Hi everyone, Jason Marcordes here with Landmark Property Management. Today we are answering the question: What type of insurance do I need for my rental property? Now I know that nobody wants to think about insurance, let alone pay for it for that matter, but I promise that if you need it, you’re sure glad you have it! Over the past decade I’ve managed thousands of properties and I’ve seen it all - slip and falls, fire damage, busted pipes, you name it. When things like this happen, you’re so thankful to have a high quality and proper insurance policy in place.
For rental property, you want to have a Landlord’s Policy or sometimes known as a Rental Dwelling Policy. This is different from your typical homeowner’s policy so make sure your insurance agent knows you’re purchasing the policy for a rental property. Or if you’re moving out of your home and renting it, make sure to convert your homeowner’s policy to a Landlord’s policy. The insurance policies that are specific to rental property should have clauses in there that give you some liability coverage, cover the property itself, lost rent, and more. Each one of these policies can be different so you want to ask your insurance agent to find out things such as: How many months of lost rent does it cover and under what circumstances? Does the policy cover vacant property? Is there any time limit on the vacancy? Does it cover things like break-ins, theft, vandalism, flooding?
I would also ask whether the policy pays out the replacement cost or actual cash value of the property and amount of coverage provided in the event of a total loss. While a cash value policy can be cheaper, we highly recommend going with the replacement cost option. We just had a very unfortunate event in which a property burned down and because the policy was for the actual cash value instead of replacement cost, the owner was not able to afford the much higher cost of actually rebuilding the property.
Another important aspect of the policy is how much coverage is provided. In our property management agreement, we require a minimum liability coverage amount of $500,000 per occurrence. With as high as medical and legal bills can be, I wouldn’t feel comfortable with anything less than $500,000.
The second type of insurance we recommend is an umbrella policy. This would cover you in the rare event that there is a claim filed against your insurance and the payout is above and beyond what the rental dwelling coverage provides. For example, if someone slips and falls on your property and sues you, the liability clause on your rental dwelling insurance should protect you, but only up to a certain point. If there’s a $500,000 dollar cap and the plaintiff is awarded a $1MM payout, your umbrella coverage would pay the additional amount above and beyond what your Landlord’s policy covers. Here we recommend a minimum of $500,000 of coverage but as you purchase more properties you’re going to want to increase this to 1, 2, or even $3MM.
The last thing I want to mention is the deductible. On investment properties you really don’t want to make a bunch of small claims that will drive up your premium price. We recommend keeping you deductible at or above $5,000 per occurrence and handling all of the smaller things below this limit out of pocket.
Alright, I hope this helped! If you have questions about any of this or if you need a referral for a great insurance agent, don’t hesitate to reach out. Consider us at Landmark Property Management a resource, we’re always happy to help. Feel free to check out our website at ChicagosPropertyManagement.com or give us a call.
