One of the largest expenses you’ll have as a landlord after your mortgage and your property taxes is your insurance.
If we’re being honest with ourselves, most of us have never really dug into our insurance policies. Maybe you’ve studied different parts of real estate investing, but you’ve never really asked about what you need in an insurance policy. Or, maybe it’s been so long since you’ve thought about insurance, you don’t even want to ask about it.
We’re sharing some of the insurance highlights with you today. Keep in mind, we are not insurance brokers. We recommend you build a good relationship with a professional who can help you meet all your insurance needs.
Fundamental Insurance Policies for Investment Properties
The fundamental policy you’ll have as a landlord is a general liability policy. If you have a mortgage, this policy will be required. It covers things like hail damage, fallen trees, and other losses. Around here, much of the city is in a flood zone, so you’ll also need a good flood policy.
What’s surprising is that once you have general liability and flood insurance, you can add on a lot more protection for very little money. So, research these options, and decide if they’re a good fit for you.
Consider an Umbrella Policy
An umbrella policy takes your normal policy and adds an umbrella, or up to a million extra dollars of protection. The cost of extra coverage is usually pretty cheap. Just remember that the umbrella policy only increases your liability coverage, not the insurance for rebuilding your property. That’s an important distinction.
Code Enforcement and Demolition Insurance
Ask your insurance agent if there’s coverage available for code enforcement upgrades and demolition. If your property is damaged by fire and two-thirds of the property is gone, your policy will cover the rebuilding costs. But, it won’t always cover the cost of demolition. If your structure is burned, you will need to hire someone to haul the stuff away. That service might not be covered without a demolition policy.
Code enforcement upgrades are also valuable. If your property was built in 1950, you know that building codes have changed since then. So when your insurance company approves a claim and gives you money to rebuild, you won’t necessarily get the money you need to upgrade to current building codes. This is a cheap endorsement, and something worth considering.
Loss of Rent Coverage
When you’re renting out your property, you may have to pay for your renters to stay somewhere else while the property is being repaired or rebuilt. You’ll also have to cover your mortgage payments, so make sure you have a loss of rent inclusion on your insurance policy.
Switching from Homeowner to Landlord Policy
If you’re an owner-occupant moving out and turning the home into a rental, let your insurance company know you need a landlord policy. Your premiums will go up, but so will your coverage amounts. If you have a tenant injured at your property, a claim will be denied on an owner-occupant insurance policy. Make sure to make this switch.
Renter’s Insurance for Tenants
We require our tenants to have renter’s liability insurance. This provides you with extra protection. If a tenant damages your property by leaving a stove on and catching the drapes on fire, the damage is covered under their policy before going to your policy. Most claims stay in the $10,000 to $50,000 range, and it’s better to have your tenant’s policy cover it.
We aren’t insurance brokers, but we do have a great network of people who help us. We work with insurance agents all the time to review our clients’ policies. If you have any questions about your investment property in San Leandro, or the insurance it needs, please contact us at Civitas Property Management. We’d be happy to refer you to a great insurance agent.