When you invest in a rental property in Pocatello or Idaho Falls or really anywhere, your first priority should be to protect your investment. There are several good ways to do that. Inspections are important, good tenant screening can help, and preventative maintenance is essential.
None of that matters, however, if you don’t have comprehensive insurance.
There’s the insurance that you will need for yourself, and there is the insurance that your residents will need to protect themselves and their own belongings.
It’s important to understand all the ways in which you need to be covered; the insurance you buy to cover your valuable investment will have a big impact on how effective you can be in keeping your property and your tenant safe.
Immediate Insurance Tips: How to Cover Your Investment
Do you have a good agent? Work with an insurance professional who understands the unique needs of rental properties, because what you buy to cover your investment is different from the insurance you’ll use to cover the home you occupy.
A good agent should have the best idea about what types of coverage will serve you and your property. You can rely on their experience and recommendations to completely cover your risk without spending too much money on premiums and deductibles.
It’s also necessary to review your coverage annually to ensure you’re protected. Always revisit what coverage you have and keep the discussion moving with your insurance agent. Your property value changes from year to year, and your investment is likely worth more now than it was when you first purchased insurance. That’s going to affect the dollar amount you’ll need to collect if you suffer a loss and need to rebuild or replace systems.
There’s also the matter of age and property condition. Your rental home is also getting older. You may need more or less coverage depending on these changes.
Saving money is always important when you’re investing in real estate, but don’t buy the budget policies that barely manage your minimal risk. You don’t want the least amount of coverage or the cheapest policy. When you take that path, you’re risking your investment and your financial future. It’s dangerous.
Choosing an Insurance Policy for Your Rental Property
You likely have a comprehensive homeowner insurance policy on your own home. The main difference between your landlord insurance policy and the homeowner insurance policy you have on the home you live in is that your landlord policy doesn’t cover any personal belongings that aren’t yours.
Your tenant’s personal items are not the responsibility of you or your insurance policy.
The other difference between the two policies is that the landlord policy generally provides more liability coverage than a homeowner policy. This is necessary due to the added risk that you assume as a landlord. If something happens to a tenant or a tenant’s guest at your property, there’s added pressure. You could be sued, and you’ll need the additional protection.
Let’s talk more about liability. You should require an insurance policy that provides plenty of liability protection.
- Liability Insurance for Pocatello and Idaho Falls Rental Property Owners
Every investment you make comes with risk. Rental properties, however, carry an extra bit of liability, and you want to be protected. Perhaps the best reason to buy a full coverage insurance policy as a real estate investor is to protect yourself against any liability you take on when people are living in your home. You may also find yourself fighting claims, lawsuits, and disputes.
A good rental property insurance policy will provide you with a comfortable amount of liability coverage. Talk to your insurance agent about the required or recommended liability limits. If something happens and you’re sued, you want to be protected from total financial collapse.
Liability coverage will cover more than you might expect. It will help you pay medical expenses for tenants who are injured at your property. It will also cover legal defenses and court judgments that might be won against you. Pay attention to policy limits and talk to your agent about including coverage for situations such as injuries, personal harm to the tenant, dog bites, accidental damage, and personal injury protection.
It’s never any fun to consider what might happen. No one likes to think about worst-case-scenarios. But, you have to be prepared. Liability is tough to avoid when you’re investing in rental property. If it seems like your coverage amount is unnecessarily high, it is probably just enough.
- You’ll Need Loss of Rent Coverage
There needs to be an insurance requirement for loss of rent as well. What will happen if the property you’re renting out is suddenly not habitable? You won’t have rental income coming in if something happens and you need to move your tenants out of the home. That’s going to hurt your cash flow and your ROI.
If there’s a fire that burns down most of the kitchen or a tree crashes through the roof, your tenants will not be able to stay in the home while it’s repaired. You’ll need to find another place for them to live or put them in a hotel. Over that period of time, you’ll lose a lot of rental income even while you’re paying your deductible and other out of pocket expenses.
If your insurance policy does not already include loss of rent coverage, consider adding it. This coverage is typically called Fair Rental Value Coverage. It will cover lost income due to your property being declared unlivable due to a covered loss. You never think you’re going to need this, but it’s a good policy to have and it can protect you financially.
Always Require Renters Insurance
Renters insurance has become required in many rental properties, and that’s good news for real estate investors who want to require it in their lease agreements. We like renters insurance for a few good reasons:
- It’s affordable. This type of insurance is relatively cheap for your residents, which makes it easy to require.
- It provides a lot of protection for tenants. They’ll have fewer out of pocket costs if something does go wrong.
- It helps you protect your assets. Extra coverage always means extra protection.
Require renters insurance in your lease agreement.
As an owner, your own insurance protects you from liability, catastrophes, and loss of rent.
Tenants need the same coverage.
Renters insurance is an affordable and easy way to bring tenants peace of mind. It’s important that tenants buy their own insurance to cover their possessions as well as any risk that can come from accidents or disasters caused by them.
- Pocatello and Idaho Falls Tenants Need Property Coverage
When it comes to renters insurance, the most significant advantage this type of policy provides for tenants is the coverage for their personal property.
If there is suddenly a leak and the water damages valuable electronics, the renters insurance policy will cover the cost to replace or repair those things. As an investor, your insurance policy will not cover those personal items, and the tenant would be left without any compensation for their damaged things.
Under your own insurance, liability and the structure of the home is covered, as well as all the home’s systems. But a tenant’s personal property is not. So, you need to require that renters policy to make sure your tenants do not suffer a major loss if something happens at the home.
- Tenants and Liability Coverage
The renters policy will also cover liability for your residents.
If a tenant accidentally leaves a stove on with a pot and burns down the kitchen, the renters insurance will cover the repairs that are necessary. When a shower gets left on and the neighbors downstairs have a mess to clean up, your tenant’s policy will cover it. This will save your tenant from a lot of out-of-pocket expenses, protect his or her security deposit, and provide some relief to you, because your insurance policy will not necessarily have to be involved.
- Include Renters Insurance Requirements in your Lease
Let your potential tenants know that renters insurance is required, and include that requirement in your lease. You can ask to see proof that the policy is in force, and you can ask to see documentation of the renewal when they renew their lease agreement.
You might also want to require that you’re listed as an additional insured. This will protect everyone under one policy and ensure that you are notified if coverage lapses or changes. The cost of renters insurance isn’t high. Tenants shouldn’t have to pay more than $25 per month for full coverage. In some cases, they can bundle it with their automobile insurance.
Renters insurance is a huge benefit to both tenants and landlords, and we always recommend it.
These are the basic insurance coverage points you should always be mindful of when you invest in a rental property. If you need some help putting together a plan to protect your investment property, please contact us at Jacob Grant Property Management. We manage homes and provide investment advice in Idaho Falls, Pocatello, and the surrounding areas.