Even at the best of times, insurance can be a tricky and complicated business. Even when it comes to property insurance, you might be surprised how few people actually understand their insurance policy and are not quite sure what they are covered for. Indeed, deciding on an insurance policy for an investment property is no picnic, even more so if you’re going to be renting it out.
So where do you start if you have no experience? Some first-time landlords don’t completely understand the difference between landlord insurance and standard property insurance. Some may even think that they can get by fine by just getting property insurance, the thinking being that this basically covers anything that could go wrong and damage the house/property anyway.
But in reality, there are obviously a number of differences between these two categories of insurance that make it a considerable risk to ignore landlord insurance. Let’s take a look at a few of the differences and why landlord insurance is so important.
Why are their differences between the two?
It’s important to note that landlords have different insurance needs than homeowners, who are usually living in and own the property. This stems from the fact that each has different responsibilities, expectations and risk factors. For obvious reasons, a landlord has a higher level of risk than a tenant – more things can potentially go wrong.
For this reason, landlord insurance policies are essentially property insurance policies, with some added features or policy elements on top.
What are the additional policy elements?
One of the major risk factors that exist for a landlord is the uncertainty surrounding the tenant(s), which is part of the reason you need to select them so carefully. If a tenant is unable or unwilling to pay rent, suddenly a portion of your income is lost. Income protection, which is a feature of landlord insurance, covers you for this loss amount as well.
The potential is also there for a tenant to damage the property and/or contents therein, either accidentally or deliberately. If a homeowner damages their own property, it’s usually up to them to pay for repairs, however, in the case of a rental property, most landlord insurance policies will cover for damage by tenants.
Another consideration is the fact that as a landlord, you are responsible for the tenant’s safety (obviously this is true up to a point). If a tenant is injured or worse as a result of your negligence or something that needed fixing in your home but was not, you may be held responsible. Property liability insurance ensures that you are covered in these cases from any payouts that may be forthcoming.
Lastly, a good landlord insurance policy will cover legal costs that may come up as a result of a disagreement between the two parties. This can be a costly, long and tiresome process in most cases, so is generally avoided if possible. However often there is no resolution – again this goes to show how important it is to choose your tenants carefully.
If you are a first-time landlord, landlord insurance is a must. Obviously, the best advice is usually to get a few investment property insurance quotes as well as looking at landlord insurance options, and figure out which minimises your risk the most relative to the cost. You may find that having two policies that cover different things may be more cost effective than investing in only one. Do your homework and you’ll be fine!
David Nicoll is a freelance writer and an independent blogger who writes for insurance, rental properties insurance and landlord insurance related articles.