Avoid losing $40,000 like one landlord did.

Insurance, Insurance, Insurance!

This Landlord’s Insurance agent had him underinsured. There was a fire, and it cost the Landlord $40,000 out of his pocket. Insurance companies have no obligation or liability to keep your coverage adequate.

This is a critical topic, and I wholeheartedly believe in discussing it at least once a year.

"Why," you might ask. I never want an accident to happen and a client of mine to say, “No one ever told me about this coverage.”

Since November 2023, we’ve had 57 water intrusion events. Whether from heavy rains on roofs, slab leaks, broken pipes, etc., water entered the property and caused massive damage. Damages range from collapsed ceilings to buckling flooring to mold.

Proper insurance for such events gives you peace of mind, knowing you will have coverage to mitigate the damages.

In addition to primary liability coverage, all landlord insurance policies should include four essential elements. These elements are:

1) Malicious Intent,

2) Fire,

3) Loss of Rents,

4) Vandalism.

Malicious Intent

Malicious Intent happens when the resident renting your home intentionally damages the property above and beyond “normal wear and tear.” We are talking about destroying the carpet to the point it must be replaced, holes in the walls, windows, and more.

While we don’t see these things very often, we do see them. So when it does happen, landlords are left scrambling to secure the funds to return the property to a rentable condition. This scenario is precisely why ensuring you have Malicious Intent in your policy is important. ( Note all insurance companies have different names for  this coverage, just make sure your policy covers this type of damage.)

Equally important is ensuring the resident has Renter’s Insurance so you can recoup the cost from their policy and not affect your premiums. YES, this coverage enables you to sleep at night. The best part is that most insurance companies don’t charge extra for this coverage.

Fire

Your fire policy will only rebuild part or all of your rental home, so this is pretty straightforward. Just make sure that you increase the replacement cost of the rental home each year. In the last two years, building materials went up 39.2%. Most insurance companies will not adjust for inflation. As the policyholder, you have the responsibility, so call your agent once a year.

Loss of Use

Now, let's start thinking like an investor; you are all investors if you own a rental property. Your business is to make money with an investment/rental property! But what happens if the property burns down, or has so much water intrusion that the resident has to vacate the property, which happens, or the resident causes so much damage to the house that it will take six months to be fully repaired?

You still have a mortgage, taxes, HOA, and Insurance to pay, right? That payment doesn’t stop just because the home is vacant or distressed. Don’t worry! If you have Loss of Rents or Loss of Use coverage in your landlord’s insurance, you may sleep like a baby because you don’t have anything to worry about.

Loss of rent or, in some cases, Loss of Use will cover up to 12 months of the rental income! Some companies include this coverage in your policy for no additional fees, while others charge for it… IT IS WORTH IT! It might be a few more bucks a month but how much is your peace of mind worth?

What a great feeling to know that you will receive money while your property is being repaired.

Vandalism

Let's say you are about to rent out the property, and a few days before your resident moves in, someone breaks in, and the property gets vandalized!

Again, homeowner’s insurance might not cover you, but the landlord’s insurance will! However, once your property is vacant for more than 30 days, your insurance will not cover you, so always get a 60-day vacancy policy. One stolen Air Conditioning unit could cost you $6,000 or more. You can activate your vandalism coverage in this case!

Something important to mention is that some mortgage companies require you to have a homeowner’s insurance policy while you have an active loan with them! Be sure to ask them if this is the case before canceling your homeowner’s coverage and only getting landlord's insurance.

Liability

Though not listed in the top four items, liability is the primary focus of the insurance policy. After all, why have a policy if it doesn’t provide basic liability coverage? You may consider increasing the liability coverage to one million or more if your property has a pool or spa, since those are added risks.

For example, your resident has a small soiree, and a kid gets injured because he was running around the pool! We all know, unfortunately, the first thing that comes to some people’s minds is… LAWSUIT! Well, again, here is where you may be able to use your landlord’s insurance liability coverage, since this helps you pay for your expenses if you are found legally responsible after someone is injured on your property or if you are required to pay for damage done to someone else's property. I carry $1,000,000 liability coverage on my properties.

Renter's Insurance

We require our residents to carry a renters' insurance policy. All new residents must provide a copy of their insurance prior to moving into the rental property, and all current residents must provide a recent copy of their declaration page before they renew their lease. We do this to protect not only the resident but also you.

Two recent fires were caused by residents. One resident had current insurance, and one had let their policy lapse. The condo flooded when a contractor working on the unit above hit a water line.

Thankfully, all parties are safe and no one was injured, but you never know when something might happen. People react differently when the pressure is on them.

If you are unsure about your policy, make time this week to talk with our insurance company and confirm your policy. You will be glad you did if you ever have to use it.