Approximately 122.8 million households rent the apartments or homes they live in versus owning their homes.
As a result, you should have no problem finding tenants if you own rental properties.
Owning rental properties, though, requires some responsibilities. One responsibility you have is to purchase commercial landlord insurance.
If you’re new to owning rental properties, you might wonder what this insurance is and why you need it. You can understand it more by learning the following six things about commercial landlord insurance.
- Commercial Landlord Insurance Isn’t For Your Personal Residence
The first thing to know is that commercial landlord insurance isn’t the type of policy you need for the home you live in and own. Instead, you need a homeowner’s insurance plan for your primary residence.
Landlord insurance is only for rental properties. When you contact an insurance agent for a quote, they will ask you if you live there. If you do, you can’t get this type of insurance.
If you own properties you rent to other people, you are the landlord of these properties. In this case, you can’t buy a traditional home insurance plan. Instead, you must buy landlord insurance.
A commercial rental property policy protects property you rent to people, and this is the only reason you would ever need to buy this type of insurance plan.
- It Covers The Structure Only
So, what is a landlord insurance policy? What does it cover?
A commercial policy for rental properties includes several coverage types, but the main coverage is for the structure.
Your policy will not cover anything your tenants own or place in their rental properties. They need renter’s insurance if they want coverage for their things.
When you buy the plan, you should get enough coverage to rebuild the property if you lose it. Therefore, the amount of coverage you need might be more than the amount you paid for the properties.
You can ask your agent how to value the properties to ensure that you have plenty of coverage. Your agent will likely base the coverage amount on your loan balance, tax records, and similar property values.
Having a commercial landlord policy offers compensation to you if you lose the property to a covered peril. You can ask what perils the policy covers.
- You Must Legally Have It If You Have Tenants
Every state has commercial landlord-tenant laws that landlords must follow. These laws prohibit you from doing illegal things with the properties and tenants, and they give your tenants rights.
These laws also give you commercial landlord rights. Learning and following these laws will help you avoid legal troubles.
One law you must follow is keeping proper insurance coverage on the rental properties you own. While your policy doesn’t provide coverage for your tenant’s things, it offers other benefits for them.
For example, if your tenants encounter injuries from a fire in your rental property, your policy provides coverage for their injuries. Your tenants have rights, and you must follow the law to ensure you supply them with these.
- You Need It If You Have A Loan
Purchasing a commercial landlord policy is also essential if you owe money on these properties. When you borrow money from a lender to buy rental properties, the lender can set requirements for you.
One such requirement is having the right insurance policy on the property. Lenders have a stake in properties when they issue loans, and insurance reduces their risks.
Your lender requires insurance for one main reason. For example, if you lose your property to a fire or another covered peril, your insurance policy pays the loan balance.
Imagine losing a building to a fire and not having insurance coverage. If you owe money on the property and no longer have the property, you’ll have a huge financial disaster on your hands.
As a result, you must buy landlord insurance if you have a loan. You should buy a policy even if you don’t have a loan, though, for your own protection.
- It Protects You From Loss Of Rental Income
One of the benefits you’ll experience from purchasing landlord insurance is the extra coverage it provides. As mentioned, your policy covers your structures, but that’s not the only coverage you get with it.
Another coverage it provides is compensation for a loss of rental income. If you experience damages to your property from a covered peril, you can file a claim for the costs of the repairs.
If your tenants must move out for a while, they won’t pay their rent while they live somewhere else. As a result, you’ll lose rental income. Fortunately, a landlord policy covers this event.
If you lose money from rental income, you can file a claim for that. If they approve your claim, you’ll receive compensation from your insurance company for the rental income you lost.
- It Gives You The Liability Protection You Need
The last thing to know about landlord insurance is that it comes with liability protection. Liability insurance is something you have with car insurance, home insurance, and other types, and it’s a necessity with landlord policies.
Liability protection is what you need if an accident occurs on your property. For example, if a potential tenant falls down the stairs while viewing your rental, they can sue you.
If someone sues you and wins, you might owe a lot of money to that person. Fortunately, with liability coverage, your insurance provider pays the claim.
Your coverage might even cover the legal expenses you incur from the incident, but this varies. You can ask your agent what your policy includes.
Buy Landlord Insurance Before Renting Your Units
If you decide to buy rental properties, you must purchase commercial landlord insurance. In fact, this should be one of the first steps you take when buying the property.