From natural disasters to tenant negligence, a lot can go wrong for real estate investors. Once a house has been damaged, the bill for getting your money-making assets back in tip-top shape can easily start to cut into your profits. The right real estate insurance, however, will make sure your investments (and wallet) are protected to the fullest extent.
One thing that’s important to note: not all real estate investment properties are the same, and your goals as an investor play a role in determining the types of real estate insurance you will need. For example, an investor with plans to rent out a unit may need insurance to cover a tenant’s failure to pay or a policy that provides income if the rental property is damaged and temporarily can’t be rented out.
You wouldn’t worry about that if you were simply planning to flip the house. At the same time though, if you have employees working to renovate your properties, you may want to invest in workers’ compensation insurance instead.
The type of investment property will also factor into your insurance coverage concerns. For example, a multi-unit building will likely cost more to insure than a single-unit building. With the right insurance policies in place, your investment property is more likely to weather any storms.
Here is an overview of some types of policies that are available and how to determine if they might be appropriate for you.
But first, let’s start with:
What Is Real Estate Investor Insurance?
Real estate investor insurance, commonly referred to as landlord insurance, is a type of policy that protects rental property owners and property managers from a wide range of things that can go wrong on and with an investment property. It aims to protect both the income property against damage and loss and the owner against personal liability.
In most cases, the property structure, additional structures, and the personal belongings of the investor are protected against fire, water, natural disasters, theft, vandalism, and others. Moreover, the landlord is protected against having to cover medical expenses and legal fees in case anyone (a tenant, a tenant’s guest, a property manager, or a vendor) gets injured on the property.
There are many different types of real estate insurance meant to cover the various kinds of investment properties and their investors. The choice of the right type of real estate investor insurance should be dictated by the type of property, the investment strategy, the use of the property, the local market, the high-risk factors, the budget of the investor, and their tolerance to risk.
12 Types of Real Estate Insurance for Investors
Next, let’s take a look at the most popular types of real estate investor insurance in the US market:
Hazard Insurance
Hazard is one of the most important types of real estate investor insurance
Hazard insurance is your typical rental property insurance policy that covers structural damage to a house from such risks as fire and storms as well as theft. According to Steadily, the average cost of landlord insurance nationwide is $1,478 a year, which is around 25% more than equivalent home insurance policies, but some states are more expensive than others. Savvy real estate investors looking to make the most profit from renters might purchase property in a state where insurance costs are low and rental prices are high.
For example, the average cost of homeowner’s insurance in California is approximately 10% less than the national average. Yet, San Francisco is one of the most expensive cities, making affordable neighborhoods potentially profitable places to buy a rental property.
You may be able to add endorsements, or optional coverages, onto your hazard real estate investor insurance policy. For example, you might add sewer backup insurance to your policy, which would cover damage from water that backs up from a sewer or drain. You’ll want to keep those additional coverages in mind when looking at your total cost to insure your investment property.
Liability Insurance
This type of real estate insurance coverage protects you if someone suffers an injury or loss on your property. For example, if a visitor falls and gets hurt or someone’s belongings are damaged or stolen from your rental property, your landlord liability insurance would cover the cost if a lawsuit is brought against you as well as any damages and medical bills you’d be ordered to pay.
Flood Insurance
Your hazard insurance will not cover any damages incurred as a result of a flood. For that reason, if you invest in a designated flood zone or an area that is prone to extreme weather, consider buying this type of coverage on top of your standard real estate investor insurance.
Floods are the most costly natural disaster in the country, according to the Federal Emergency Management Agency (FEMA), costing the nation on average $8.2 billion per year. If that’s not enough to worry you, consider that one mere inch of water inside your investment property can cost approximately $27,000 in damage, according to FEMA.
Loss of Rental Income Insurance
If you’re investing in real estate with the intention of renting out the properties, you’ll likely be depending on the money collected in rent for cash flow. But what happens if a disaster leaves the investment property uninhabitable to renters?
