by Kathryn Wilcox

Created on: March 18, 2010   Last Updated: March 19, 2010

You need Landlord insurance to protect your rental property investment, because before you sign the loan contract, you will be required to purchase insurance. Insurance companies typically have a variety of policies depending on your needs. There are policies for a two family home or large apartment houses.  Do not shop for the lowest price; look for the best coverage for your investment. Companies offer specific Landlord package policies that will include the following key coverages no matter whether you have one rental property or a large apartment house.

PROPERTY: The best policy will give you replacement cost for your building and any business personal property you own in the building. Replacement cost means that the insurance company will rebuild your property to duplicate as closely as possible what it was before a loss- including size, construction, and interior design. The company will calculate the cost to replace your building based on current labor and material cost in today’s market. This value amount will not be the same as the market value you are paying for your building.

You can purchase insurance that will pay actual cash value for your property for a lower premium but if you have a loss that is the actual amount you will receive for the property. Very often you would not be able to rebuild or replace the property with a similar building due to the increased cost for building materials and labor in today’s market. The same would apply to any property that you own inside the building. Landlords often provide apartments with a stove and refrigerator.  If you choose replacement cost, the insurance will replace your appliances with new ones, not pay you for the actual cash value of them based on their age.

LIABILITY: Liability insurance protects you in the event that you are responsible for damage to another person’s property or their personal injury or death.   For a landlord, this is very important. You can be sued by anyone who is injured on your property including your tenants, visitors and guests, meter readers, even the mailman. This coverage also will pay for legal expenses to defend liable, slander and defamation of character charges made against you. In most policies the liability coverage also includes a specified amount for Medical Payments for individuals injuries on your property. This payment is available immediately and you do not have to be responsive for the injury for this amount to be available and will typically pay for emergency room visits and doctor’s visits.

LOSS OF RENTS: If your property has a serious fire or other loss, the tenants will not be able to live there. The rents will no longer be paid, but you will still have to pay your mortgage payment. This could result in a serious financial burden for you. The Loss of Rents coverage will typically pay you the amount you were receiving per month until the property is rebuilt or repaired (sometimes for a specific time period) or until  the tenants can move back in. Some policies also include under this coverage a specified amount to cover the cost to remove debris from the damaged building and or demolition of a building that is a total loss.

When shopping for insurance for a rental property, you would be wise to contact an agent who will help you identify your needs, evaluate your risk and work with you to find the best policy for your own situation. The best time to ask, “Is it covered?” is before you buy the policy, not after you have a claim!

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