Landlords: These Are the 4 Types of Insurance You May Need

by | BiggerPockets.com

The basics of becoming a landlord are straightforward: Buy a property in a promising neighborhood, fix it up, find tenants, and start charging slightly more than you’re paying in regular costs. But if you want to protect your assets and ensure you’re following every applicable law, things get more complicated.

Consider insurance. The right insurance policy should be able to cover any unexpected financial losses or massive expenses, protecting the profitability of your operation. It can also protect you from legal trouble. But what types of policies do you really need as a landlord?

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Legal Requirements

Technically, landlords aren’t legally required to have any type of insurance. However, if you’ve taken out a loan on the home, you may be required by the lender that you have a basic homeowner’s insurance policy. Just note that a conventional homeowner’s policy may not protect you if you’re renting out the property to other tenants.

Related: Safe, Not Sorry: 7 Insurance Policies Landlords Should Discuss With Their Providers

4 Types of Insurance to Consider

There are many types of insurance that you should consider:

  1. Building and property insurance. First, you’ll want a policy that protects your building and property from unexpected damage. Your building is the most significant portion of your investment, and therefore, your biggest financial liability. If something happens to it — such as a roof caving in or a destructive event from a tenant who lives there — you’ll want a comfortable policy that can cover the damages. Otherwise, you’ll end up paying tens of thousands of dollars, possibly compromising your profitability.
  2. Liability insurance. You should also have some type of liability insurance in place. Landlord liability varies depending on where you live, but for the most part, you’re responsible for keeping your property in a safe, livable condition. If one of your tenants trips and falls or hurts themselves while living in the property, they may have grounds to file suit against you. Liability insurance protects you from these events, covering your defense costs and compensating victims.
  3. Loss of income and business interruption insurance. Landlords may also be able to get a form of business interruption insurance, protecting them from possible interruptions to their stream of rental income. For example, if you’re injured and unable to fulfill your responsibilities as a landlord, you may earn compensation that allows you to keep things running. This type of insurance may also help you secure rental income from tenants who are unable to pay.
  4. Protection from specific threats. Property insurance doesn’t cover anything. You’ll want to read your policy closely and get coverage for other specific threats. For example, you might need a separate policy to protect your building from natural disasters like floods or earthquakes.

Landlord Insurance

If you’re looking for a comprehensive policy, you may be able to find a provider who offers collective “landlord insurance,” which offers coverage in several areas, including the four listed above. For the most part, these insurance policies are flexible; you’ll be able to pick the types of coverage and extent of coverage you need, so you can protect yourself from the majority of threats and still stay within your budget. If you’re interested in this type of insurance, it’s advisable to talk to an insurance agent, who will have more insight into the types of policies you need (and the total costs you might face).

Related: 10 Great Property Insurance Tips for Landlords to Save You Cash, Headaches, and Time

Renter’s Insurance

It’s also important to note that your property insurance policy and liability insurance policy won’t protect any of your tenant’s possessions. For example, if leaky plumbing causes water damage to a tenant’s television, your insurance policy may not cover the damages (though it may cover you, if it offers liability coverage). For that, your tenants will need to get a renter’s insurance policy.

Conclusion

As a landlord, you aren’t required to have insurance, but it’s well worth the investment. At a minimum, make sure you have property insurance to protect your house and a liability policy to protect yourself in the event of tenant-related damage. Each new policy will only marginally increase your monthly premiums but may offer substantial additional coverage. So plan conservatively, and protect your investments as comprehensively as you can afford to. One enormous loss could be enough to negate any profit you’d otherwise stand to make.

As a landlord, what types of insurance do you use?

Share your additional expertise below!

About Author

Larry Alton

Larry Alton is a professional blogger, writer and researcher who contributes to online media outlets and news sources. A graduate of Des Moines University, he still lives in Iowa as a full-time freelance writer and avid news hound. In addition to journalism, technical writing and in-depth research, he’s also active in his community and spends weekends volunteering with a local non-profit literacy organization and rock climbing.

8 Comments

  1. Steve T.

    Why do people keep writing insurance articles, year after year, when perhaps they may not even have first hand experience? What we need is an insurance agent who is an investor with multiple properties to write on this subject and provide a bit more depth. For example, for an investor with multiple properties, you really NEED umbrella insurance, and in order to get umbrella insurance, you need a certain level of underlying liability insurance. Superficial articles on a subject like this are not helpful to the newbies out there.

  2. Christopher Smith

    II wouldn’t mind seeing an article on Umbrella Coverage.

    I have found it somewhat problematic to obtain Umbrella Coverage because it always seems to come in a configuration not well suited for my activities. Either I need to dump my existing carriers that I like on my home, rental and/or auto policies, or I have too many rental properties to qualify, or this or that.

    A flexible reasonably priced Umbrella product would be really great, but I’m getting the uneasy feeling that ain’t gonna happen.

  3. Paul Ventura

    Hi Guys!

    Thanks Larry! Just to give myself a bit of credibility, I’ve been working in the Insurance Industry for the last 9 years. Just wanted to add a few points.

    As respects the Business Income (BI), pay attention to the limit of insurance and the time element. On the Commercial side (commercial real estate) the limit we recommend is Actual Loss Sustained (ALS) and the time element should be at least 12 months. For example, a property suffers a partial loss due to a fire. The building can not be occupied while the repairs are being made. The landlord would want the business income coverage to pay the actual (income) loss sustained for the amount of time it takes to get back up and running. If the limit is insufficient, you will be sitting with a property not generating any income. If the time element is not long enough, for example it takes 6 months to rebuild but your policy only offers coverage for 30 days, again, you will be sitting with a property not generating any income. This coverage only pays out if the loss of income is due to a covered cause of loss. You can familiarize your self with these by reading your policy or discussing with your insurance agent. Tied to BI is Extra Expense Coverage. This can be purchase along with, in addition to or in lieu of BI. Extra Expense coverage is time element property insurance that pays for expenses in excess of normal operating expenses that an organization incurs to continue operations while its property is being repaired or replaced after having been damaged by a covered cause of loss.

    Building Ordinance a.k.a. Ordinance or Law: This coverage is available by endorsement to insure against loss caused by enforcement of ordinances or laws regulating construction and repair of damaged buildings. In our example above we have a building that suffered a partial loss due to fire. Depending on your market, some states or cities require that a building that has been damaged to a specific extent (varies) must be demolished and rebuilt with current building codes rather than simply repaired. An unendorsed, standard policy would not include coverage for the loss to the undamaged portion of the building, the cost of demolishing the entire building, or the increased cost of rebuilding the entire structure in accordance with current building codes. Examples of this may be using more expensive building materials, slower or more costly methods of construction.
    These are just additional coverages that jump out at me when I think of insuring a property. If you have any additional questions about these coverages, please reach out to your insurance agent as they can better explain the policy you currently have and how to improve the coverage. Please note, each of the coverages mentioned above do have exclusions which you should be familiar with. Again, your insurance agent should be able to help.

    Just a little bit about me: I’ve been reading about real estate investing, following the BP podcasts and blog posts religiously for about a year now. I think this is the first insurance blog post I’ve come across and I just wanted to add value to anyone reading this. Again, I live in NY and have been in the insurance industry for 9 years. I am currently saving aggressively and evaluating deals for my first BRRR. If anyone wants to discuss insurance or real estate further, you can reach out and I will be happy to help in any way I can. Enjoy your day!

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