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What Insurance Coverage Should I Get for My Rental Properties?

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Posted by Joseph Stengel on April 05, 2017

What Insurance Coverage Options Should I Consider for My Rental Properties?

Special insurance to cover your rental properties is important because it protects you from financial loss resulting from accidents, natural disasters, injuries and other liability issues associated with your rental property. It can also provide reimbursement for loss of rental income as well as cover any repairs or even the entire replacement of a rental property structure.

If you own property under Colorado landlord tenant law that you are renting out, landlord insurance may be something to consider as a means to protect yourself from the loss of income.

Landlord insurance provides coverage for property owners renting out one or more residential homes, apartments, or condos. As a landlord with real estate ownership in Colorado, you need protection from financial loss that may result from damages to a rental property due to fire, break-in, severe weather and more. You can get insurance to help cover loss of income in the event that your rental units become uninhabitable due to circumstances beyond your control. This could include loss due to the need to evict someone under Colorado eviction laws.

Do You Need Landlord Insurance?

What type of risk are you willing to assume with your rental properties? How would you feel if rental income stops while mortgage payments you are responsible continue? Although landlord insurance is not required by Colorado law, it could be a very wise risk management decision to purchase it. Innumerable risks that are out of your control could occur which may stop the flow of rental income. Building fires, tropical storms, tornadoes, vandalism and liability claims are some of the key things you want to be prepared for as a landlord. Events like these can cause both property and income loss. Costs, that if not covered by appropriate insurance may have to come out of your pocket.

If you do not occupy the same residence as your tenant, you should have landlord insurance. Similarly, if you are renting out your personal residence on a short-term basis or just renting your basement out, you will want this type of insurance coverage.

Some landlords rely on their homeowners insurance to cover their rental units. It is important to know that your homeowners policy most likely will not cover damage to your rental property, unless you are only renting out a portion of the home you are living in. It will also likely not provide coverage for liability claims.

What is Covered by Landlord Insurance Policies?

Some of the primary coverages that are available un this type of policy include:

Property damage: This covers damage to the actual property you own and items of personal property. Coverage usually includes loss from storms, fire, theft, tenant damage and vandalism. Coverage can include loss recovery from partial and total losses.

Liability insurance: This coverage protects you against liability claims and lawsuits. Whether a tenant, visitor or even a trespasser is injured on your rental property, you could find yourself in a legal mess. Your liability insurance will help you cover the costs associated with bodily injury claims on your property. These costs can include medical payments, funeral costs, legal fees and judgment or settlement costs. You will also be covered if you, as the landlord, are found responsible for another person’s property damage. For example, if you neglect to fix a leaking water pipe and mold damage destroys a tenant’s expensive collection of vintage albums, a liability claim can be filed against you by the tenant.

Loss of income: A key coverage is that which will replace the loss of income from your rental unit(s) due to a covered event mentioned above. This is often referred to as "rental reimbursement or loss of income" coverage. This insurance will help compensate you for lost income in the event that a rental property becomes uninhabitable due to a covered loss, such as a storm or apartment fire.

Optional coverages: Depending on your location and circumstances, you may want to consider additional coverages. These additional coverages can provide for rent guarantee insurance, natural disaster insurance, employer liability insurance and landlord contents insurance to cover your personal property items such as furnishings or carpet in the rental property.

How Does This Type of Insurance Work?

For example:

Scenario One- A fire caused by any means burns through some or all of your property. Whether you have minimal or substantial damage, the landlord insurance policy you took out will assist with paying for the necessary repairs or replacment of the property. You will want to make sure your coverage reflects the repair and replacement costs for the property covered. You will also want to insure these coverages are adjusted to reflect increased values and costs associated with the property. Even after paying a deductible, you will be farther ahead than if you had not taken out the covereage. If you have loss of income coverage, you can be compensated for the rental income you will lose during repairs.

Part of the considertion you want to discuss with your insurance agent is whether the policy should provide for coverage due to losses caused directly by a tenant. Some policies provide this type of coverage. Damage deposits are are also an important tool for landlords to apply across the board to renters. This will provide additional access to funds for taking care of damage caused by tenants.  

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Scenario Two- In another example, landlord insurance can provide coverage against damages that may result from accidents that can occur on your renatl property. If somone is on your property and they incur an injury due to a fall or mishap due to some negligence arising from you or your employees, you may experience a liability claim. In this case, the injured person may be able to receive reimbursement for their medical expenses or other costs that will be paid out by your insurance policy. In the case where a injury leads to more severe issues, the injured party may sue for other costs that are normally covered by this type of insurane policy up to certain limits less a deductible. 

How Much Is Landlord Insurance?

The cost of this specialized insurance will vary due to a number of variables. can vary considerably based on a number of factors. Take a typical residential property. The cost for landlords insurance may cost about 25% more than the coverage your would pay for under a straight homeowners policy.

Some of the variables that will need to be considered in calculating a premium include:

  • Your geographic location and any known risks in the area;
  • Structure size;
  • Number of rental units are in the structure;
  • Age and condition of the building;
  • Level of code compliance for electrical, HVAC, fire alarms, sprinklers, etc.;
  • Renter policies regarding smoking, subleasing, pets;
  • Existence of a swimming pool;
  • Type and amount of coverage you are purchasing; and
  • Level of security you have at your property.

Landlord insurance premiums you pay on your rental property, including any landlord insurance policies on the building, contents and liability are deductible business expenses.

Can Landlords Require Renters Insurance?

Although there is no federal or state law requiring tenants to have renters insurance, as a landlord it is fully within your legal rights to require this as part of the rental agreement. If you choose to require tenants to have renters insurance, you will have to apply this requirement to every tenant. You may also require that obtain a certain level of coverage, maintain it and provide proof of such coverage.  Requirement of renters insurance can provide additional protection to you as an owner and reduce the costs of landlord insurance coverage.

List of Colorado  Landlord Tenant Laws   

Landlord insurance is a vital consideration if you own a rental property. It protects you from expensive damage to your property due to accidents and natural disasters, and loss of rental income.

Contact your insurance agent or any local independent insurance agent so you can determine if landlord insurance is right for you.

This information is provided for educational purposes only and cannot be taken as legal advice. Neither I, nor the other attorneys at Evans Case, LLP, nor any person or entity that I or any such firm represents, has agreed to enter into any agreement, or to incur any obligation, nor has any attorney/client relationship been created by e-mail, fax or other electronic means unless specifically and expressly so provided. No attorney/client relationship exists in the absence of an executed engagement letter or fee contract.

Topics: Colorado Landlord Tenant Law, Real Estate Management and Ownership

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