Rental Property Insurance 101: For Owners and Tenants
So the saying goes — the best offense is a good defense. In real estate investing, there are lots of places to play offense..., but not too many places to play defense.
As real estate investors, we don’t always pay enough attention to our insurance coverage. Honestly, it’s one of the most important things not only to have, but to know through and through. Insurance policies can vary and not all coverage is created equal. You might be overpaying on your policy by hundreds of dollars.
Navigating Rental Property Insurance#1 — Shop Around
It’s a hassle, but don’t make the mistake of settling with the first insurance agent you meet. You may be able to get the same policy, but cheaper, elsewhere. It’s worth the time to do your homework and shop smart.
Ask yourself:
- Is this insurance policy competitively priced?
- How much coverage do I as a real estate investor need to be comfortable, without losing too much of my positive cash flow?
Agents will often assume that real estate investors require more coverage and thus, will quote higher premiums. Make sure to get multiple quotes.
#2 — Talk to Other Real Estate Investors
Other investors are invaluable to finding a good insurance agent for your rental properties. Ask around to gather referrals. They can help you see whether or not you’re overpaying or over-insured.
#3 — Know What Coverage You Need
Number one, you’ll want liability insurance. As a real estate investor, you may be perceived as rich simply for owning a property — and someone, somewhere, will be looking to sue you at some point. Whether its an unfortunate construction accident, swimming pool fiasco or other disaster, you’ll want to be covered if someone points the finger in your direction.
Remember, too, that standard home ownership insurance may not cut it for a rental property. You may need special “vacant property” coverage for the months between tenants or during renovations.
In fact, regular homeowner’s insurance probably isn’t what real estate investors need anyway — it covers things inside the property as much as the property itself. Looking for dwelling insurance instead. It won’t necessarily be cheaper, but look for ways to bid down the premium. Mitigate risk by having working smoke detectors, fire alarms, burglar alarms and/or security systems. Even insulation and climate control can knock the price tag down some.
#4 — Encourage Your Tenants to Get Coverage
Most renters aren’t covered. When disaster strikes, whether its a hurricane or tornado, many renters find themselves without an way to replace their lost belongings. While most homeowners have insurance, many tenants neglect to get coverage for their possessions, despite the relatively cheap price tag — the average cost for renter’s insurance is less than $200/year, which is less than $16/mo.
Rental insurance covers your tenants in much the same way your insurance covers you — it protects them not only from theft, damage and destruction, but liability, too.
Encourage your tenants to get covered. Hopefully they’ll never have to take advantage of their policy, but it’s far better to be prepared.
What sort of insurance coverage do you think real estate investors should have? Tell us in the comments.
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