Insurance is incredibly important to anyone with assets to protect, especially rental property owners. The wonderful world of insurance is complicated, convoluted, and can be difficult to navigate for those unfamiliar with coverage and gaps. As a rental property owner, it’s important to make sure you hold the right coverage, and that your renters and property managers hold adequate coverage as well.
Insurance for Property Owners
Although most homeowners have a homeowner’s insurance policy, many rental owners may not know if their standard policy covers when their property is rented. Many homeowner’s policies may cover short-term rentals up to a few weeks, but could be voided if the property is not primarily owner-occupied.
The homeowner’s insurance company may deny coverage if your policy does not cover a rental. Policies for rental units have various names depending on the company, but they generally are referred to as dwelling policies, and fall into three categories: DP-1, DP-2 and DP-3.
A DP-1 policy is basic and covers simple things like fire and vandalism. DP-2 policies are broader, and cover named perils like damage from a windstorm, hail, fire or vandalism. Some even have a provision for a collision, such as if a car were to hit the property.
Finally, a DP-3 policy is a ‘special form’ or an ‘open peril’ policy. Unless a peril is specifically excluded, it’s covered. The different policies will also cover the property to different degrees. With a cheaper DP-1 policy, the property may only be covered for existing value, whereas a more broad DP-3 policy would cover replacement value.
Existing value means that you would only be paid what the property is worth, not the full cost to replace it. For example, if the roof were 10 years old, existing value would not pay out the cost to install a new roof, the payout would be written down for the 10 years of age for the damaged roof.
Obviously, a DP-3 policy will be the most comprehensive and provide the best coverage in the case of an emergency, but is likely the most expensive coverage as well. The savings on the less expensive policy could be offset in a tragic event, where the less expensive policy does not cover your lost rental income during a rebuilding period. It’s important for property owners to balance the investment of insurance with a policy that will protect them from catastrophic loss.
What About Your Renters?
Although a comprehensive landlord insurance policy will cover your property in the event of damage, most renters are completely unaware your policy does not cover any of their belongings. If your unit were to burn in a fire, the standard landlord policy would only cover the cost of the structure, not any of the items inside.
For this reason, many landlords require their tenants to maintain a renters insurance policy throughout the term of their lease. Unlike the property policy, renters insurance is generally very affordable, often less than $20 a month depending on the value of the renter’s items. An added bonus of a renter’s insurance policy is that they typically cover the renter’s items regardless of location. So, if their laptop was stolen from the library instead of the rental unit, the policy would typically still cover it. Property owners would have to maintain a separate personal property insurance to get the same amount of coverage.
Even more important for property owners, if a rental unit is damaged due to negligence of the tenant, the landlord can often place a claim on the tenants’ insurance, rather than their own. For example, if the tenant leaves a stovetop on and burns the kitchen, the claim on their renters policy will save the owner from potentially higher insurance premiums in the future.
What About Property Management Insurance?
After obtaining quality property owner coverage on a unit, most landlords may think they are done with their insurance needs, however, this can be a costly mistake. Professional property management companies often carry insurance that can be extremely valuable in protecting their property owners from lawsuits or damages.
The policies usually include a general liability policy, as well as a professional liability policy called errors & omissions or “E&O”. Property managers, like doctors, lawyers, and architects, need E&O insurance because the decisions they make can cause damages and cost lives if they are negligent.
Even if a property manager properly fixes any outstanding hazards, E&O is still important to defend management and the landlord from litigious tenants, bystanders, or visitors to the unit. The general liability coverage they carry is also extremely important; covering landlords if they’re sued for damages including an indoor fall, an animal bite, or someone slipping on a wet sidewalk.
Working with a professional property management company not only minimizes the danger of liability claims by proactively maintaining your unit, but also by ensuring that you, your tenant, and property management company are fully covered from any dangers that may arise. If you are looking for a fully insured and professional property management company in San Diego, contact MV Properties today!
Let Us Help
If you are concerned about the liability or insurance needs of your rental, call MV Properties at 888-686-1525. From providing up-to-date and in-depth regulatory knowledge to ensuring a smooth and stress-free transition between tenants, we can help maximize your rental investment. Ask a question anytime by emailing [email protected] and visit our website to learn more.
About Keegan
Keegan McNamara is the founder of MV Properties, a leading San Diego property management company offering the highest level of service in property management, maintenance, and leasing. His goal is to cultivate long-lasting relationships with his clients (property owners) and their tenants to provide an enjoyable leasing experience. Keegan holds a Masters in Business Administration from the Rady School of Management at UC San Diego and is a Principal at McNamara Ventures, a real estate development, and investment company focused on residential and mixed-use properties.