Every real estate investor would wish for their assets to grow. That’s pretty obvious! While most of the factors assuring growth can be controlled or predicted, there are still some that come unanticipated. For example, a natural disaster may disrupt the whole market, or damage your property. While, this might still not be a problem if your assets are bare plots, rental properties, on the other hand, could be an alarming situation. Liabilities and repairs could come storming your way.
So, what do you do?
Well, you get insurance! Not the usual one – the typical homeowners’ insurance – but a landlords’ insurance policy. Wish to know more about what it is? Keep reading and by the end of this article, you’ll have your answer.
What is Landlord Insurance and How is it different from Homeowners’?
As the name suggests a landlord policy is for the owner of the property. Unlike homeowners’ policy, the landlords’ one does not protect the contents of the unit or the rental home. But instead takes care of the other things that are not covered under a homeowner policy.
To put this in a better format, let us consider an example. Suppose you own a condo complex. While the individual homeowners would be responsible for the contents within the units, you would be required to ensure the common areas.
The homeowners’ policy would not pay for liabilities or damages that are caused to the common areas. It includes hallways, common grounds, swimming pools, and other community amenities. To protect these assets, condo master insurance is generally put in place. It acts as an additional cover to protect the structures and other common areas shared by the residents of the complex.
So, clearly, there’s a lot of difference between what the usual homeowners’ policy would cover and what a landlord’s policy would.
What is covered under Landlord Policy?
By now, you must have a ballpark idea about what may your policy, as a landlord, would cover. Still, for a more elaborate
understanding, and to clear any remaining doubts, it is better to discuss the coverage of your insurance policy, a little more in detail.
Structural Protection
Within the basic coverage, the landlord’s policy includes and damage to the structure of the complex. It includes the exterior walls, compound perimeter, and any other structures within the complex premises.
Liability Coverage
Whether a resident or somebody else gets injured on your rental property, given that you’re at fault, your insurance policy would also bear the liability. It includes personal injury, slip and fall, or any other damage or loss of personal property on your premises.
Loss of Income
More comprehensive coverage would also protect your rental income. In case, your rental income is hindered, be it for any reason, the landlord’s insurance would also protect against loss of income.
Most Perils
Sometimes, the damages caused are not because of human intervention but due to natural occurrences. For example, floods and hurricanes can ruin your real estate investment. In such cases also, your policy would most likely cover the cost of repair and replacement.
How to Evaluate the cost of Landlord’s Insurance?
Like all policies, the cost for you as a landlord also depends on several factors. Besides, it can also vary from insurer to insurer.
Not clear how to evaluate the cost of your insurance policy? Keep reading to know.
Term of Insurance
Typically, long-term covers cost you lower than short-term covers. This is because of the reason that for short-term insurance covers, risks involved are higher at payout. On the contrary, long-term covers promise a recurring premium payment to the insurer. In which case, they are more likely to assess a lower risk profile for the buyer.
Age of the Property
The age of your property also affects the premium you pay. For an older property, the risks involved are higher, whereas, newer properties are less likely to sustain damages. And hence, a lower chance of payout for the insurance company.
Security Systems in place
Security systems that you, as a landlord, would install in your rental or commercial property also affect your premium costs. For example, if you have smart security systems such as biometrics or retina scans, you are likely to pay less in premium. This is because better security systems protect the property from acts of theft and/or vandalism.
Rate of Interest
Like debts and other asset classes, there are taxes and interest rates involved in buying insurance policies too. The interests are paid by your insurer, whereas, you’ll be paying the taxes. It is noteworthy that the interest that your insurer would pay depends on the term of your policy. Generally, there are no interests paid in the case of term insurance policies.
Features you Include
The cost of your policy would also depend on the coverage features that you include. To put this into perspective standard plans are the cheapest and most economical. However, depending upon your needs, you can include more coverage features in your policy. And, likewise, expect the costs to increase.
Your Credit Score
Most importantly, your insurance costs would also depend on your credibility. Not only does your insurer consider your credit score but also your credit history. In simple words, you can expect to pay a higher premium if you have a bad credit score or history.
The Takeaway
The real estate investments market, though a highly promising one, is still susceptible to slump. There are several factors that influence the growth of a real estate investment including the market cycle. While you can easily manage to get through the ups and downs of the annual cycle, it is for the unseen that you must prepare. Not only do you need to invest carefully, but also protect your investments from possible perils.
That being said, an insurance policy not only protects your investment but also promises a secondary channel for growing your wealth. Skipping on this crucial part of your investment portfolio can be detrimental to your long-term goal.
On this note, we hope that this article has answered your questions and given you the information you were looking for.
