As a real estate investor, you can't overlook the importance of protecting your investment. This means purchasing insurance to protect against full or partial losses, tenant claims, or costs related to a lawsuit. If you don't have the right insurance for your rental property, it can result in you losing your personal funds and business and ending your real estate investing career.
When you purchase the right property insurance, it is possible to reduce unexpected losses and avoid paying for coverage that you don't need.
If you own rental properties, there are certain types of insurance you should have. While this is not a comprehensive list, these are the main options you should consider investing in.
Also called rental property insurance, landlord insurance will bundle together all the different coverage types that most real estate investors should have. For example, this policy can include coverage for a loss of income, hazard, or liability.
Something that landlord insurance won't cover is any items that belong to your renter. You can require tenants to acquire and pay for their own insurance policy to cover their personal belongings in some states.
Liability insurance coverage will cover any accidents that occur on your property. This includes tenants, guests of tenants, and repair technicians. Some of the things that liability coverage will protect you from include:
A basic insurance policy usually provides coverage for fire and hazards. Hazards include things like potential structural damage from theft, fire, or storms.
When you review your fire and hazard insurance coverage for your rental property, you may want to cover the property's total replacement cost rather than just the current cash value.
Coverage for water line and sewer line backups or breaks can be add-ons to your existing insurance coverage. Even though most clogged lines can be cleared easily, if there is a break in the main plumbing line, it can cause unexpected costs that, without insurance, you will have to pay. In some areas, if a break occurs beyond the property line, you, rather than the city, will be responsible for the repairs of using a licensed contractor.
Flood insurance is a must-have if your property is located in a designated flood zone or worried about an unexpected catastrophe that may cause excessive flooding that will damage your investment property. While most insurance policies will provide coverage for water damage from a problem pipe, some policies will not cover damage caused by any outside sources, like a hurricane or flood.
As you can see, having the right insurance for your investment property is a must. In some cases, the deductibles you pay will be tax-deductible, as well, which is an added benefit of these policies.