Rental Insurance 101

[Kevin Hart]

Hey BP’ers.

I’ve seen a lot of folks asking questions about insurance on your rentals. I’ve put together a simple Insurance 101 for any newbies looking for answers. As a State Farm Agent in Louisville, KY, I have worked with a good amount of investors, as I work towards becoming an investor myself.

(Disclaimer: Insurance varies state-to-state. For detailed coverage information talk to an insurance agent in your state. Coverage can also vary by company. I am only covering the general coverage’s that should be fairly uniform on every rental dwelling policy)

The Rental Dwelling Policy (or Landlord’s Policy) includes the following coverage’s:

• 1.Dwelling Coverage - To pay for covered repairs or reconstruction of the dwelling. This coverage insures the dwelling and other structures on the property, such as:

Garages, Swimming pools, Fences, Storage buildings, Flooring, Roofing

Mortgage companies will typically require you to have at least enough dwelling coverage to cover the mortgage amount. I would always recommend going with the full replacement cost so that if it burns to the ground you can actually rebuild.

• 2.Personal Property Coverage – Covers any personal property you furnish for a tenant or store at the property. This may include landscaping equipment you keep at the property, kitchen appliances, washer/dryers, and other furniture you purchased and store at the property.
• 3.Loss of Rents Coverage - To reimburse the owner for rental income lost if the rental dwelling is damaged by a covered loss and cannot be rented. ***Very Important if you are living off the cash flow of a property***
• 4.Liability Coverage - ***Very important*** This covers your legal liability for accidental bodily injury, personal injury or property damage resulting from the ownership, use or maintenance of the insured premises. Coverage may also include the cost of legal defense. We live in a sue happy world. Real Estate Investors are easy targets for lawsuits. I always recommend at least 1 Million in liability coverage.

I often see the debate about whether to have properties in your personal name or an LLC. Regardless of which route you choose, Liability insurance is the only thing that will actually pay on your behalf so that you don't have to liquidate your hard earned assets to pay off a lawsuit. If you still have questions about LLC's, talk to an attorney. If you can't afford an attorney, there are monthly legal subscriptions (like Legal Shield that I use) that give you access to attorneys 24/7 for a monthly subscription fee.

Again, these are the 4 primary coverage’s you should have on your rental dwelling policy. There are many other more detailed coverage’s you can have but those vary by company and by state so I will not dive into those.