What is landlord insurance? Do you need it for your Portland Oregon Rental Property or will a homeowner’s insurance be enough to protect your investment property should an accident or natural disaster occur at your rental property?
In this article, we will discuss the differences between homeowner’s insurance and landlord insurance so you will know exactly why you should purchase a landlord insurance policy to protect your rental property.
About Homeowner’s Insurance
Although some owners may think that a homeowner’s insurance policy is enough for their Portland Oregon Rental Property, the reality is that this policy only works for owner occupied units and offers you standardized protection if you were to be the one living in the property.
If you have someone living in your Portland Oregon Rental Property and you need to file a claim using your homeowner’s insurance policy, you can expect to have your claim denied by your insurer and this could also lead to your financial ruin.
Why Landlord Insurance Is Important
When you choose a landlord insurance policy you will have insurance protection that will also protect you financially if your rental sits vacant for weeks at a time, becomes inhabited by squatters or vagrants or has a loss of rent.
Before choosing just any landlord insurance policy for your Portland Oregon Rental Property here’s what you should look for in an insurance policy:
Basic Budget Coverage – This covers you in the event of vandalism or fire at your rental property.
Broad Coverage For “Named” Perils – Flood, fire or other “acts of God” may be covered by your landlord insurance policy but before signing a new policy you should confirm what perils are indeed covered by your policy just so you know what you can depend on, in case you need to use your policy.
Landlord Insurance Clauses
Here are some of the key landlord insurance clauses to be aware of:
Landlord insurance typically comes with much higher limits on liability coverage than homeowner’s policies. Landlords are frequently sued by tenants for all kinds of reasons, both legitimate and illegitimate. Your landlord liability insurance will typically cover the amount of judgments and settlements up to the liability limit in the policy.
Your landlord insurance policy generally also includes language obligating the insurance company to assist with the cost of your defense, and they may even provide an attorney for you. This is a tremendously valuable benefit—and it would vanish if you were trying to cover your rental property with a standard homeowner’s policy.
Guaranteed Replacement Cost
If your policy has a guaranteed replacement cost clause, then you are guaranteed reimbursement for the actual cost of getting a damaged or destroyed property back into service—even if materials and labor cost much more than the amount you were originally insured for.
Some carriers have gotten away from issuing this policy because it transfers more risk from the customer back to the insurance company. A guaranteed replacement cost policy may well be worth the extra premium it costs—especially if you’re planning on owning the property for a long time. Fix-and-flippers may choose to save the extra premium since they know the costs better than most, and they’re not as exposed to price swings over a long period of time.
Most of the time, landlord insurance policies can be modified to suit your specific needs. For example, if you have an older property and rebuilding it would require artisanal materials and construction techniques, you can often get additional coverage to reflect the additional repair costs.
The alternative is a policy that pays the fair market value of destroyed or damaged property. That is, the carrier will calculate the value of the damage or destruction, then subtract depreciation from their eventual award to you. So, if your property needs a new roof thanks to a thunderstorm, and the roof will cost $30,000 to replace, but you’ve owned the roof for 10 years, the company may subtract half of the amount for depreciation. You’ll then receive a check for about $15,000, minus your deductible, to pay for a $30,000 new roof.
These policies provide less protection, but they also sell at a lower premium. If you get a fair market value policy, you should be aggressively building up reserves against losses over the years so that when the need arises, you’ll have the cash ready for your share of the damages.
Loss of Rents
As a landlord, the stream of income from your rental properties is an important asset. If it’s interrupted, you could suffer significant financial harm. If your property is damaged or destroyed and you lose a tenant, landlord insurance policies provide loss of income protection—typically for up to twelve months.
A homeowner’s insurance policy wouldn’t cover lost income, of course, because owner-occupied homes don’t generate income to the owner. It might spring for a hotel or apartment while your damaged home is repaired, but you don’t need that—you need the income, provided you can get the protection at an acceptable premium. If you don’t rely on this income, you may choose to skip this coverage and retain the risk in order to save on premiums.
Loss of Use
Your landlord insurance policy may also provide funds to help your tenants rent temporary housing while your investment property is repaired. This way you won’t lose a valuable tenant.
Unit Rented to Others
If you live in the same building as your tenant, you may not need to get a whole new insurance policy. You can get an endorsement on your existing homeowner’s insurance policy covering liabilities arising from your tenant and your rental. However, you’ll likely need a separate landlord insurance policy if you’re renting a separate unit or structure.
A homeowner’s insurance policy will usually provide some coverage to structures like garages, carports, and sheds, up to 10 percent of the total coverage amount. Landlord insurance will require you to add coverage for these structures via a rider or endorsement; it won’t typically be covered automatically.
This kind of coverage is not typically included in a landlord insurance policy, although a DP-3 policy may include coverage for things like major appliances. For the best coverage, require your tenants to carry their own renter’s insurance.
How Much Does Landlord Insurance Cost?
Naturally, all of this extra protection isn’t free. According to information from the Insurance Information Institute, you can expect to pay about 25% more for a landlord insurance policy than you would insure the same home as an owner-occupant. The average annual premium for most landlord insurance policies is about $1000 per year.
Does Your Tenant Still Need Renters Insurance?
Yes, your tenants will still need to have their own renter’s insurance policy because renter’s insurance protects the items that belong to the tenant while landlord insurance does not and in the event of an accident or natural disaster at your rental property your tenant may find that they are not protected financially.
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