Your property is your business, so don't risk losing it to fire, storms, or other damage. Landlord insurance policies cover your property against losses that could lead to significant expenses and cut into your rental income.
In most cases, a homeowner's policy doesn't offer adequate protection and won't even cover losses incurred on a rental property. There may be some exceptions, such as renting a unit within your home, depending on the insurance company. Check with your current insurer to see if you can add a rental unit endorsement (or rider) for your homeowner's policy or if you need a separate landlord policy.
Typically, income property owners need a policy specifically designed for landlords or a dwelling policy. There are generally three types of landlord insurance policies available: DP-1, DP-2, and DP-3. Policies with more coverage cost more but also provide greater protection. Here's more information on the various levels of coverage typical for each type.
DP-1 is the most basic policy offered to landlords. Coverage is limited only to the types of perils expressly named in the policy. What's covered depends on the insurance company. The policy may include protection against property damage from smoke, fire, lightning, hail and windstorm, explosion, vandalism, riot, vehicles, and aircraft. If some of those perils aren't included, insurance may be available through additional endorsements to the policy. The option to insure the contents of the property may also be available as an endorsement. DP-1 policies include coverage for the actual cash value of the property, meaning the property is insured for its depreciated value at the time the damage occurred, rather than its replacement cost.
A DP-2 policy provides more coverage than a DP-1 policy. A DP-2 policy usually protects against additional perils, such as freezing pipes, electrical damage, structural collapse, falling objects, glass breakage, damage caused by the weight of ice and snow, and damage caused by burglars (but not theft). Some DP-2 policies also cover the accidental discharge of water or steam, and others offer the opportunity to add coverage against water damage through an endorsement to the policy. This type of policy insures the property for its replacement value, not its depreciated value, which is an advantage over DP-1 policies.
While the DP-1 and DP-2 policies provide coverage only for a specific list of perils, the DP-3 policy is the most comprehensive insurance policy available to landlords. A DP-3 policy insures against all causes of damage except those explicitly excluded in the policy. Perils not eligible for coverage commonly include power failure, war, nuclear hazard, neglect, government action, legal regulations, intentional loss, and earth movement. Like DP-2 policies, DP-3 policies also offer replacement cost coverage for your property.
Many landlord policies include coverage for loss of rental income if your tenant needs to move out due to fire or other covered damage. If this isn't included in the policy, ask about adding it as an endorsement. Also, check to see if policies you are considering include coverage for equipment breakdown.
Policies also include liability coverage that protects landlords in case of lawsuits, such as if someone gets injured on the property. Gordon James Realty requires landlords to have at least $500,000 in liability coverage. Some landlords, especially those with multiple properties, find they need liability coverage available through a separate policy, so carefully evaluate what's included in your landlord policy.
In addition to your own coverage, you may also require your tenants to have renter's insurance since their belongings would not be covered under your policy in the event of loss or damage to your property.
Conclusion: Finding the right policy for your property can offer you personal security and peace of mind as you mitigate potential risks to the stability of your investment.
A property management company like Gordon James Realty can help you navigate the complexities of landlord insurance policies. With their expertise, they can guide you in choosing the right coverage for your property and ensure that you meet all necessary legal and safety requirements. By working with a property management company, you can focus on growing your investment while they handle the day-to-day management, including addressing insurance matters.
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