Landlord Insurance: What Is It?
Arizona Property Management recommends that homeowners who are renting out their properties get landlord insurance, but what exactly is it?
To begin, a common question regarding this topic is: what’s the difference between landlord insurance and a homeowners insurance policy? A homeowners policy would be a safe choice if the owner only plans to rent out their home short-term, i.e. a weekend here or there, as it would cover damages to personal property, such as furniture or electronics.
Long-term rental home management, however, puts homeowners at a higher risk of incurring damage or liability costs that a homeowners policy might not cover. Just like a homeowners policy, a landlord policy will cover damages to the building itself, protecting it from the elements (wind or hail) or from fire damage, but it will also offer liability coverage in case a tenant gets injured and the homeowner is at fault. The liability coverage will absorb medical costs and or legal fees. This is important, as homeowners policies only cover injuries to the homeowner and his or her family while on the property.
Also, many homeowners policies require the homeowner to actually reside in the dwelling, so would not be effective if damage occurred while the home was rented out.
Note: Typically only a renters insurance policy will cover damages to a renter’s belongings.
What Are the Benefits?
While investing in real estate can be a smart financial move, the act of rental home management can, at times, be costly. Landlord insurance protects the owner and the owner’s assets in the event of a break-in or other damage. Another major advantage of landlord insurance is that the policy will cover the loss of income if the home were to become uninhabitable due to something beyond the owner’s control like a fire.
Not feeling protected enough? Many policies offer extra coverage that can be added on. An insurance agent can help a homeowner decide whether to add such things as rent guarantee insurance, flood or water damage insurance, or an option to cover personal belongings on the property (which is a good idea if yard maintenance equipment is kept on site).
Still not impressed? Landlord insurance policies are tax-deductible, meaning the landlord is allowed to claim the cost of the policy as a business expense.
To summarize, the benefits of a landlord policy are financial and legal protection.
Is Landlord Insurance Required?
While Arizona Property Management and the law don’t require landlords to have landlord insurance, it’s still a good idea to get one. Life happens when we least expect it; it’s best to hope for the best but prepare for the worst.
A real world application might put this into perspective. Say a tenant, “John,” doesn’t adequately clean his clothes dryer and a fire occurs. John’s not home because he stepped out to get a cup of coffee, but thankfully a passerby sees the smoke coming out the open window and hears the fire alarm, so calls the police. Lucky for John, he has a renters insurance policy, so his dryer, his ruined clothes, and a few other personal items are able to be replaced and John is reimbursed for those costs.
The homeowner, “Mary,” chose not to have a landlord policy in place, as she felt she was saving money this way. Unfortunately, Mary now has to pay thousands of dollars out of pocket to repair the smoke and fire damage that occurred.
Property damage, sadly, happens more often than not, so why take the risk?
What Does a Landlord Insurance Policy Cost?
All this coverage sounds expensive; however, this type of insurance policy has a nationwide average of right around $50 a month. Obviously, these rates will vary depending upon what coverage options are chosen, so be sure to shop around to find the best deals. Other factors can influence the cost of a policy, including size of your unit; the number of units currently being rented; safety precautions put in place, such as burglar alarms or sprinkler systems; and whether or not there is a pool on the property.
Comparatively, a homeowners insurance policy has a national average cost of $80 a month, and, as stated above, does not cover a landlord as greatly as a landlord policy would. So, if one is looking for the best value versus quality coverage, landlord insurance is the way to go.
As previously stated, landlord insurance is not a requirement, but is a highly recommended safeguard for homeowners renting out their properties long-term and could save homeowners money in the long run. Additionally, landlord insurance is an easy way for a homeowner to protect him- or herself, both legally and financially. Getting a policy is nothing less than a smart move.