What are the Types of Insurance Coverage for Rental Property?
Here are the most common types of insurance policies and additional coverage options for real estate investors.
Although the list is long, there are other items you may want to consider as well, depending on where your investment property is located. That’s why it’s important to talk to a few different insurance brokers in your local market to have experience working with rental property investors:
1. Landlord insurance
Also known as rental property insurance, landlord insurance bundles together the different types of coverage that most real estate investors typically need. For example, a landlord insurance policy may include insurance for liability, hazard, and loss of income.
One thing that landlord insurance doesn’t cover is the items that belong to your renter. In many states, you can require a tenant to obtain and pay for their own renter's insurance policy.
2. Liability insurance
Liability insurance covers accidents that happen at your property involving people such as tenants, their guests, and even your repair people. Typical liability coverage may protect you:
• If someone gets hurt or something is stolen
• If there's an accident that occurred on your property and there are hospital and rehabilitation bills
• If someone decides to file a lawsuit, including any damages awarded that you must pay
3. Hazard and fire insurance
Coverage for hazard and fire is typically covered in a basic insurance policy. Hazards may include things such as structural damage from storms, fire, or theft. When you review your hazard and fire insurance coverage for your rental property, many investors prefer to be insured for the replacement cost of the property and not just the current cash value.
4. Sewer and water line backup
Coverage for sewer and water line breaks or backups can usually be added to your insurance coverage. While most clogged lines can be easily cleared, a break in your main plumbing line can be an unexpected expense that you have to pay. In many municipalities, if a break occurs on your side of the property line, you, and not the city, could be responsible for the repair using a licensed contractor.
5. Flood insurance
Flood insurance is required if your property is in a designated flood zone, or if you are concerned about an unexpected catastrophe that could cause flooding that damages your rental property. While a basic insurance policy typically covers water damage from a broken pipe, many policies do not cover water damage from outside sources such as a hurricane or "100-year flood".
6. Tenant rent default insurance
Also known as rent guarantee insurance, companies such as Rent Rescue and Steady can protect you against a tenant defaulting or ‘skipping out’ on the rent. Rent default insurance helps to prevent interruption to your income by reimbursing you if the tenant doesn’t pay the rent.
7. Pet coverage
Offering a pet-friendly rental property can help you keep vacancies low and rents higher. However, if you do rent to a tenant with a pet, you may want to make sure the tenant has pet coverage in their renter's insurance if your local landlord-tenant laws allow. That’s because you might be held liable for any damages or injuries caused by your tenant’s pet.
8. Loss of income coverage
Loss of income insurance protects you if your rental property becomes uninhabitable for an extended period of time, such as if it suffers damage from a fire or a natural disaster. If you only have one rental property and an affordable mortgage, you may be able to cover your expenses even if your property is vacant for several months. But as your rental property portfolio grows and your income depends on the rent received, loss of income insurance may make good business sense (depending on your personal situation).
9. Partnership Insurance
As real estate investors scale up their businesses, they often invest in joint ventures or real estate partnerships. Partnership insurance allows you to have insurance on your other partners. That way, if a partner dies you can buy back the investment from the family of the partner and continue the business instead of working with an unknown new partner.
10. Builder’s risk insurance
If you’ve purchased a vacant property and are renovating it, consider whether to obtain builder’s risk insurance. This short-term insurance policy may cover you against vandalism, theft and property damage, and contractor injury claims that your hazard and fire insurance and liability policy may not cover. Some builder’s risk insurance policies may also cover you against loss of income if there is a significant delay in completing the project.
11. General contractor insurance
Active real estate investors who do their own renovation work instead of hiring a contractor may choose to obtain general contractor insurance. This type of insurance covers you if construction equipment is stolen or damaged, or if workers are injured while working on one of your rental properties.
12. Worker’s compensation coverage
Some real estate investors get to the point where they have so many rental properties they need to hire employees. Worker’s compensation insurance protects you against things like medical expenses for injured employees or being sued for causing an employee’s injury.
13. Umbrella insurance
Umbrella insurance is a type of secondary coverage that protects you once the limits on your standard liability policy have been exceeded. For example, if you’re involved in a lawsuit, legal defense costs and expenses related to an injured person’s medical expenses, therapy, and lost wages may be covered by an umbrella insurance policy.