Archive for December, 2015

Landlord Insurance

Landlord Insurance  – Chapter 6
from book “Insure Your Peace of Mind”  

Peace of Mind

If you own or are looking to buy an apartment building, this chapter is for you. While many of the coverages are similar to a homeowners insurance policy, it’s important to know the increased potential hazards that exist when you are dealing with tenants.

Whether it’s a single family house or a multiple 8-unit (or more) building – you need to protect it by having a landlord insurance policy. Decisions need to be made whether you should purchase a replacement cost policy or an actual cash value policy. Certainly there is a price difference between these two, but you should be sure you understand what these valuations mean:
Replacement Cost Option – This is the dollar amount it will take to replace your property. There is no depreciation based on age or condition of the structure.
Actual Cash Value Option – the structure is depreciated.

True story – A tenant tossed a cigarette butt off the the front porch of the building. A short time later a fire ignited that quickly spread throughout the building all the way to the attic. The building was insured for $200,000 Actual Cash Value, but the estimates from the contractor to rebuild was over $300,000. The insurance company paid the policy limit and the landlord was responsible for the balance.
In addition, you also need to decide what “perils” you want to cover. A peril is something that causes loss or destruction. You are buying protection based on the type of peril you choose:

There is a choice between 3 types of coverages:

Basic form causes of loss: very limited insurance that pays for fire, lightning, hail and wind, as well as vandalism.
Broad form causes of loss: this is better coverage that covers up to 15 perils, including weight of ice and snow on a roof and frozen pipes.
Special form causes of loss: This is the best choice, with more comprehensive coverage that includes all unexpected losses (including theft), unless it is specifically excluded.

We urge you to consult the actual policy contract for complete descriptions of these options.

Liability Insurance

Certainly you should understand the importance of carrying high limits of liability insurance. Tenants and others who visit the property will seek recovery if they are injured as a result of a slip on ice, trip on a porch or sidewalk, or fall down a set of stairs.

You should also add your landlord insurance to your umbrella insurance policy. Remember an umbrella is an extra layer of protection ($1 million coverage or more). You want to protect yourself in the event of a lawsuit by having this valuable coverage.

Money Saving Ideas

  1. Understand your policy.  It’s important to note that the price – per thousand of insurance – is often less for a replacement cost policy that it is for an actual cash value policy.
  2. Maintain Property. Keep your property in very good condition. Eliminate potential hazards like loose porch railings. faulty steps, debris in the yard, as well as roof and siding deterioration. The better condition of the property, the better policy you may qualify for and obtain.
  3. Choose a higher deductible. A $1000 or $2500 deductible will cost quite a bit less than a $200 or $500 deductible.
  4. Combine locations. If you own more than one location, it may be wise to put them on one policy.

You should require require your tenants to carry renters insurance. I suggest you put this right in the lease that you execute. Communicate with your tenants that you are not responsible for their personal belongings.

When a renters insurance policy is in place, you may be able to subrogate (collect from them) if it is determined that the tenant is responsible for causing the claim (i.e. negligence with a cigarette butt).


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December 2015
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