An essential component of a real estate transaction involves insurance. The required amount of insurance for real estate investors depends on whether the property is mortgaged, the outstanding loan balance, and any extra coverage options that you, the landlord, may deem important. Premium payments weigh against the risk of bearing the cost of a future loss. So, some things to consider before signing on the dotted line involve different types of insurance available. Here are some basics to keep in mind.
Landlord insurance protects an investor from financial risk when renting all or part of their property to tenants. In the event the property is damaged or individuals are injured while on the property, a landlord’s policy usually covers damage to the building and the landlord’s belongings, medical liability, legal fees, and libel, slander, wrongful eviction, and discrimination claims. The chances of a landlord being sued for mistreatment are much higher than a claim for fire, earthquake or flooding. Protect yourself by following the letter of the law in your state regarding tenant applications, signed leases, and legal evictions.
Because interior contents of a building are not covered in the landlord’s policy, tenants will need renter’s insurance or must self-insure to cover their personal property. Nevertheless, there are circumstances when a tenant may be compensated from the landlord’s insurance company if the claim falls under the landlord’s liability coverage, such as loss of property because of a broken lock on the front door. Many landlords now require proof of rental insurance before the keys are turned over.
Know the true and fair value of your property, making sure there is building ordinance insurance for replacement costs, with an annual inflation adjustment on the policy. Remember, replacement costs should include labor as well as materials. And confirm it will pay for damages under the current building codes, not the codes that were in place when the building was constructed.
Rent loss insurance covers loss of rent due to a catastrophic event that makes your building uninhabitable until repairs are made, or continued income in the event a tenant unlawfully breaks their lease. Some policies will pay a predetermined amount of money to the landlord should the rental unit lay vacant a specified amount of time. Interim payments can keep things afloat until a new renter is signed.
The best way to avoid injuries that can result in liability claims on your rental property is to keep your property well-maintained and to quickly respond to any concerns regarding safety that your tenants may present. From loose stair rails to the dreaded mold scenario, most claims can be avoided with conscientious up-keep.
Preventing potential security issues on the premises is another important step toward reducing liability. Investing in a good security system with cameras and motion detector lights, as well as installing dead bolts on the outside doors, may qualify for a premium discount.
And, don’t forget to bundle different policies such as auto and property; ask for association discounts such as AARP or USAA; and qualify for safety discounts with smoke alarms and security devices.
The price and coverage of your business policy should be treated with as much foresight as picking your stock portfolio. Ramey King is familiar with over 80 financially sound insurance companies that are top-rated by AM Best, and Standard and Poor. Because the costs of litigation and legal defense can rapidly become financially devastating, doing your due-diligence in partnership with Ramey King may be the smartest business move you’ve ever made.