Insurance Issues for Landlords
Owning a rental property is like owning any business, and being a Landlord increases your chances of getting sued. It just comes with the territory.
The first, and cheapest, line of defense in protecting yourself from the liabilities of the landlord business is a good Landlord Policy. Landlord policies cover property damage as well as liability risks. The landlord policy is specifically designed to cover risks associated with owning rental properties. Most insurance companies offer landlord policies, however, they differ in many ways. Here are some things to consider when you buy a landlord policy: - Make sure your policy has an All Risks Provision.
Basic landlord policies only cover natural disasters (fire, windstorms, tornadoes, and floods). This may not be sufficient coverage. A policy with an All Risks Provision expands basic coverage to include such things as theft, vandalism, and malicious mischief. If you have this coverage it will cover the damages caused by an angry teenager spray-painting the kitchen black to get back at his parents, or the cost of a tenant taking your refrigerator when they move out. It’s reasonable and it’s a must. Make sure your policy has an All Risks Provision.
- Many landlord policies reduce (or cancel) coverage if the property is vacant more than 30 days.
Make sure you know what the premium changes to (or what coverage is dropped) during a vacancy.
- Make sure your policy has a Loss of Rents Provision.
A Loss of Rents Provision means if the house burns down, the insurance company will continue paying you rent until the house is back in rent-ready condition. Without this provision you will be funding your own mortgage during the restoration period.
- Increase your liability coverage.
Basic liability coverage on a landlord policy is typically $300,000.00. In today’s world you need more than that. Most companies offer $500,000 or $1,000,000 for pennies in additional premium. Typically it costs $20 to $30 per year to raise your coverage to $500,000. This is too cheap to pass up.
- Make sure your property manager is covered.
Most management agreements require the manager’s name added as an “additional insured” for the purpose of liability. If a house burns down and a lawsuit develops over wrongful death, your insurance carrier will cover you and your property manager. It costs nothing to add them to the policy. You can add your manager through an endorsement if the language in the policy does not automatically cover them. Bottom line is: make sure your property manager is covered. It is a standard practice in the industry and costs you nothing.
- Shop around for good coverage.
Like any other insurance there is good coverage, and not so good coverage. We recommend Norton Agency as a Full Service Agency that covers ALL of North Georgia.
- Consider a Personal Umbrella Liability policy.
You should always carry a Personal Umbrella Liability policy. Consider at least $1,000,000 policy. It covers your home, your car, your boat, your RV, your big wheel and your I-POD. It is inexpensive (under $300 a year) and the day may come when you wish you had it.
- Consider a Commercial Umbrella Liability policy.
Here is the problem. After you buy your fourth or fifth rental property your personal umbrella policy becomes void. The company just stops covering you the day you buy your next property (every company has their own formula). A Commercial Umbrella Policy is reasonable and covers everything you own without limits.
We are not insurance agents.
You must talk to a competent insurance agent for reliable information on this subject. These notes are simply guidelines to get you started in the right direction and asking the right questions.
At the bottom of this page are some agents that we use and like. They understand the issues of properly insuring your properties whether you own them personally, in an LLC, or a trust.
Why you should add your property manager to your Landlord Policy as an “Additional Insured” - Property managers take on liability to manage your property …
If a tenant gets hurt on the property by falling off the roof, or hurting their hand in the garbage disposal, or getting injured in a fire, their attorney will find a reason to sue you, your manager, and the last three contractors that worked on the house. They name anyone they can think of in the action. We have had all these things happen and it just works that way. Your insurance company will come to everyone’s defense if the manager is named on the policy. It costs you nothing and it is standard practice with your insurer.
- Management Agreements require it …
There is language in the management agreement you sign with your property manager requiring that you add them as an additional insured. Every company does it.
- It is standard practice …
Most landlord policies “automatically include the management company” as an additional insured (State Farm is one example). Some insurers require that you ask the agent to add the manager (like AllState).
- It costs you nothing …
There is no additional premium charged to add your property manager to your policy. It is standard practice.
Insurance agents that understand title holding, and landlord issues
The insurance industry is changing constantly and the issues of landlords holding title in Land Trusts, LLC’s, and Corporations is getting harder and harder to solve. Last year State Farm would cover “all landlords,” today they have restrictions and limitations on landlord policies. AllState does insure properties in Land Trusts (today) but not LLC’s. The constant changing of insurance rules for landlords is like a moving target and frustrating to deal with.
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