Rental Property Insurance: Tips & Advice

Whether you’ve got a tiny rental next door to your home or a portfolio of 200 properties, understanding insurance and how it does and doesn’t protect your assets is key.

Here’s an overview:

THE THINGS YOUR PROTECTING
As a property owner, there are three primary things your insurance policy should protect:

PROPERTY COVERAGE
The most obvious coverage is for the structure itself. If something bad happens to your investment property it’s value is diminished. That could be a total loss like a fire or tornado leveling the structure. It could also be a partial loss like a burst pipe causing water damage to your wood floors.

This is listed as DWELLING coverage on your insurance policy.

There is very limited PERSONAL PROPERTY coverage on a Dwelling owner’s policy. This is because you don’t usually have belongings in the house. The personal property of your renter is NOT covered under your insurance policy. This is one reason for renters to have their own RENTER’S INSURANCE POLICY.

LIABILITY COVERAGE
The is coverage for bad things that happen to other people because of you or your property. Common examples are a person falling down the stairs, tripping on your sidewalk, or being injured by faulty construction.

The renters in your property are the most likely to experience these things. That’s why most rental contracts have “Hold Harmless” clauses. This is something you should talk to a lawyer about when creating your rental contract.

The second group of people to potentially experience injuries on your property are the friends and family of your renters. This is the most important reason to REQUIRE TENANTS TO HAVE A RENTER’S POLICY. Liability on a renter’s policy would be first to respond and make you less likely to experience a liability claim.

BUSINESS INCOME COVERAGE
The last of the three major coverages protects the income that you receive from a property. If there is damage that requires a renter to move out for a period of time, you likely won’t receive rent payments. Business Income coverage replaces that lost income.

MARKET VALUE VS REPLACEMENT COST
The DWELLING COVERAGE is the maximum limit an insurance company would pay out for damage to your property. Many investors think this has something to do will how much your property is worth. That is incorrect. The Dwelling coverage is figured based on REPLACEMENT COST. Replacement Cost is the estimated amount it would actually cost to rebuild the structure. The figure includes contractors, wood, drywall, roofing, etc.

Sometimes Market Value and Replacement Cost are close. Other times they are significantly different. For example, let’s say you buy a 2000 square foot house for $100,000. The insurance company will likely want to insure it for around $250,000 ($125/square foot). You may feel like the insurance company is insuring it for way too much but the reality is you bought the house for much less than it would cost to rebuild. Market Value & Replacement Cost are not the same thing.

COINSURANCE CLAUSE
You might say, “I don’t care. I bought the house for $100,000, let’s insure it for $100,000.” You wouldn’t be the first person to think that. Maybe you don’t even care if $100,000 is all you’d get in a claim. But actually, you wouldn’t even get that.
Insurance companies have a rule to combat underinsuring a house and it’s called the COINSURANCE CLAUSE.

In a claim, EVEN A SMALL ONE, the company will assess whether you’re dwelling coverage properly insures the house. If it doesn’t, a formula is used that diminishes the claim payout in direct relation to how much you underinsured.

In the above example, if the house totally burned down you’d get about $40,000.

PERILS INSURED AGAINST
Insurance coverage is based on the bad thing that happened (occurrence). Different policies list different events that are (or aren’t covered). Here’s the 3 primary options:
o BASIC (DP1) – Covers 11 “Named Perils” including lighting, fire, smoke, wind, hail, and more.

o BROAD (DP2) – Covers 16 “Named Perils” including everything from Basic plus burst pipes, weight of ice and snow, and more

o SPECIAL (DP3) – The best kind. Shifts from what is covered to what ISN’T covered. If a bad thing that happens isn’t specifically excluded it’s covered.

That’s it! What are your questions? Please ask them in the comments section below!!

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[acadam]

Liked and Subbed for more of that great real estate content. I love the content quality! Can't wait to see more!

[elchicharito]

super informative video. thanks for sharing I know now how to insure my first property and what to look for!!

[barrysmith]

Simple but informative video. Thanks for sharing.

[christophergraham]

unexpectedly ....i learn something from this video, , thanks a lot

[tracyblessed]

Hi thank you for explaining ☺
Do you cover single family home rentals property?

[jaynguyen]

Great info bro! What policy would you recommend for airBnb owners?

[Juliopaints]

What about a triplex. Where the owner lives in one unit and rents out the other 2 units. I was told I have to have a DP3 but I've read they have How is cheaper and is suitable for my situation. Any advice would be greatly appreciated 👍🏼

[genebrieck]

If I have multiple rental properties (2) in a single member Series LLC do I need to have a landlord policy for each property, or can a single policy provide coverage for both without interfering with the asset protection the LLC provides?

[kchardway]

Hey I just say a new charge on top of my rent it says liability to landlord insurance! Can they just start charging me for this? After going back and forth with them to try to get the black mold growing around all of our vents some one did come out and “test” it but we’ve heard nothing back from them... now this. Idk.

[practice_percussion]

Thanks so much for the video it is very straightforward and easy to understand. I have a general question about insuring a rental property.

Are there some cases in which insuring a rental property may not be worth it?
For example if the costs of bringing the structure up to code, or if the property was acquired at a very low price and therefore making the monthly payments for insurance may not be worth it?

[BigDawgSportsEntertainment]

What if I already have Home insurance on my home before I rent it out?

[kinggeorgewashington]

Hi Jeremy, I have a property in Lava zone 2 in Hawaii. I was going to sell it, but due to the Lava flow about 20 miles away, I want to rent it. Unfortunately a lot of good people lost homes.
I was wondering if I can just get liability insurance. Just in case somebody gets hurt on the property. I think fire insurance is out of the question right now although I do have full coverage on the house until October. Fortunately the Lava is not coming my way LOL.

I did subscribe and if you don't know or don't answer don't worry about it. Aloha.

I enjoyed the video.
Thank you,
George

[JuanaGarcia-ls]

Hello question I was renting a small studio behind landlord home I fail down the stairs I broke T12 bone few days in hospital 3 months no work I told him if he has insurance to make a claim he said no either way it won’t cover it . I told him before about the stairs because the stairs are narrow very straight he put bars to hold but stepping to those steps where scary he said the time and money he didn’t had .can I sue him if he has homeowners insurance

[ronaldfuller]

Is the landlords responsible for paying water bill and garbage pick. In apartment renter never pay these bills.

[William]

What about condos/townhomes that have Master policies? Would the dwelling coverage for the condo owner be less compared to a regular single family home?

[philipperitchie]

Do you know of a insurance compagnie in Canada (quebec) for student housing?

[watchthisnow]

Let's say the tenant is getting evicted. Doors are missing, maybe even windows. IE a distructive tennant. What insurance would cover that.

[rogerberres]

I see i have put in a post on the deductibles once already but you sine insurance has decided to not comment why

[Marysiewert]

we were denied because the house sold for less than 1/2 of what it is worth

[rogerberres]

I would have liked to have heard more about deductibles which is a big part of insurance
be careful with insurance companies like state farm who has taken one claim and made it into 3 claims making my deductible 9600 hundred dollars rather than the 3200 hundred dollars it should be screwed again
maybe someone could do a video on deductibles as this is a big part of insurance