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Landlord Insurance vs. Renters Insurance — What Property Owners Should Know
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Landlord Insurance vs. Renters Insurance — What Property Owners Should Know
Problems, disasters or accidents are unpredictable. With insurance, both landlords and renters can avoid financial loss and get peace of mind.
Let's explore these questions and discover why insurance policies are critical to your rental business.
Landlord insurance
Like any insurance coverage, landlord insurance protects you and your rental business against potential losses and liabilities.
Here's how it works: When you buy a property, you work with an insurance provider to decide which dwelling policy (DP) you want. Dwelling policies are insurance plans for property owners with varying levels of coverage.
For instance, the cheapest dwelling policy might only provide basic coverage for fires or storms. More substantial dwelling policies may add other types of natural damages, lost rent if those disasters make your units uninhabitable or liabilities.
What does landlord insurance cover?
A typical landlord insurance plan covers three types of losses:
Property damage to your building or equipment, including that caused by natural disasters, fires, wind, lightning or criminal break-ins
Lost rent from months wherein your properties are uninhabitable due to any of the above damages
Liabilities, or legal claims (including medical bills, legal fees or court costs) made against you, usually resulting from an injury on the property.
These three types of coverage are standard across many insurance plans. However, you also have the option to purchase additional coverage. These add-on policies may cover vandalism, construction damage, or upgrading to fulfill building or health code policy changes.
Another thing to note is that flood and eviction insurance are not included in a typical landlord dwelling policy. Coverage for these losses must be purchased separately.
When deciding on your coverage, think about where your properties are located. Is the geographical area vulnerable to flooding, wildfires or earthquakes? Is the crime rate in the neighborhood high? If so, you might consider purchasing more comprehensive insurance coverage.
How much does landlord insurance cost?
The average cost of landlord insurance is around $1,200-$1,300 a year, paid in monthly installments. This is approximately 25% more than a typical homeowners insurance policy with the same coverage — because renters tend to introduce more risk.
However, the cost ultimately depends on several factors, including the building's age, the materials used to construct it, the presence or absence of pets, the dwelling policy you choose and the location of your property.
In general, dwelling policies that use replacement cost value (RCV) are valued higher than those that use actual cash value (ACV). RCV represents the cost of rebuilding your property at today's construction rates, while ACV represents the current, actual value of your property. Coverage based on RCV will lead to higher premiums.
Why buy landlord insurance?
If you take care of your properties, do you really need to be insured? Landlord insurance is highly valuable and usually worth the monthly fee. Here are some of the top reasons to purchase landlord insurance:
Protect your investment: You can't predict what might happen to your properties or your tenants. It's best to be prepared.
Achieve better interest rates on your mortgage: Some lenders require landlord insurance.
Take advantage of tax deductions: Landlord insurance premiums are usually fully deductible as operating expenses that you can subtract from your taxable income.
Renters insurance
If landlord insurance protects your properties, what does renters insurance cover? Your landlord coverage won't cover every loss related to your rental properties. Your renters need insurance coverage for their losses as well.
What does renters insurance cover?
Like landlord insurance, renters insurance typically covers three types of losses:
Personal property and tenant belongings, such as clothes, electronics or valuables
Liabilities due to a tenant's responsibility for an injury or property damage
Living expenses in the case that a tenant's unit becomes uninhabitable and they must find other accommodations until repairs are made.
You may decide to offer a standard renters insurance package to your tenants, but they might also wish to purchase their own coverage. For instance, if a tenant keeps particularly valuable items in their unit, they may wish to add on scheduled personal property or valuables coverage.
Tenants may also purchase theft extension coverage to cover their cars, boats or trailers; credit card coverage for unauthorized transactions; or other add-on policies.
How much does renters insurance cost?
Renters insurance is relatively inexpensive for tenants. The average cost is around $15 per month. However, this cost varies depending on the coverage level.
Problems, disasters or accidents are unpredictable. With insurance, both landlords and renters can avoid financial loss and get peace of mind.
Let's explore these questions and discover why insurance policies are critical to your rental business.
Landlord insurance
Like any insurance coverage, landlord insurance protects you and your rental business against potential losses and liabilities.
Here's how it works: When you buy a property, you work with an insurance provider to decide which dwelling policy (DP) you want. Dwelling policies are insurance plans for property owners with varying levels of coverage.
For instance, the cheapest dwelling policy might only provide basic coverage for fires or storms. More substantial dwelling policies may add other types of natural damages, lost rent if those disasters make your units uninhabitable or liabilities.
What does landlord insurance cover?
A typical landlord insurance plan covers three types of losses:
Property damage to your building or equipment, including that caused by natural disasters, fires, wind, lightning or criminal break-ins
Lost rent from months wherein your properties are uninhabitable due to any of the above damages
Liabilities, or legal claims (including medical bills, legal fees or court costs) made against you, usually resulting from an injury on the property.
These three types of coverage are standard across many insurance plans. However, you also have the option to purchase additional coverage. These add-on policies may cover vandalism, construction damage, or upgrading to fulfill building or health code policy changes.
Another thing to note is that flood and eviction insurance are not included in a typical landlord dwelling policy. Coverage for these losses must be purchased separately.
When deciding on your coverage, think about where your properties are located. Is the geographical area vulnerable to flooding, wildfires or earthquakes? Is the crime rate in the neighborhood high? If so, you might consider purchasing more comprehensive insurance coverage.
How much does landlord insurance cost?
The average cost of landlord insurance is around $1,200-$1,300 a year, paid in monthly installments. This is approximately 25% more than a typical homeowners insurance policy with the same coverage — because renters tend to introduce more risk.
However, the cost ultimately depends on several factors, including the building's age, the materials used to construct it, the presence or absence of pets, the dwelling policy you choose and the location of your property.
In general, dwelling policies that use replacement cost value (RCV) are valued higher than those that use actual cash value (ACV). RCV represents the cost of rebuilding your property at today's construction rates, while ACV represents the current, actual value of your property. Coverage based on RCV will lead to higher premiums.
Why buy landlord insurance?
If you take care of your properties, do you really need to be insured? Landlord insurance is highly valuable and usually worth the monthly fee. Here are some of the top reasons to purchase landlord insurance:
Protect your investment: You can't predict what might happen to your properties or your tenants. It's best to be prepared.
Achieve better interest rates on your mortgage: Some lenders require landlord insurance.
Take advantage of tax deductions: Landlord insurance premiums are usually fully deductible as operating expenses that you can subtract from your taxable income.
Renters insurance
If landlord insurance protects your properties, what does renters insurance cover? Your landlord coverage won't cover every loss related to your rental properties. Your renters need insurance coverage for their losses as well.
What does renters insurance cover?
Like landlord insurance, renters insurance typically covers three types of losses:
Personal property and tenant belongings, such as clothes, electronics or valuables
Liabilities due to a tenant's responsibility for an injury or property damage
Living expenses in the case that a tenant's unit becomes uninhabitable and they must find other accommodations until repairs are made.
You may decide to offer a standard renters insurance package to your tenants, but they might also wish to purchase their own coverage. For instance, if a tenant keeps particularly valuable items in their unit, they may wish to add on scheduled personal property or valuables coverage.
Tenants may also purchase theft extension coverage to cover their cars, boats or trailers; credit card coverage for unauthorized transactions; or other add-on policies.
How much does renters insurance cost?
Renters insurance is relatively inexpensive for tenants. The average cost is around $15 per month. However, this cost varies depending on the coverage level.
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