Owning rental property in Orange County can generate a good income, but it can also result in a lot of stress and potential liability, some of which may be covered by an insurance policy. Standard policies exclude many risks, which can hurt you financially if they materialize. You need to work with your insurance agent to get the coverage you need at a rate you can afford.
Anthony Burton helps residential landlords across Orange County. Insurance gaps can become legal problems if not properly handled. Call us at (949) 244-4207 if you have questions about insurance, including denied claims.
How Does Insurance for Residential Landlords Work?
Landlord insurance (or rental property insurance) is made for those who rent out a home, condo, or one or more apartments. It works much like a homeowner’s policy but covers additional risks associated with having tenants, visitors, and contractors coming in and out of the building.
The Insurance Information Institute (III) estimates the average landlord policy costs about 25% more than a homeowners policy on the same home. You’re paying this extra cost because you’re more likely to file a claim for an issue with a home you rent than the home you live in.
In exchange for your premium payments, the carrier should pay for covered losses up to the policy limit. When something happens, you file a claim. The insurer should act in good faith and pay it if the claim is within the risks covered by the policy.
What Benefits Does Insurance Provide to a Residential Landlord?
Insurance is all about protecting your assets. If a serious problem arises, such as a fire or a severe injury to a tenant, ideally it’ll be covered by the insurance you buy. Without proper insurance, if something like this happens, you may need to sell your property and possibly use other assets to cover your losses.
Another way to protect yourself and your family is to create a legal entity, such as a limited liability company or corporation, to own your business. To fully protect yourself as much as possible, business insurance is a necessity.
What Are Common Provisions for Residential Landlord Insurance Policies?
Most landlord policies share common parts. These often include the following:
- Dwelling coverage pays to rebuild or repair the home after damage by a covered event
- Liability coverage pays legal costs, a settlement, or a verdict if you’re sued for an injury claim and you’re accused of negligence
- Medical payment coverage helps pay bills for an injured guest or tenant
- Loss of rent coverage helps pay you if the home becomes unlivable
If an insurance agent offers you coverage, as dry as it may be, you should read the policy to understand what you’ll be paying for if you accept their proposal. If you want other risks covered, you may be able to obtain additional coverage for an increased cost.
What Important Issues Might a Standard Policy Miss?
Standard landlord policies leave out several risks, some of which no insurance company will cover. Policies exclude flood damage, earthquake damage, normal wear and tear, and a tenant’s personal items. This means:
- Flood damage is not covered through private insurance. This may or may not be an issue depending on how likely your location will flood
- Earthquake damage is also usually not covered, and this is a real risk in California
- Your tenant’s furniture and personal items are not your job to insure. Your tenant can purchase their own insurance to cover their property, and you can make this a requirement through your lease agreement
- Losses due to normal aging and wear of the property will not be paid for
If you look at coverage from the insurer’s perspective, it’s logical and reasonable not to offer coverage for every possible event that could affect you or your property. They don’t want to take massive risks or those they can’t quantify or cover at a cost customers are willing to pay.
Can a Residential Landlord Add Coverage Not in a Standard Policy?
You do this by getting extra coverage to your policy, usually through a rider or an endorsement that comes at an additional cost, or a government entity may cover the risk. Options may include the following:
- Flood insurance comes through the National Flood Insurance Program, run by the Federal Emergency Management Agency. It pays for some flood damage your regular policy will not
- Earthquake insurance is sold as its own policy in California, thanks to state law, and offers limited coverage for structural damage
- An umbrella policy adds extra liability protection beyond normal policy limits. It can help if you face a lawsuit claiming especially heavy damages
Talk with your insurance agent about the risks you and your business face because of your property. Hopefully you can get comprehensive coverage for a reasonable premium. Insurance is a highly competitive business. It may be worth your while to shop around.
Frequently Asked Questions
- Does landlord insurance cover my tenant’s belongings? No. Tenants need their own renter’s insurance, which would cover damage or loss of their personal property and costs if they can’t live in their apartment
- Do I need flood insurance for my rental property? Policies don’t cover flood damage. You may want a separate flood policy through the National Flood Insurance Program depending on how high a flood risk you face
- Does a standard landlord policy cover earthquake damage? No. You’ll need a separate earthquake policy for this risk
- What is an umbrella policy and why might I need one? An umbrella policy adds extra liability protection above your normal limits. This can help if you face a lawsuit that may result in an especially high verdict against you
We’re Here to Help
If you’re a residential landlord and have questions about insurance, or are having problems with your insurance carrier, call the team at AWB Law, PC at (949) 244-4207 or email us at info@awblawpc.com.
