Home Insurance For Landlords: What's Optional, What's Not
Home insurance is important for any homeowner, but it may be especially important for owners of rental homes. Rental homes have the same risk factors as any other comparable home, but your rental properties will likely be subjected to more wear and tear than the home you live in because tenants come in and out with some regularity. That means you may experience more damage, which means you need a good home insurance policy. Since you have different needs than an ordinary homeowner, it's a good idea to know some things about the clauses you might find in a landlord's home insurance policy. Take a look at some optional and must-have clauses that you should know about.
Optional: Personal Property Protection
Personal property protection, otherwise known as contents coverage, protects the items inside your home, like your furniture and appliances. You may think that contents coverage is a necessity for landlords renting furnished homes, but if you furnish your rental with relatively inexpensive items, you may be better off saving your cash and replacing items as they break.
On the other hand, if you don't have a lot of cash reserved, contents coverage may make sense even if your rental is unfurnished. It covers things like carpeting, drapes, and light fixtures that will be in even an unfurnished rental.
Not Optional: Dwelling insurance. This is the basic coverage that protects the structure. Try to find an insurer who offers dwelling insurance with guaranteed replacement cost — this will protect you even if the building materials to repair your home cost more than you were originally insured for.
Optional: Acts of Nature
Acts of nature include possibly damaging events like hurricanes, tornadoes, and earthquakes. Whether you need this insurance, and how much coverage you need, depends largely on where you are in the country. If your rental home is located in Oklahoma or Florida, you probably need to at least consider insurance against tornadoes or hurricanes.
With that said, you may not necessarily choose to purchase acts of nature insurance even in a state that's prone to natural disasters. If your particular city or region hasn't been hit by a natural disaster in a long time, it may not be necessary. It's also worth considering the cost of insurance over time versus the cost of rebuilding.
Not Optional: Water and flood coverage. Water and flood clauses cover not only damages from floods caused by rain or natural disasters, but also water damage from things like sewer backups. Water and flood coverage is regulated by the U.S. Government's National Flood Insurance Program, so you don't need to shop around — the rates will be the same no matter who insures you.
Optional: Loss of Income Insurance
If your rental home becomes damaged and is unlivable, you have two problems. You have to fix the home, and you have to deal with the loss of rent if your tenants have to move out. If you depend on the rental income to cover your mortgage, as many landlords do, this could be a devastating loss.
Fair rental income replaces the rent you would have gotten from your tenants while you repair your house, usually for up to 12 months. Like other clauses, whether you need this clause depends largely on how much cash you have on hand. If you can afford to stash away several months' worth of rent in a savings account for a rainy day, it might be worth skipping the premium increase for income insurance and paying the mortgage with your own cash when you can't collect rent. If you don't anticipate having that much cash on hand anytime soon, though, income replacement insurance is a smart buy.
Not Optional: Liability insurance. If your tenant, one of their guests, or a worker at your property is injured on the property, you could be on the hook for damages. Make sure that your home insurance policy includes both legal and liability coverage.
A good insurance agent will consider your location, your budget, and your needs to help you put together a landlord's home insurance policy that works for you. Make sure to ask plenty of questions about what each clause does and does not cover. Visit a site like http://www.wyattinsuranceca.com/ to learn more about home insurance options.
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