What You Need to Know About Insurance for Your Rental Property

Property insurance isn’t legally required in North Carolina. If you’re financing your property through a mortgage company, you won’t be able to move forward without it. Even if you’re paying cash, you probably don’t want to end up losing your entire investment if tragedy strikes and your property is damaged by fire or storms.  

When you’re looking at insurance options, there are some key things you should know about investment property coverage to ensure you’re fully protected if something goes wrong.  

Investment Properties Should Be Covered by a Landlord Policy

Because a rental property is a business, a traditional homeowner’s policy won’t suffice. You’ll need to look at landlord insurance instead.

Landlord insurance covers costs to repair or replace your primary residence from catastrophic damage. And it protects you if someone hurts themselves while on your property. But there are some important differences from homeowner’s insurance:

 

  • Landlord insurance covers loss of income.

 

When you buy an investment property, you’re counting on recouping your investment through rental income. What if your unit becomes uninhabitable? Landlord insurance covers lost rent during the time the unit is being repaired.

 

  • Landlord insurance doesn’t cover most personal items

 

Any personal items kept at your unit for tenants to use are covered. The tenant’s possessions? Not so much. Tenants should be encouraged to buy renter’s insurance – it’s inexpensive, covers their own items, and includes liability coverage to the renter if someone is hurt while visiting.

 

  • Landlord insurance offers expanded liability coverage

 

Landlord insurance offers liability protections, usually in amounts of $300k, $500k and $1 million. This provides extra protection in the event a tenant or their guest is hurt while at your property and you’re sued for damages.

 

  • Landlord insurance is typically more expensive

 

Expect to pay up to 25% more for landlord insurance. The condition of the property, the location, and the existence of a swimming pool, can all drive the price higher or lower. When tax time comes, though, keep in mind that the insurance cost is a deductible business expense.

  • Cash Value vs. Replacement Value

 

Cash value covers only what you paid for the property (less the value of the land). It may not leave enough money to rebuild. Many cash value policies don’t cover water damage from frozen or broken pipes.

If your property is in good condition, go with replacement value. Make sure your dwelling coverage is high enough to rebuild and know insuring your building for less than its full value means you won’t get full payout if you file a claim.

  • Consider additional coverage

Consider additional coverage for things not included in your main policy like flood insurance, sewer backup insurance, and a personal umbrella policy. Yes it costs more, but the added expense would be a great benefit if you suffer a lost and would minimize your cash outlay. 

 

Oak City Properties’ Investor Property Acquisition Services can help with questions about insurance and other topics related to the purchase and management of investment property. Give us a call today.

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