Landlords, earning handsome passive income? And, your monthly mortgage is covered with the rent you are getting? Good work! You are playing a good offense. Is your defense strong enough?
In a post why do we need insurance, I mentioned that investment is a offsense and insurance is a defense. So when I ask if your defense is strong enough, that essentially means are you covered adequately for the home you rented out?
Let me tell you an interesting story, this incident happened to my brother-in-law who lives in London. Not going much into the personal details, he had to claim for a property damage to his rental property he owned in the Brighton area. He had the home owners insurance on that property. It was a crude shock to him when the claim got rejected by the insurer.
The reason being, since he was not occupying the property his home owners insurance didn’t cover the damage caused. He needed a landlord insurance. Now don’t think this will not happen to you in America. The insurance law, in this regard, is same even in America. Most of the home owner insurance do not cover non-owner occupied properties.
My brother-in-law los all his passive income for last few years. I hope this doesn’t happen to you. He now got the landlord insurance quotes and all set to pay the premium, which is incidentally coming out as lower than the home owner insurance premium he was paying all-along.
When do you need landlord insurance
The answer lies in the insurance you currently have, revisit them and ask your agent if you are covered on your rental property if something happens to it while renters occupy it. Anything can happen starting from forest fire and hurricane to tornadoes.
In some cases your home owner’s insurance may cover rental property but, not always. It is important that you scrutinize your papers and policy documents, if required get help from experts. In US majority of insurance providers require you to have landlord insurance.
1. When your home owner insurance policy does not cover tenant occupying it – if you rent out for longer term and something happen while they are staying in the property. All your rental income and many more can go out of your pocket.
2. When you want rental income to be covered for repairs – When the damage to the property is caused by covered ‘peril’ you’ll get reimbursed for you rental income loss.
Types of Landlord Insurance
As always with any insurance, various types are available. The cheapest ones do not cover all damages, at the same time, you shouldn’t always go for the costliest one. Shop around and bargain with your insurance agent/broker. get some online quotes as well.
Limited liability (DP 1) – where type of coverage is explicitly mentioned, if some peril like, fallen tree damaging your roof is not listed as covered, then you will not get back any money. A DP 1 insurance will only return you the market value of the lost/stolen property. Obviously, these insurances cost lesser
Exclusive Insurance (DP 3) – where the exclusions are specifically mentioned. Unless otherwise mentioned on your policy document, you are covered from any kind of property damage. in most cases you’ll get a rental income coverage too. Most Dp 3 insurance providers do bear the cost of replacement, even if the damaged item was bought years back. The premium for this insurance is higher.
Although my brother-in-law is paying less premium than home owner insurance, a quick research on landlord insurance quotes reveals that it is costlier than homeowner insurance. But, when it comes to a lifelong passive income, you may want to secure your night’s sleep, isn’t it?
Readers, do you have a personal story to tale that can add value to this article. Please do share and help us protect our hard-earned money.