Tip #20

Carry Adequate Insurance

Written on January 2, 2013 by , updated on June 8, 2014

Make sure you care enough liability and property insurance on each of your rental properties.  A well-thought out policy can protect you from judgments,  lawsuits, attorney’s fees, storms, burglary, fire, careless tenants, and “mayhem”.

If not raccoons, then storms like Sandy, or at least your tenants, will cause damage to your rental properties.   You need to make sure you carry adequate insurance to rebuild your property if your tenants burn it down, or a hurricane washes it away.

I recommend:

  1. Guaranteed Replacement: Get a property insurance policy that has “guaranteed replacement”, to ensure that you are able to rebuild your house if anything happens. Some companies don’t even offer this, but might offer something similar like “Cost +20% increase” which would cover a 20% increase in building materials and labor.
  2. Landlord Policy: Make sure your insurance company knows it is a rental property, and that you are a landlord. They may have special clauses that must be included to make sure you get the best possible coverage. For example, most Landlord policies will cover lost rent if your house is vacant for any substantial period of time due to damages.
  3. Liability Coverage: Make sure you have Liability insurance – in case your tenants slip on the porch steps and break their arm (or die).  They might sue you for medical bills, lost income, or “mental stress”.
  4. Flood Rider: Get a Flood Policy Rider if the property is in a flood zone.  Flood zones are flood zones for a reason. This is a no-brainer.
  5. Personal Umbrella Policy: Consider obtaining a separate policy called an “Umbrella Policy”, which covers YOU and all your assets.  It’s a separate policy that goes above and beyond all your other policies.  If you have multiple properties, get an Umbrella Policy for 1-5 million dollars (depending on your assets).  A policy like this might only cost you around $200-$500 year. If any of your other policies don’t cover any or all of  your damages, the Umbrella Policy picks up the slack.  It’s really a sure-fire way to make sure you tenants don’t cause you to go bankrupt or lose your personal home.

I personally use Allstate for all my insurance needs, and get a great discount for having all my policies with them. They have some great policies for landlords and they’ve always been quick to process any claims that I submit.

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5 CommentsLeave a Comment

  • Brandy

    How does it work when your local insurance agent (from Allstate or State Farm) isn’t licensed in the state your rental is in? Thanks.

  • marlo costa

    I am new to the rental business and have two properties. I have been doing this for two years and already had a bad tenant experience which ended with no last month payment and about $3,000 in damages. As most renters (in my opinion) they had no money to pay for anything and were really dumb.
    I feel that I am unprotected for tenants damages and although I ask for one month of rent deposit and have umbrella (1 million) and a very good landlord insurance with Amica I was wondering if you know of an insurance that covers tenants actions (Things that already happened: burned kitchen (insurance covered), windows screens chewed by dogs, broken windows, holes in walls, broken doors) all of them done by tenants actions. How can I protect myself?

    • Lucas Hall

      Hi Marlo,

      Things like a burnt kitchen, broken doors, broken windows, etc, would all be covered by your normal home owner’s policy. However, it would be cheaper for you to replace the doors and windows when it happened instead of paying the unavoidable rate increase that will come as a result of your claim. You would just withhold those repairs from their deposit. You could also mandate (in the lease) that the tenant gets and keeps renter’s insurance – which would protect you if they damage the house due to negligence (like burning a kitchen).

      • marlo costa

        Thanks for your answer. If they intentionally break something (like walls for example) what is my course of action? I was kind to my previous tenant, I let him be late in his rent payment and never bother him. at the end of the lease he anyway took revenge (I don’t know revenge about what since I treat him very good) and put screws in the garbage disposal, broke windows and walls before they left. It is not a bad area of town but they were bad people. I have since started screening tenants and denied applications based on criminal background, however; after that bad experience I am hesitant to expand my rental business and look for better investment opportunities. Is there an insurance that cover negligence and tenants actions?

  • Eliza

    Please teach the rest of these internet hogoalins how to write and research!

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