Loss of income insurance can protect real estate investors from some disasters by ensuring that they are compensated if they are unable to rent the property due to catastrophic events like storms or fire damage.
However, many loss of income policies only cover specific losses outlined in the policy, so you should read it carefully or check with the insurance company or the insurance agent to find out where your coverage may fall short.
Rent Guarantee Insurance
Not only can a real estate investor lose rental income if a disaster makes the property uninhabitable, but they can lose rental income if a tenant skips out on the rent. One way you can avoid an unexpected interruption in income is by purchasing a rent guarantee insurance policy, which will reimburse you if a tenant fails to pay up. Albeit optional, this is one of the important types of real estate insurance for investors in rental properties.
Rental Property Insurance
Sifting through multiple types of insurance policies can be challenging, but it’s important to understand the difference between landlord insurance vs homeowners insurance. If you’re a landlord, you may benefit from a landlord insurance policy or homeowners insurance for rental property in specific, which will bundle together various coverages that most landlords would need.
For example, a typical rental property insurance policy may include hazard insurance to cover the building, liability insurance, and loss of income insurance. One thing that’s important to note: this type of real estate investor insurance typically does not cover your tenants’ belongings if something happens to the property. Your tenants would need renters insurance for that. While there are no laws requiring tenants to buy renters insurance, landlords have the legal right to require it as long as it’s written into the lease.
Builder’s Risk Insurance
If you’re renovating a property with plans to flip it or later rent it out, builder’s risk insurance will protect you during the construction phase of the project. In addition to covering the structure of the property and the equipment during the work phase, some builder’s risk policies may cover loss of income from rent or sale of the property if the construction project is delayed.
General Contractor Insurance
Say you plan to buy several properties to renovate and resell, or maybe even renovate and rent out. Rather than hiring a third-party contracting company to handle the renovations, you may decide to expand your own business so that it can handle the construction aspect of the business itself. If you decide to go this route as a real estate investor, the general contractor type of insurance will protect you from risks that can occur during the renovation process, such as workers’ injuries or damage to equipment.
Workers’ Compensation
If your real estate investing company has employees that are working on houses or keeping your business running, there is always the risk that those employees could get hurt on the job. A workers’ compensation policy would cover medical expenses for the employees and protect you from lawsuits if employee sue the business for causing the mishap.
Umbrella Policy
Once you have your insurances in place, what happens if your real estate business is sued for an amount that exceeds your coverage? An umbrella policy provides you with additional liability coverage that goes above and beyond what your standard real estate investor insurance policies offer.
Airbnb Insurance
Yet another type of real estate investor insurance is Airbnb insurance, also known as short term rental insurance. This is similar to landlord insurance but is specifically tailored to cover the needs of short term rental properties and Airbnb hosts.
Airbnb investment properties are associated with their unique types of risks. While they typically bring more rental income and higher profit than traditional rentals, they also come with more risks related to the high renters turnaround. Fires, unintentional renter damage, and guest injuries are all more frequent with vacation rentals than with long term rentals. That’s why they required this special insurance, which also costs more than standard rental property insurance for real estate investors.
Condo Insurance
Last but not least, when you invest in a condo, it comes with its own needs and peculiarities. The external walls and the common areas are usually protected by the master policy obtained by the homeowners association (HOA), but individual owners are responsible for insuring their units.
Condo insurance is a type of real estate insurance that caters specifically to the requirements of condominium units. It provides both property damage coverage and personal liability coverage.
Choosing the Right Real Estate Investor Insurance for Your Investment Property
Investing in real estate can be profitable and rewarding, but like all businesses, it has its risks. The right types of real estate insurance policies can ensure that investors are prepared if it doesn’t all go as planned. When selecting the best policy for your investor property, as a savvy real estate investor, you need to consider your strategy, your market, your property type and condition, and your tolerance to risk to choose the right type and amount of coverage. Meanwhile, if you’re looking for comprehensive, yet affordable real estate investor insurance for different types of rental properties, you should check out Steadily. Just click on the link below.