Some days it feels like companies are pushing for every kind of insurance, and it’s hard to imagine shelling out any more of your hard-earned dollars for something you’re not sure you need. But at the heart of it all, insurance is about one thing: Protection. And if you own one or more properties that you rent on a short- or long-term basis, landlord insurance is an absolute must-have.
If you think your homeowners insurance policy covers you for tenants, you’re dead wrong. In fact, homeowners insurance policies cover owner-occupied, single-family residences in most cases. Once you’ve moved out and moved a tenant in, by definition the residence no longer qualifies for homeowners insurance.
Tenant liability insurance covers many important aspects of tenant-occupied properties, and although the cost can be higher than homeowners insurance, it is tailored to account for the landlord’s specific needs.
Most responsible landlords, whether they’re property owners or managers, but even those candidates with great references can damage your property and leave it in an unsavory condition. Many property management software services, such as AppFolio, offer resident-screening services built in to the product, which can help property managers choose wisely—but nothing is foolproof. Hopefully no tenant will cause more damage than the deposit can cover, but it does happen, and having tenant liability insurance can assist in covering the excess cost caused by accidental damage.
With any tenants, even long-term residents, landlords should expect a certain amount of wear and tear on a property. It’s sad to say, but most tenants don’t care for properties the way that an owner would. Renters also are less likely to report maintenance needs in fear of a rent increase or eviction, and sometimes damage may happen because the renter is unfamiliar with the property’s systems, like a water shut-off valve.
Therefore if the property has a high turnover rate, or is rented on a weekly basis as a vacation rental, there’s a higher risk for the landlord—and the insurance company. Be prepared to pay a higher rate for more frequent tenants, but it will be worth it in the end. Most comprehensive policies will cover major appliances, including items such as the water heater and washing machine, which means less cost to you.
It’s also a good idea to require all tenants to have renter’s insurance—many renters mistakenly assume that an owner’s or landlord’s insurance covers their belongings. If you allow your tenants to have one or more dogs, check to ensure that their policy does not exclude dogs.
By taking the time to set up insurance before accepting tenants, you should be able to rent out your property with few worries. Of course, a landlord’s insurance policy isn’t clever enough to find you the perfect tenant, so that part is still up to you.