Not all insura
nce policies are created equal. Let’s discuss the key coverage areas for your investment property.
Standard property insurance policies assume that the homeowner lives in the property. Landlords, on the other hand, rarely ever live in their rentals and
therefore need a different type of policy — a Landlord Insurance Policy.
Whether or not the rental property is owned by an entity or individual, here are key points that rental property owners need to understand.
Replacement Cost:
Many insurance companies use a depreciation model as the basis of replacement cost for older homes. However, depreciation models do not provide 100% replacement cost. Ask if your policy provides for 100% replacement cost.
Lose of Use:
When a landlord is faced with a catastrophic claim, Loss of Use provides coverage for loss of income that may occur.
Liability Coverage:
For minimum premium cost and greater peace of mind, Liability Coverage should not be less than $1 million.
Percentage Deductibles:
Due to the many hail storms that have brought damage to Colorado within the last 5 years, insurance companies are re-adjusting their coverage, exclusions and deductibles. Many insurers are applying a 1% deductible from the dwelling. Watch for deductible amounts that will continue to adjust each year as the reconstruction inflation increases.
Additional Insureds:
If the dwelling is owned by more than one person or by an entity, the name of any additional insureds should be listed on the policy to avoid future problems.
Flood:
Flood damage is not covered under the landlord insurance policy. Flood insurance needs to be covered under a different policy.
Building Ordinance:
Standard commercial insurance policies may not cover the loss or demolition of an undamaged portion of a building or the increased cost of rebuilding the entire structure in accordance with current building codes. Coverage for these loss exposures are widely available with endorsements.
Sewer and Drain:
For a property with a basement, sewer and drain coverage in the event of a sewer pipe break which can damage the dwelling and personal property.
Renters Policy:
Although there is no federal or state law requiring tenants to have renters insurance, a landlord can stipulate in the rental agreement that renters coverage is required. This insurance provides coverage for the tenants’ belongings and liability within a rental property.
Whether you are a first time investor or the owner of multiple properties, review your investment property policies for adequate protection in these keys areas.
Source: Evelyn Hoelzel, Farmers Insurance (2016)