8 reasons why you should invest in Landlord insurance

March 7, 2019 3:17 pm Published by Leave your thoughts

If you have made the big decision to rent your home out, that’s great, but there’s something very important you need to know before you get started.

Many first time landlords make a huge mistake when they rent their property, and you won’t want to join their ranks. The result of this mistake can lead to serious costs, and in the worst cases people can lose everything they have.

With so much at stake, it will be well worth your time to take five minutes for reading every word of this article. The error those other landlords make is that they rent their homes to tenants without getting a specific landlord’s insurance policy.

Usually that’s because they simply don’t know they can get one. They’ll also believe that they’re covered for most things by their existing homeowner’s insurance policy. Unfortunately, the ordinary homeowner’s insurance policy doesn’t cover much when it comes to tenants, and that’s because it’s not designed for that purpose.

Landlord insurance is, and that’s why you need it. Here are the 8 reasons why you should invest in landlord insurance.

1. You can’t rely on homeowner’s insurance when you have tenants

This is the biggest reason. Your home owner’s insurance is really only intended to cover you and your family, and of course the house itself, against problems that can arise through ordinary residential living or when the house is standing empty. Problems caused by tenants won’t normally be covered unless maybe they’re members of your own family cohabiting with you.

Don’t think this applies only to formal rental situations, either. Even if you just rent your home out for one night – to an Airbnb client, for example – you could carry full liability for anything that happens while they are on the premises.

If you’re thinking of hiring a house sitter or security guard to take care of your home while you’re away on vacation or anything similar to that, you should always check with your insurer first to find out how it could affect your policy and what steps you can take to make sure you’re covered.

2. You can be liable to your tenants and also for them

If there’s some problem in your home and it causes the tenant to suffer some kind of harm, whether to person or property, it is possible they could seek to recover damages from you.

Unfortunately, that’s not the only thing you’ll need to worry about if you don’t have landlord insurance. You could also be liable for damage or problems created by your tenants.

3. Home owner’s policies don’t have sufficient liability coverage

We’re making a big deal about liability here, and there’s a good reason for that. Homeowner’s  insurance has a relatively low liability threshold because insurers expect you’re going to be reasonably careful and responsible on your own property.

It makes sense because it’s your home, your neighbours, your community… none of which applies to tenants, because they’re only temporary residents. In consequence, they may not be quite as careful.

Another reason is that some people will assume that as a landlord you’re likely to be wealthier than the average homeowner, and they may more aggressively pursue legal action against you than would otherwise be the case.

4. Legal costs can be covered

Liability isn’t the only legal cost you might have to pay for, and this is another good reason why you should have landlord insurance. Lawyers don’t typically sell their time cheaply, and there are all kinds of circumstances where you may need one, including when you’re the plaintiff. Landlord insurance will usually pay for reasonable legal costs in bona fide legal disputes related to your situation as a landlord.

5. Preserve your umbrella insurance

It’s a smart move to have umbrella insurance to provide additional cover that might not be provided in your standard policies. If you don’t know what umbrella insurance is, it has nothing to do with actual umbrellas. It’s a policy that gives you extra protection and pays out on various unusual occurrences, mostly related to personal liability.

That can include things like slander, libel, invasion of privacy, and false arrest. There could be many other scenarios where an umbrella policy will save you, but not if you haven’t included your tenants in the policy.

Umbrella policies are a kind of “top up” insurance, so they have a low cost. But that low cost is based on a risk assessment that takes known factors into account. As soon as there are any unknown factors – such as that you have tenants that you have not disclosed to the insurer – the risk profile changes. That wouldn’t be fair to the insurer because they’ve sold the policy at a price that was too low for the risk they are taking on. The insurer would be within their rights to void the policy in that situation, and then you would not be covered.

6. Coverage for statutory violations

It’s bad enough that tenants, neighbours, and members of the general public can take legal action against you for real or imagined transgressions. Now just imagine how much worse it would be if the government came after you.

This is certainly a situation where the difference between homeowner’s insurance and landlord insurance becomes readily apparent. Homeowner’s insurance isn’t intended to deal with legal cases involving things like discrimination or tenant protection laws. Landlord insurance has a much broader legal spectrum that covers government litigation related to your rental property.

7. Not every tenant is a good tenant

Tenants usually try to keep out of trouble, especially since references have become a de facto requirement to obtaining a lease in the majority of cases. Even so, some tenants can create real trouble. Sometimes it’s unintentional, and sometimes it’s very definitely intentional, but that really doesn’t matter in the end. What does matter is that without landlord insurance, you’ll be on your own to deal with the problems that arise.

8. It will help you from “going out of business” as a landlord

The one thing you absolutely must have in order to be a landlord is some property to rent. If you don’t have any property, you’re not really a landlord, because landlords rent property to people.

Now that we’ve got that sorted out, you should know there are things that can happen to make it possible that your property can’t be legally rented out to anyone.

There’s a huge list of things that could cause this. Earthquakes, storms, fires, floods, insect plagues, animal infestations, chemical spills, and a whole lot more. They don’t happen all that often, but if they do happen, they can be devastating.

If you can’t rent your property out because of those things, you’ll stop being a landlord, and you won’t be making money until the problems can be resolved. If you have landlord insurance, however, you may be covered for loss of rental income from these occurrences, and you may also be able to get the funds to fix the problems.

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This post was written by Technical Underwriting Centre

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