Landlord Special Report - Landlord Home Insurance

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.

• Put safety first. Make sure your property is in good, safe working condition for your tenants. For example, make sure smoke alarms and carbon monoxide detectors are working, and take care of any repairs such as loose railings, chipping paint and leaking pipes before the tenant moves in, Stalbaum advises. A home inspection can help you identify potential problems.

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.

• Know your policy’s exclusions.  There are certain things a policy may not cover. For example, some policies may not cover frozen pipes if the property remains uninhabited for a lengthy period or if reasonable care isn't taken to heat the home.

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.

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Do Your Tenants’ Rent Checks Bounce?



One fact of being in the landlord business is that rent checks will occasionally bounce. When that happens, you, the landlord will probably not find out the rent check was returned until 3 or 4 weeks later, depending on how efficient your bank is.
How does that concern the tenancy? It means the rent is approximately 3 -4 weeks late, plus you’ve incurred bank charges on top of it.

Like a late rent notice, the LPA Dishonored Check Notice will inform the tenant that the rent check was returned for insufficient funds. It will ask for the balance due along with any applicable bounced check charges, late fees, and daily late charges as agreed in your lease.

Remember, a bounced check can cause the rent to be extremely late, thereby placing you at a point in time where you may normally begin eviction proceedings, so it is important to jump on this immediately. The LPA recommends that you check your bank account often to discover bad checks as soon as possible.

FREE LPA Form Download! LPA Dishonored Check Notice See more Essential Forms

The LPA Dishonored Check Notice also contains a check box for the option to inform the tenant that personal checks will no longer be an acceptable form of rent payment and that they must now pay the rent in the form of postal money order, certified bank check or cash (cash only if you collect rent in person).

The LPA also recommends that when you send a notice like this to the tenant, it is a good idea to copy and paste the late fee and bounced check clause from your LPA Lease to the bottom of the form to show the tenant the penalty fees they agreed to in their lease.



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Quotes



"One of my biggest fears is having a tenant with more landlord - tenant knowledge and expertise than I have." - John Nuzzolese

"It is not the critic who counts; not the man who points out how the strong man stumbled or where the doer of deeds could have done them better. The credit belongs to he man who is actually in the arena; whose face is marred by dust and sweat and blood; who strives valiantly; who errs and comes short again and again; who knows the great enthusiasms, the great devotions, and spends himself in a worthy cause; who, at the best, knows the triumph of high achievement; and who, at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who knew neither victory nor defeat." - Theodore Roosevelt

"Never let the fear of striking out get in your way." - George Herman "Babe" Ruth

"How much did your last tenant problem cost you?"
- John Nuzzolese

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FREE Tenant Credit Bureau Reporting
(LPA Members Only)


Have you ever been beaten by a tenant on the rent? Most of us have and unfortunately, it is one of the costs of doing business as a landlord.
On the brighter side, remedies are available for many. If you have documented your tenancy with the proper paperwork including a rental application, lease agreement, late notices, etc., you may have a chance of collecting.

Credit bureau reporting is an option in which many modern landlords are beginning to participate....

Click here for the full article




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