INSURANCE 101 FOR REAL ESTATE INVESTORS
Why landlords should require their tenants to get renters insurance
A huge mistake that landlords make is not requiring their tenants to get renters insurance in their lease. Renters insurance covers so much more than just their clothes and furniture. The biggest reason you should require that tenants carry renters insurance is because of liability exposure.
If you have a tenant that causes thousands of dollars of damage, sells your appliances and skips town in the middle of the night, you’ll be happy you required that they have renters insurance. You can call the insurance company and file a claim on their policy.
One thing to remember is to have them list you as an “additional insured” and have them give you a copy of the “binder” or “declarations pages”. If you don’t see your name listed on the policy, demand that they call the agent and have them add it. Having yourself listed as an additional insured means that if their policy cancels, you will get notification and you can address it with them.
Vacant Home Insurance
Being an investor, whether you are rehabbing a house or renting houses out, you are having to deal with vacancies. Something that most investors are unaware of is that 60 days after a house is vacant, a normal homeowners or landlord policy will cover NOTHING. Whether the house burns down or someone cracks their head open due to tripping on a tree stump, the insurance company will deny any and all claims.
If you are an investor that rehabs houses, you have to have a special type of insurance (that is sometimes hard to find). This special type of insurance is specifically called “Vacant Home Insurance”. Some agents say that you can just get a normal policy with a vacancy endorsement but this policy is more for landlords that are in between tenants. The vacant home insurance policy is under the assumption that the house will be sitting empty for months – or may not be occupied while you own it ever.
One thing that you must disclose to the insurance agent you are working with is that construction will be happening on the premises while you own the house. I always try to assure investors of is that you need to be honest with the insurance agent you are working with. If you don’t and a claim occurs, they may deny the entire claim due to undisclosed information. You won’t be doing yourself any favors by telling a white lie or holding back information to the insurance agent. Agents are here to help and if they don’t have a comprehensive idea of the situation then they may be writing the wrong type of policy and that means that claims might not be covered.
Liability coverage on a landlord insurance policy protects you and your spouse or domestic partner against personal injury, wrongful eviction, or wrongful entry as well as other non-bodily injury claims such as libel and slander.