The Right Types Of Insurance.

Insurance coverage is very important to a landlord. It is what protects you from devastating lawsuits that could easily lead to bankruptcy or loss of personal assets. This is one area where it does not pay to be a cheapskate. There is no replacement for good insurance coverage. Here are a few different types of insurance to consider.

At a minimum, residential property owners should protect themselves by carrying the following types of insurance:

Property and Casualty Insurance . This protects the owner from fire, storm, or other catastrophic losses that make the rental unit uninhabitable.

Liability Insurance . Coverage for negligence, gross negligence, or general liability issues.

Umbrella Insurance . This provides coverage above and beyond (in addition too) your liability coverage.

Renters' Insurance

It is highly recommended that you encourage your tenants to purchase renters’ insurance. In many states, the landlord can and SHOULD actually require the tenant to purchase this insurance.

Tenants Personal Property . The property owner’s homeowner’s insurance usually does not cover any of the tenant’s personal property that may be damaged. In fact, many landlords require their tenants to purchase renters’ insurance particularly if they want to have a waterbed. A tiny leak in a waterbed can cost thousands in repairs.

Waterbed Rider. Explain to your tenants that waterbed coverage is not automatic. A separate policy usually has to be added to the full policy. In any event, the extra waterbed coverage is only a few extra dollars a year.

The “Idiot Clause .” Many policies even have what is called an “idiot clause.” For example, the tenants knock over the television breaking it and put a hole in the wall. They can make a claim against the renters’ insurance policy. The insurance will cover the costs of the television and the cost of repairing the hole in the wall.

“Tenant’s Notice of Insurance .” As a matter of policy, have your tenant sign a “Tenant’s Notice of Insurance.” Depending on the state, this notice is not binding; however, it reminds the tenant of the importance of having renters’ insurance. If your state allows landlords to require tenants to have renters’ insurance, this form can be easily modified for such purposes. This form is only 1 of over 50-different forms included in our RENTAL FORMS PACKET.

Umbrella Insurance

Umbrella insurance is a great low-cost way of increasing your liability coverage. For example, your homeowners’ insurance may have a liability limit of $300,000. The umbrella coverage adds an additional $1,000,000 in coverage.

Costs . Generally, an umbrella policy costs anywhere from $150 to $300 a year. One policy can cover multiple rental units. Likewise, the costs are tax deductible because it is a business expense.

Additional Coverage . In fact, most umbrella policies provide additional liability coverage for your cars, primary residence, and all your other rentals. All your assets are put under an “umbrella” so to speak.

Liability Insurance Coverage

Evaluate Insurance Coverage. I cannot stress enough the importance of having enough insurance coverage. Most landlords have only what is required. The reasoning is the lower the coverage the fewer premiums you will pay, thus increasing your cash flow. Your cash flow will mean absolutely nothing if you are sued.

Carry Maximum Liability Coverage . Actually, the chances of being sued are relatively small; however, it only takes one time, and you could be financially destroyed. I suggest you carry the maximum liability insurance your policy will allow. If you have an umbrella policy, you will be required to have the maximum liability coverage. Most companies will only allow a maximum of $300,000 to $500,000 in liability coverage. One lawsuit can result in a several hundred thousand-dollar judgment.

Contractors Insurance . Require ALL repairman and contractors working on your rental property to be insured and provide copies of the insurance. They should carry liability coverage and workers’ compensation insurance. This way, if they cause a loss while working on the property or they get injured on your property, their insurance pays for it not yours.

Fire Insurance.

If you carry a mortgage on your rental, chances are your lender will require adequate fire insurance coverage up to the amount of the loan. If you are not carrying a mortgage, you should carry fire insurance anyway. Be careful, if your insurance policy does not specifically indicate fire coverage, call your insurance agent and inquire about it.

Classifications of Fire Insurance . Fire insurance coverage is divided into one of two categories, standard and guaranteed.

Standard Coverage . Under the standard coverage, your property is depreciated; therefore, you only get the depreciated value. The problem with this coverage is your insurance coverage may not be enough to cover the mortgage.

Guaranteed Coverage . Under the guaranteed coverage, your insurance company will replace the property no matter the costs. Be aware of the type of coverage you have. If you do not know, call your insurance agent and ask.

The following information was taken from our very own small business rental property manual THE LANDLORD’S SUCCESS BOOK. CLICK HERE for more information on the manual.

Paul Vojchehoske

Editor in Charge
Operation Landlord
P. O. Box 540723
Omaha , NE 68144

(402) 660-0395

paul@operationlandlord.com

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