Landlord Home and Renters Insurance
Can landlords lose home insurance for not maintaining their home?
Becoming a landlord can provide a lucrative stream of income, but if you don't consider the insurance implications, it may cost you money -- or even your insurance policy.
Not everyone plans to become a landlord, says DonnaMarie Stalbaum, line manager for Allstate's landlord policies. Some people end up in a situation where the real estate market crashes and they're unable to sell the property, so they rent it out and become "accidental landlords," Stalbaum says.
No matter how you got into the rental game, you must take steps to protect your investment.
Landlords: Home insurance and maintenance
Getting the right policy
The minute you decide to rent out a property, schedule a talk with your insurance agent. "The last thing you want to have happen is have a claim to arise and then realize that you didn't have the right coverage," Stalbaum says.
Typical homeowners insurance policies won't cover your property if you're not living in it, so if you move out and a tenant moves in, you'll likely need a landlord insurance policy.
Landlords have different liability risks than traditional homeowners. For example, landlords can be held liable if a lack of property maintenance contributes to a tenant’s injury or if a tenant becomes ill because of safety or environmental hazards in the home. While home insurance often covers injuries of visitors to your home, the fact that a tenant will be living in the property rather than simply visiting means there are more opportunities for injuries or mishaps to occur. Landlord insurance also covers things a home insurance policy does not, such as fair rental income protection, which provides you with replacement rental income if the home becomes temporarily uninhabitable because of a covered risk.
"Let's say the house catches fire and needs significant repair and your renter can't live there anymore," Stalbaum says. Fair rental income protection would cover the rent while the house is being repaired, Stalbaum adds.
The cost of landlord insurance
The cost of landlord insurance depends on the coverage you purchase, as well as the type of home you have and where the property is located, says Loretta Worters, vice president of the Insurance Information Institute. Landlord insurance typically costs about 25 percent more than homeowners insurance, Worters says. According to the NAIC, in 2011 (the latest data available), the average cost of a U.S. home insurance premium was $978.
If you're living in your home and merely renting out a room, your home insurance policy may be sufficient, Stalbaum says, though, again, you should check with your home insurance agent to be sure.
Whether you have landlord insurance or a traditional homeowners insurance policy, neither would cover the clothes, furniture and other belongings of your renter.
To protect yourself from the hassles of potential lawsuits if a tenant's belongings were destroyed, require your tenants to buy a renters insurance policy, suggests John Nuzzolese, founder of The Landlord Protection Agency, an online resource that helps landlords avoid legal disputes with tenants.
Staying in compliance
Once you have insurance, you want to make sure you can keep it.
If you file a claim for damage, make sure you use any money received to actually make the necessary repairs. If you don't and the problem causes more damage, your policy may not cover additional claims for the issue and could even be dropped, Stalbaum warns.
Use your lease to let renters know if there's any maintenance they're expected to do so you can stay in compliance with your insurance policy, Nuzzolese says. For example, you might include a clause that says the tenant must keep the thermostat at a minimum temperature in the winter to avoid freezing pipes, or the tenant must let you know about a problem within 48 hours. The Landlord Protection Agency offers sample leases and contracts to help landlords come up with effective wording.
State laws vary when it comes to the rules landlords must follow when entering a tenant's space. For example, you may have to give a certain amount of notice or do the inspection only in the tenant's presence.
If you're currently renting your home and you don't have such practices in place, you can make addendums to your lease, "but it's better to start things off on the right foot," Nuzzolese says.
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