be sophisticated enough to understand what coverage & partnership you truly have in your Dwelling Insurance package.
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Kimberly Adams is a licensed Sales Representative with Liberty Mutual Group, in Arizona. Liberty Mutual is the nation’s eighth-largest provider of personal lines of insurance products. The company sells full lines of coverage for automobile, homeowners, valuable possessions and personal liability insurance. Call (480) 205-1783 or email for current coverage analysis and rate information.
