There are basically two different types of policies a landlord can buy. The first is a peril policy. A named peril policy will only cover a loss if it is specifically stated in the policy as a covered peril. If loss due to a power outage outside the building is not listed, it is not covered. The second type of policy is a comprehensive policy or open peril policy which will cover a loss unless it is specifically excluded from being covered. That means if you suffer a loss and the policy does not say it is excluded, then it is covered. It is a more comprehensive and easier to manage policy, but usually costs more money to have.
Most policies offer coverage for the building. That would include damages caused by fire, smoke, wind, lightning, hail, explosion, fire department charges, emergency removal of property, damage from vehicle, damage from an aircraft, and riot or civil commotion. Some policies will limit coverage's to either interior or exterior, not both. You must evaluate carefully.
Endorsements are coverage's that are added to the policy in addition to the basic coverage's for an extra premium or charge. Some important endorsements include:
Landlord liability, medical payments, personal liability, flood, earthquake, loss assessment, vandalism, and business property. If your policy does not list these coverage's on the declarations page, chances are you are self insuring. In other words, you have no coverage.
Landlord liability is probably the second most important coverage after the building. Landlord liability protects the landlord from lawsuits arising from damages to the tenant or other person who is injured on the property. Injury does not necessarily have to be physical; it can be emotional such as libel, slander, and discrimination. Liability coverage will usually cover legal expenses and damages if awarded. This protects the landlord from having to pay the injured party should they win in court. It will count as a claim which could make it more difficult to get favorable rates for several years.
Most landlord policies cover the building on either a replacement cost or actual cash value policy. Replacement cost coverage will not take into account depreciation when paying on a claim which makes it the more expensive option. If a building is now worth $65,000 because it is old, a replacement policy will pay to build the same building at whatever that would cost today. An actual cash value pays the amount the building or property is worth, minus depreciation. That means you may have to pay out of pocket to have a similar home rebuilt. Changes in code also has to be considered such as updating a fuse box, that will probably have to be added to the policy and will cover an additional 10% of the building coverage amount.
Increasing deductibles are one of the easiest ways to reduce premiums without having to give up on important coverage's. Deductibles are a way of self insuring for a portion of the claim. If a claim amount is $10,000 and you have a deductible of $1,000, you pay the first $1,000 and the company pays the rest if it is covered. Deductibles range from $100 to 5% of the coverage A amount, or the building coverage. The decision is simple, the higher the deductible then the lower the premium will be.
Landlord policies do not cover renters. The renter should be required to purchase their own insurance policy. Renters insurance covers their property and can also cover the landlord if they caused a loss such as a fire to the building or someone being injured due to the tenant's negligence. Anyone can sue anyone for anything. Having a renter purchase a policy and include you as an additional insured can protect you from having a claim paid by your policy when the tenant was at fault. That is call subrogating.
Vacant properties are a very difficult situation to deal with from a landlord position and from the insurance company's position. A vacant property does not provide income and it also stands to be at risk for things like vandalism, negligence, basic deterioration. A vacant home is a property that is used for showing to potential buyers or renters. It can not be intended to be demolished, under repair, restoration, or remodeling.
A vacant home under renovation is not considered the same as a vacant property. Few companies will insure a home that is vacant and currently being remodeled or "fixed up". Fix up work includes painting, wood repair, installing new carpet, installing curtains, etc. A vacancy warranty clause states that a home is not undergoing renovation and will cause an insurance company to deny the claim unless they are insured under a vacant renovation policy.
Vacant homes are also limited by the amount of time they can be vacant. Policies will differ from 3 months to indefinite. Most companies will allow a home to be vacant for 6 or 12 months (depending on the company) and will not insure the property if it has been vacant for longer than 12 months. Usually a vacant home will have to be for sale and be a secondary property to qualify for coverage. Few companies specialize in vacant homes and will insure them indefinitely as long as the warranty clause (home is in a condition that is can be shown to potential buyers or renters) is being honored.
Building coverage amounts also affect eligibility for coverage. Some companies will not insure a vacant home over $250,000 while some will not consider the property unless it is worth $250,000. Limits are also to be considered as some stop at $1,000,000 while others will insure the property to the highest limit needed.
Another option to consider when looking to insure your rental home is that some companies will allow you to add the property to your existing home owners insurance policy. That has advantages and disadvantages. The advantages are a multi-policy discount and having one agent or company to deal with. The disadvantages are limited coverage depending on the company and a claim will count against your homeowner's insurance policy. Any claim will raise your rates and could make it difficult to purchase insurance at all.
To evaluate your options and decide which coverage is right for you please visit our website at www.getgliga.com or call us at 888-GET-GLIGA. Ask for Don.
