A Landlord’s Guide to Rental Property Insurance

man holding a model house and keyring for rental insurance
If you’re a new landlord, there are tricks of the trade you should learn. An important one is rental property insurance. Here’s a guide for landlords.

Major cities like Seattle are experiencing a bit of a cool down period for renters. Rents are dipping and new construction is plateauing. This makes it ever so important for landlords to protect their properties and keep out-of-pocket costs low.

To the inexperienced renter, additional insurance may seem like an unnecessary expense. This is a miscalculation for a number of reasons. For one, you don’t get any coverage from homeowners insurance. That only covers owner-occupied properties.

You need rental property insurance to cover any tenant-related damage, natural disasters, and etc. Here are a few pointers on how you can protect yourself and your investments.

Core Rental Property Insurance

Even your most basic landlord insurance will include these key protections:

Property Damage

This is going to cover all property damage or losses that occur due to natural disasters, any electrical, gas, or fire damage, vandalism, and tenant negligence. This basic landlord insurance can vary on the amount of coverage offered. A strong insurance package will offer the cost to replace lost items or the replacement value in cash.

Don’t settle for insurance just for what the items’ value is at the time of losing them. If you have any older furniture, priceless items, or antiques, you can be out of cost to replace them.

Loss of Income Protection

This is to protect you if a natural disaster where to damage your property and make it uninhabitable. The best landlord insurance will reimburse you for the amount of rent money you are unable to collect. This coverage extends to all other types of damage or infestations, such as mold, carpenter ants, termites, rodents, and etc.

Legal Liability

If any tenants are injured or fall ill due to the conditions of your dwellings, they may file suit to recover medical costs. Landlord insurance can protect and cover these costs. This coverage is usually only offered in the most expansive deals.

In fact, landlord insurance usually comes in three different core packages: DP-1, DP-2, and DP-3. This stands for “dwelling property” coverage.

Further Coverage

Beyond the core packages of rental property insurance, you can buy into more coverage. This is ideal for specific climates or situations that may be more common in certain parts of the country. A good example would be flood or earthquake insurance, which are not usually included in basic landlord insurance.

Here are a few common examples:

Flood Insurance

Like basic homeowner’s insurance, you won’t get flood coverage in your “natural disaster” protection. If your rental property sits in a flood zone or is prone to flooding in any way, you need to buy into this coverage.

Guaranteed Income

This additional insurance covers you if your tenant goes M.I.A. all of a sudden and leaves you without income. This can cover you from a missing month of payment or a sudden move leaving you months until you can find a new tenant.

Emergency Coverage

For repairs or maintenance that absolutely cannot wait, this additional landlord insurance will cover your expenses. A leaky pipe, a tenant who has locked themselves out of the house, whatever it costs you to hire, travel, and resolve the problem is covered.

Acts of Mother Nature

This is expansive coverage that includes every type of damage or preventative measures due to major climatic events. Tornadoes, hurricanes, earthquakes, wildfires, and more. This insurance add-on even covers damage or loss due to riots. Great to have if your property is in a major metropolitan area.

Legal and Medical Protection

If anyone on your property is injured and sues you, this coverage will cover whatever losses you incur. This includes tenants, contractors, property management, and etc. Whether you win or have to pay a settlement, this insurance will save you from losing everything.

Conditions will apply, such as the number of rental properties needing coverage. Expect to pay a larger premium for more comprehensive liability coverage.

What You Should Expect to Pay

The average cost of homeowners insurance in the state of Washington is $653. The general rule of thumb for renters is about 20% more than what homeowners will pay. This is just for basic coverage, namely DP-1.

Another factor that will determine your premium is how long the property has been rented out. The longer you rent out your property, the lower the annual premium.

You can save a lot on your insurance by simply bundling everything you need. If you piecemeal everything together, you could be overpaying. You can save a lot by simply bundling your already existing homeowners with your landlord’s insurance.

Filing Claims

When the time comes to file a claim, you should consider the amount of money you are trying to recover or collect. Insurance companies have a soft limit on how much they allow you to file claims before your rates start going up. Habitual filers can even get their policies canceled.

You may not even be filing frivolous claims, it could just be the fact that you have multiple properties. Sometimes you get unlucky and a number of emergencies happen all at once. Communication and moderation are key.

If you have a plumbing repair that is less than $10,000, you should avoid filing. This not because it is considered a frivolous repair, but because it could send a red flag to the insurer for potential water damage.

Always file a claim if anyone is injured or affected by a major weather event.

Prevention is the Best Insurance

Rental property insurance is, of course, important to have, but the best savings comes from avoiding all risks. Having a reliable maintenance service and clear communication with all parties involved is key. Surprises are costly, so it is your job as a landlord to stay on top of everything.

It is also worth convincing all your tenants to take out their own renter’s insurance to cover their own property. This forms an early level of trust with your tenants and encourages them to take initiative in pointing out potential problems.

If you need any assistance regarding the renting or selling of your property, you should contact us. We offer comprehensive property management services and methods to maximize your profits.