How to Estimate Landlord Insurance

An insurance policy on your rental protects you from loss of the property and sometimes loss of the rent.

Owning a rental involves far more than simply picking up the rent and making certain that the house is in repair. It's a business, like any other and requires appropriate insurance to not only cover any losses from fire or the elements, but also protect the landlord from losing everything if a tenant should sue. Landlord insurance, next to property tax payment, is one of the most important payments made every year. Unlike payment of property tax, you as the landlord, get to decide how much insurance to carry and how much to pay.

Difficulty:

Moderate

Instructions

Things You'll Need

• Appraisal Value
• Photos

1. Estimate the value of the house or homes you rent. A professional estimate is good to have but if you don't have one, use the estimate of value used if you have a mortgage on the home. Account for improvements you've made to the house.

2. Decide whether you'll get replacement cost or actual cost insurance. Most companies don't offer replacement cost on older homes in lower-valued neighborhoods since the price of the home is often considerably less than the replacement cost. Replacement cost is more expensive, but worth it on high-value rentals.

3. Do comparison shopping for insurance. Not all companies charge the same amount for insurance. Shopping around helps to keep your costs lower and maintain profitability. Secure quotes from local insurance agencies or go online to do comparison shopping.

4. Purchase liability insurance for each rental or get an umbrella policy--one that covers all liabilities--particularly if you have several houses. A minimum of a half-million dollars worth of coverage is appropriate and often costs far less than you think.

5. Add a rider to your homeowner's policy if you have just one rental. Often these riders are far more inexpensive than a separate policy. You'll often have to cover the additional dwelling's liability for the same amount as you cover your own home. Since rental units have more hazards that you can't control as you would in your own home, consider increasing both.

6. Add loss of use insurance to your policy. If there's a fire that makes the dwelling unfit for habitation, your expenses continue whether you have a tenant or not. Loss of use or rent replacement insurance gives you rent while you repair any damage from the loss.

7. Notify your tenants that they need personal property insurance and include that information in the lease. Your insurance doesn't cover the tenant's belongings, so they must purchase a tenant policy if they want coverage.

Tips & Warnings

• When your new tenant moves into the premises, take pictures of them in each room, as well as pictures on the outside of the building. The date on the lease supports the date of the pictures. These are valuable proof of the house's condition for both insurance purposes and evidence of the property's condition when the tenant moved in, if there's a dispute.

References

• US Insurance: Rental Property Insurance
• Salt Lake Tribune: Landlord Rules 101: Get the Right Insurance
• Romow.Com: Getting the Best Landlord Insurance

Resources

• NOLO: Landlord Liability and Insurance FAQ