it is indispensable to have the proper insurances in place. That way, your investment stays your investment and does not become your liability. Remember, the primary objective of your rental business should be to make money…and keep what you made. To maximize your investment, you need the proper insurances in place.
1. The Lease
A good lease and a thorough move-in inspection is your starting point. Photograph your property prior to move-inn, that way you can counter a tenant’s claims about a pre-existing condition. Are there cracks in the ceramic floor tile upon move out? Perhaps the tenant claims that it was like that when they moved in. Photographic evidence will confirm or deny most tenant claims.
There is more to owning rental property what is covered in a homeowner’s insurance policy. As a landlord, there are several kinds of insurance to consider.
a. Property Insurance
As a landlord, it is wise to have a landlord policy on each rental unit you own. Landlord policies offer additional liability protection for the landlord. You also need to ensure that each policy carries sufficient coverage to satisfy your mortgage lender.
Above and beyond, you may choose insurance options that are customized to your geographic location. In California, it’s a big perk to have earthquake insurance. In communities that are near water, it may make sense to carry flood insurance. Live in the South? Think hurricane insurance.
c. Umbrella Insurance
An umbrella policy, acts like an umbrella over all of your existing insurance policies. Your landlord insurance policy has a liability limit. The umbrella policy picks up after those limits are exhausted. This coverage is useful for unpredictable events, like when a guest of your tenant injures themselves in one of your rental properties. Or what about when we have one of our wild storms, when lightening that strikes a tree on your property and falls on your neighbor’s roof. Let’s say there’s $500,000 in damages. If you have an umbrella policy, the the first $300,000 would be picked up by your primary insurance, while the $200,000 balance would be picked up by your umbrella policy, instead of being a personal liability.
3. Renter’s Insurance
Your tenants should be aware that their personal property and vehicles, as well as those of their guests, are not covered by your insurance policies against loss or damage due to fire, theft, vandalism, rain, water, criminal or negligent acts of others, or any other cause. When you’re a tenant, coverage for those items comes only through a renter’s insurance policy.
Renters insurance traditionally covers the tenant’s and any guest’s possessions, like furniture, clothes, computers, and bikes. Lucky for the landlord, it can also make your life easier. If a plumbing backup floods your property and renders it uninhabitable, renter’s insurance may cover the cost of a temporary place to live until the tenant can move back into their apartment…saving you the expense of relocating them. Some renter’s insurance policies may also have protection for the tenant against lawsuits…which can be both good and bad for a landlord.
If you allow pets in your buildings renter’s insurance should be a prerequisite. As a landlord, you do not want the liability that could happen if the tenant’s dog bites a neighbor’s kid and then the neighbor decides to sue.
Savvy management will not allow tenants to receive keys to their new property without proof of a paid-in-full renter’s insurance policy. If the tenant does not have a policy at the time of lease signing, have a list of insurers so they can purchase a renter’s insurance policy before setting foot into their new home.
Insurance is all about risk management. John Lennon once wrote, “Life is what happens while you’re making other plans.”
Insurance is there to minimize the perils and help keep landlords sane.
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