Many rental property owners are under the misconception that tenant insurance policies and Homeowners Association Policies cover their investment properties in the event of structural, flood or damage from a disaster. If you do not have property owner's insurance you are exposed to significant risk!
Tenant's insurance policies only cover tenant property and belongings, as well as provide liability protection from their negligent acts or damages from tenant owned appliances, such as a washer. Note, your homeowners policy for your personal home does not cover damages at an investment property. Investment (rental) property insurance is generally inexpensive, but slightly more than a typical homeowner's policy.
HOA insurance policies generally only cover "studs out" protection for hazard and flood. In addition in many states such as South Carolina, the State's Horizontal Regime Act does not require owners of condominiums to be reimbursed by the owner above for damages (for example a water leak) unless the owner has been negligent- such as not fixing a problem after repeated notices. In addition, most HOA's do not provide reimbursements to owners for interior damage caused by a roof or window leak.
At minimum a rental property owner should carry:
1 Property Protection
Insurance policies designed for rental dwellings provide property insurance coverage for damage to the home from fire, lightning, wind, hail, ice, snow, and other types of covered incidents. Standard landlord policies typically do not cover flood damage; you will have to take out a separate flood insurance policy (see below).
It’s important to note that property protection is often referred to as “dwelling coverage” by insurance policy providers, and an HO6 Policy for condominiums and townhouses which covers "studs in" including drywall, flooring, cabinets etc.
2. Personal Property Protection
Landlord policies cover personal property left on-site for maintenance or tenant use, such as appliances and lawnmowers. Landlord policies do not cover tenant property; your tenants will need to have their own renters insurance policy to cover damaged tenant property.
Our leases require that tenants get renter’s insurance as a condition of the lease. One of the major benefits of renter’s insurance is avoiding disputes about who will replace a renter’s personal property if damage occurs.
3. Liability Protection
Landlord policies can include liability coverage. If one of your tenants or a guest gets hurt on the property, liability protection covers legal fees and medical expenses. Remember, if an injury or damage occurs the lawyers always go after the deeper pockets!
4. Rent Loss Protection
If your property is damaged to the point where it is uninhabitable, your landlord policy will cover the lost rent and pay you the amount of money you would have made in rental income. Rent loss insurance helps you continue to make mortgage payments when a tenant cannot occupy the home.
Homes damaged by fire and water leaks can be sitting vacant for months while you are generally paying deductibles and receiving no rental income!
5. Flood Protection
Flood insurance policies are run by the federal government through the National Flood Insurance Program (NFIP) and must be purchased in addition to your landlord insurance policy. Your flood insurance policy can include coverage for the building, contents, and replacement costs. Your insurance agent can help you purchase a flood insurance policy from NFIP.
Most flood damaged homes occur in areas where floods have not occurred before and may not be in high risk areas. It is very inexpensive coverage. Note, most condominium and town home HOA's carry flood insurance for the building and common areas- but not the interior of your unit!
6. Acts of Nature Protection
Your dwelling coverage might be limited to certain types of damage and exclude earthquakes, hurricanes, and tornadoes and other acts of nature that are not always covered by your standard landlord insurance policy. If you live in an area at risk for earthquakes, hurricanes, or tornadoes, talk to your provider to add additional peril protections. In Charleston we are subject to hurricanes and the city / region sits atop one of the deepest and most dangerous faults in the country!
Acts of nature protection is sometimes referred to as “acts of God” by your policy provider.
7. Cash Value vs. Replacement Cost
When you cost out your landlord insurance policy, you need to consider cash value versus replacement cost when filing a claim.
When repairing or rebuilding damaged property, an actual cost value policy will pay you the actual cost minus the depreciation value of damaged items. For example, if you purchased an appliance for the property that gets damaged in a fire, your insurer will value the actual cost of that appliance now (with depreciation) and pay you that amount. So, if you bought a washing machine for $600 three years ago, the insurer will depreciate the value of the washing machine to reflect its current value at 3 years old and pay you that amount—not the amount it would cost to buy a new washing machine.
Replacement value will pay you the value equal to replacing a damaged item. Compared to actual cash value, replacement value will get a new item at no out-of-pocket cost to you. If you are willing to pay the difference out of pocket, actual cost coverage will be fine. But if you would rather insurance take care of everything, replacement cost coverage is the way to go. Understandably, replacement cost coverage will cost more than actual cost coverage.
So there you have it- the basics for investment property owners insurance. While you may decide not to get them all, you should at the very least obtain property, flood and liability insurance. Our firm also requires our owners to carry such insurance and to name Charleston Metro Homes, LLC as an "additional insured".
If you have questions, contact your insurance agent or give us a call for a referral!