A GUIDE TO LANDLORD INSURANCE POLICIES

If you are planning to, or already have a rental property, brace yourself for a number of responsibilities that come with it. Choosing a tried and tested property management company, like ProWay Property Management, can assist you in making sure you have the right insurance coverage.

To be clear, there is a difference between a homeowner’s insurance policy, and a landlord’s policy. A homeowner’s policy will not cover claims associated with your tenants. This is why it’s important to determine the appropriate type of coverage for your rental property.

THREE CORE PROTECTIONS

Property Damage

This is coverage in the event that your property (including furnishings) suffers damage from a natural disaster, fire, electrical malfunction, vandalism, or simply from irresponsible tenants. You might come across the terms replacement costs and actual value when trying to get your landlord’s insurance policy.

An insurance company will either pay the replacement cost, or the actual value to replace an essential asset (in this case, a part of the rental property). The replacement cost is what the current cost is to purchase a similar item. The actual value is what the item to replace is currently worth. Example: if you were replacing a car, a similar car may cost $35,000, but the car you are replacing has a current value of $10,000. A policy paying replacement cost would pay out $35,000. A policy paying actual value, would pay out $10,000. As you can see, it’s advisable to look for policies that offer replacement costs.

Rental Default Insurance

Also known as Loss of Income. This is in the event that something may cause your rental property to be uninhabitable. Examples include severe mold, pest infestation, or high lead exposure to you and your tenants. This provides temporary rental reimbursement to cover the rent money you would be receiving, when tenants must temporarily vacate the property so you can make corrective repairs.

Whatever events that may cause your tenants to move out, this policy has you covered when it comes to your income. However, this strictly applies to the events mentioned only. This does NOT cover evictions.

Liability Insurance

This is coverage in the event that your tenant (or their visitors) sue you for any physical injury due to a property maintenance issue. Potential lawsuits, physical injury claims, settlement costs, medical and legal fees and similar liability claims for accidents that may occur on your property are covered.

This may also include third party property damage, if you are found to be liable for damage to your tenant’s, or their visitor’s personal property.

LEVELS OF COVERAGE

Underwriters often offer packages for insurances, which are divided into three levels, namely DP-1, DP-2, and DP-3 (DP stands for dwelling property). These levels basically define the scope of their coverage.

DP-1

This is also known as Basic Property Coverage. It covers property damage due to very common perils such as fire and lightning damage.

DP-2

Also known as Named Peril Coverage. This is quite similar to DP-1 but has a much broader scope which may include fire, lightning, snow, electrical discharge from appliances, freezing plumbing and the like. Some DP-2 policies may include coverage from vandalism and malicious mischief, but are otherwise endorsement, or add-on depending on the insurance company.

DP-3

This is commonly known as Comprehensive Property Coverage. This is the most extensive among the three levels. To understand the scope of DP-3, the prior levels are categorized as named perils, meaning they’re restricted to the perils that are listed in each of their policies. DP-3 is an open peril. This means it insures against all possible perils, unless specifically excluded in the coverage.

ADDITIONAL COVERAGE

There are additional options for you as a landlord that you may add to your standard insurance policy. This is entirely dependent on what you and your rental property need. Some of these include:

Guaranteed Income Insurance

This covers you in the event that your tenant comes up short on the rent or refuses to pay at all.

Flood Insurance

This depends on whether your property is in a flood zone. This covers flood damage related to the natural disaster itself or municipal plumbing. Landlords usually add this to their coverage since most standard policies exclude it.

Emergency Insurance

This is useful in case your tenant needs your attention to fix leaky plumbing or was accidentally locked out of their unit for some reason. This helps you cover the portion or full cost you incur to travel to the property and resolve your tenant’s issue.

Insurance policies are arguably essential to a landlord’s arsenal, although a landlord/owner is not necessarily required by law to have a policy. Without one, you’d be exposing yourself to potential liabilities, and large out of pocket expenses. A landlord insurance policy will protect you against unprecedented events, and unforeseen circumstances.

It’s always important to consult with professionals before purchasing a policy. You need to know your options, and what policy is the right fit for you and your rental property. The main purpose of a landlord insurance policy is to protect your rental property, protect you against possible liability and protect you from large financial costs.
Our team of professionals at ProWay Property Management can help you pick the right landlord insurance policy. Our knowledgeable property managers have an in-depth understanding of the Detroit, and Southeast Michigan property management business, and can help you with all your property management needs. To learn more, call us at (734) 744-5080 or send us an email at [email protected].