|The Importance of Having Landlord Insurance|
by Melissa Hathaway,
Landlord Insurance Specialist
With a slowdown in the property retail market, the foreclosures and the
mortgage problems for new buyers, the retail market has become more
important. This is why in some parts of the country rental costs are
becoming equal to mortgage payments and even exceeding them. The demand for
rental properties is improving.
The increase in TV programs on how to
improve properties for rent and the increase in rental yields has made
renting out a profitable business option. If you are new to this, it might
be worth considering one element of the rental market, which is the pros and
cons of landlord insurance.
Reasons for Landlord Insurance
Renting out properties is a risk for a number of reasons. The basic risk is
financial and revolves around renting as a business. Can you make enough
money to pay off any costs for buying the property and renovating it or
fitting it out? Are there enough potential tenants to fill your properties
and can you reach a good yield on the property in the long term?
Landlord insurance is unable to help with the basics of the rental property
market, what it does do is work in the same way as any other insurance. It
is a calculated risk, a rainy day protection plan that is hoped to never be
used. The risk comes in paying money when nothing might happen or not paying
money monthly and something catastrophic happening to the property you are
There are several of causes of major payouts by landlords. These tend to
fall into two categories.
- The first are events under no one’s control. Such
events include flooding in the basement, snow storms that collapse the roof,
subsidence, crashes, and so on. These cause a lot of damage and landlord
insurance is designed to help protect against that.
- The second major
category is the bad tenant issue. Bad tenants do not look after the property
they are living in. Their damage and neglect can lead to serious costs to
repair all areas of the house or apartment you are trying to rent out.
Sometimes, in extreme cases, this leads to the need to fix structural
problems. While in some cases it is possible to sue former tenants, having
landlord insurance can cover these costs.
Home Insurance vs. Landlord Insurance
Traditional home insurance is designed to be used by home owners and does
not consider the property to be commercial. It will protect the building
from damage and a loss of contents (if it includes contents insurance). If
you faced either a natural disaster or disastrous tenants, the home
insurance deal would cover repairs to the building and replacing electrical
and furnishings that you own, but it would not cover a loss of earnings.
That is the main difference between the two types of policy. Dedicated
landlord insurance will do just that. While some letting agencies can
provide the cover for you should the property be un-let during their watch,
the landlord insurance will cover a lack of rent due to the property being
uninhabitable. It should also cover repairing the damage if it was not your
fault and the loss of any contents caused by the same problem.
Types of Landlord Cover
Naturally with such policies, companies offer a range of landlord insurance
policies. Some of these policies may combine all of the following elements.
First, there is building insurance, which covers costs incurred in repairing
the structure. Second, there is contents insurance for the furnishings and
electrical goods. Third, is liability insurance, which covers you against
any lawsuits that may be caused by problems like flooding or other damage.
Alternative accommodation insurance will cover the cost of paying for your
tenants to live somewhere else while you repair the property. There is also
loss of rent insurance, as noted above, that helps you make up for the loss
of earnings in this period. There are also policies for legal cover, rent
guarantee cover, accidental damage and emergency assistance.
Making a Choice
When making a choice about landlord insurance it is important to consider a
lot of factors. Firstly, are you going to rent one or more properties? Ask
yourself questions about the location, such as about the people who live
there, crime rates, risk of natural disasters from flooding to tornadoes,
what contents are you providing with the place and so on. You also need to
look at yourself as a person and as an insurance policy holder in the past.
These companies will examine whether you have taken a policy out before, who
with and whether you have made insurance claims. Naturally, having made no
claims in the past will stand in you with a good chance of a lower premium.
Melissa Hathaway is a freelance writer and
landlord insurance specialist who also works in the private care field.