Many homeowners and condo owners are unexpectedly becoming landlords. In a slow real estate market, renting out a property may make more financial sense than trying to sell it. And in a tough economy, renting a room in one's home may make good financial sense to help meet monthly expenses for mortgage and other housing costs. Either way, new landlords should explore the pros and cons of obtaining landlord insurance, to protect their property and investment from unanticipated losses. Some condo and homeowners are converting their homeowner insurance policies to more comprehensive policies offering landlord protection. Here's how to find out what you need to know about landlord insurance.
Size Up Your Situation
Like any insurance policy, landlord insurance offers coverage and financial security for unlikely, but potentially costly events. The major thrust of most landlord insurance policies is to protect against loss of income in the event your property becomes uninhabitable. Depending on the type of policy, insurance may cover costs of damage to the property (from, say, a flood, or tenant misuse), and may also cover lost income from being unable to rent the property out for a period of time. Damage to property coverage is sometimes known as peril insurance.
More expansive policies, known as comprehensive coverage or an umbrella policy, can also protect you from the costs of legal expenses and landlord liability in the event of a lawsuit, and may even offer certain protections against charges of defamation or discrimination.
How much, and what type of coverage you need depends a good deal on your situation as a landlord. Are you renting a room in your home? A condo or apartment that you own? Or are you renting multiple units to different people?
And who are you renting to? Letting a room in your home to someone you know well, perhaps on a temporary basis, is very different from renting out long-term to a stranger who contacted you through a classified ad, or saw your "For Rent" sign on the street.
Size Up Your Finances
Insurance involves a definite expense of your hard earned money in order to protect against an uncertain possibility of an even larger loss. It's a tough balancing act.
If a disruption in rental income for any length of time would mean a serious hit to your overall finances, then insurance that protects against income loss is certainly worth considering. If your main concern, though, is unanticipated and expensive repairs to your property, then landlord insurance that offers cash value (value after depreciation) or replacement value (the actual cost of replacing or reparing losses and damage) should be considered. And if you're concerned about possible lawsuits or other sorts of legal action that sometimes arise from landlord-tenant problems, then insurance against these sorts of actions should be expensed as well.
As always, there are insurance deductibles, and the general rule applies -- the higher the deductible, the less the insurance policy will cost up front.
Find an Agent to Work With
It's complicated stuff, and hard to keep tabs of all the options available to you as a landlord who is seeking insurance protection for a building or other property. An agent who knows the ropes can walk you through the various possibilities, and help you to think through the pros and cons and each. Most importantly, they can provide precise cost information about how much different landlord insurance policies will cost, and what sort of protection they will provide.
Once you have information from one agent, you can ask at other companies for comparable levels of protection, and compare overall costs and benefits.
If you're a homeowner venturing into the world of landlord-tenant relationships, your own homeowners insurance policy may be the best place to start. Contact your agent, explain that you're considering becoming a landlord, and have them lay out the options available to you for buying supplemental landlord insurance, or even for fully converting your homeowners policy to a landlord insurance policy. Most homeowner insurance companies like Allstate, Geico, and Travellers offer landlord insurance polices as well.
- Photo Credit Flickr Commons
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