If you’ve leased out a property or you’re thinking about leasing out one, you will need a leased property insurance coverage. The right insurance policy can save you some headache regarding your property.
Usually, landlords renting out a property (house, apartment, vacation cottage) for the first time assume that they can use their homeowners insurance cover in the case of any loss by accident, natural disaster, or other damaging events. It’s a rookie mistake to think like that.
So, we’ve put up this post to understand why you need leased property insurance coverage and why it is different from homeowners insurance.
What Is Leased Property Insurance?
A standard homeowners policy does not provide coverage for damage or losses incurred while your property is leased out. So, many people who lease out their property for the first time ask the question, “what type of insurance is required if a property is leased out.” The answer is leased property insurance.
Leased property insurance is specific in the sense that you’re not dwelling in the property. Otherwise, you will take homeowners insurance. If you rent out your property, your homeowners policy does not apply, and the lessee cannot use their renters insurance on some issues like property damage or loss of income. This is where leased property insurance comes in.
Leased property insurance, also called rental property or landlord insurance. It provides coverage for the unique risks you take in renting out your property (condo or home) for long periods. It’s a special type of insurance coverage that lies between a homeowners insurance and renters insurance.
Leased property insurance aims to protect the landlord from financial losses in case of a misfortune.
Homeowners Insurance Vs. Leased Property Insurance
Like homeowners policy, leased property insurance typically provides coverage for the building property itself (and other structures within the property) from damage and covered losses such as:
The notable difference between homeowners insurance and leased property insurance is that you must live in the property to purchase homeowners insurance. Otherwise, if you’re not dwelling in the property you must purchase leased property insurance.
They may work the same but there are some key differences that you’ll learn here.
What Does Leased Property Insurance Cover?
Leased property insurance coverages vary depending on the insurer and your needs. But most leased property insurance policies will generally cover the structure or dwelling, contents of the property that belongs to the landlord, liability situations, and loss of rental income for losses resulting from covered claims.
Note that much of leased property coverage is similar to homeowners insurance. But leased property coverage contains some unique features that are absent in homeowners insurance. These are the features that account for the added risk of having tenants on your property.
Standard Leased property insurance provides coverage for the following items:
- Property damage coverage (Dwelling)
- Coverage for the Landlord’s Personal Property
- Liability loses coverage
- Lost of rental income
- Property Damage Coverage (Dwelling)
Lease property insurance provides coverage for property damage in the event the property (structure) or furnishings suffer damage. Usually, the damages covered include:
- Irresponsible tenants
- Natural disasters
- Lightning damage
- Electric/gas malfunction
Property coverage in lease property insurance applies if a covered peril causes the damage. This is why you need to talk to your insurance provider and understand what type of perils they cover.
If possible, you can also inquire from your insurance and get a policy that offers replacement cost instead of the actual cash value. Do this, especially if your property’s fixtures and furnishings are aging. If the replacement cost is not available, you can ask your insurer if they offer a predetermined lump sum of cash, which is still better than the actual cash value.
Coverage For the Landlord’s Personal Property
Leased property insurance, unlike renters insurance, does not provide coverage for tenants’ personal property.
But your leased property insurance will include coverage for your items left onsite, especially those used to maintain the property. For example, if you have a lawnmower at your leased property and fire damages it. The insurer will pay your claim because fire is a covered peril in your lease property policy.
However, suppose your tenant installed a personal air conditioning unit, and the same fire damages the equipment. In that case, the leased property policy does not cover it and the rest of the tenant’s property.
You need to inquire about property coverage when you’re buying leased property insurance and the extent to which it provides coverage for your property. Sometimes the policy offers property coverage as an optional add-on, which is called an endorsement. It is crucial to be clear about the policy before you purchase it to avoid future misunderstandings.
Liability coverage will protect you from medical and legal costs that might occur should one of your tenants or visitors suffer injuries on your leased property and you’re deemed responsible. For example, the injury may be because of maintenance issues such as architectural collapse, an uncontrolled beehive or icy walkways, etc.
In the case of liability costs, leased property insurance provides coverage for the costs up to your policy’s limits. It is important to talk to your insurer and understand the limits of coverage under liability coverage.
Loss Of Rental Income For Landlords Leasing Their Property
If you buy leased property insurance, you may be entitled to loss of rental income coverage should something – a covered peril – cause your leased property to be uninhabitable. For example, if your property is attacked by severe mold or termites or if there is a sinkhole, you can get temporary rental reimbursement to cover the lost rent money income from your property.
You can think of this coverage as a form of rent guarantee insurance. Loss of rental income coverage generally extends up to a defined period of time, for instance, 12 months, after which your insurer will seize to make the payments.
Note that loss of rental income doesn’t always come standard with leased property insurance. If this coverage is important to you, it is crucial to check if your policy includes it before purchasing.
Optional Additions To Your Leased Property Insurance Coverage
Several common add ons or endorsements can come with leased insurance policies. These endorsements may not be as vital as the key provisions of the coverage, but they’re equally important and could come in handy in the long run.
Flood Insurance – it is important to add flood insurance to your policy since many leased property insurance policies don’t include it in the covered perils, whether the flood is related to natural disasters or municipal plumbing.
Guaranteed Income Insurance – you may have a loss of rental income coverage if the property becomes uninhabitable, but what if the tenant comes up short on the rent or fails to pay at all? You can make use of guaranteed income insurance.
Emergency Coverage – as a landlord, a tenant may call you anytime to fix something such as a leaking dishwasher or even the door when they’re accidentally locked out. In this case, emergency coverage will come in handy and sort out those expenses, including your travel expenses.
Before you settle on a decision to rent out your property, consider whether your homeowners policy can help cover the property or whether you’ll need leased property insurance. If you want to lease out your property and protect it as well, leased property insurance is a must. You may also suggest for your tenants to purchase renters insurance policy to protect their personal effects in the event of a mishap.