Not all insurance policies are the same – so, expect coverage and methods of settling your claims to be different from one policy or carrier to another. Therefore, it’s important first to determine what you want your policy to do for you in the event of a claim. If you only want minimal coverage – to protect the property from major causes of loss, such as fire, wind or explosion – you should consider what’s called a “named peril policy” (a policy that actually specifically names the types of losses that would be covered). If you want the best possible coverage for you and your property, then you need a “comprehensive policy” (a policy that covers all types of accidental losses – excepting those that are specifically excluded).
In addition to these two basic types of policies, there is “optional coverage” that can be purchased and then added to the base coverage within your policy. This will require careful consideration on your part, as far as what you deem truly necessary, as opposed to getting excessive coverage.
Optional coverage can include – but is not limited to: personal liability, loss of rent, other structures on the premises, theft, personal property, vandalism or malicious mischief (which is sometimes included in a basic policy) – and, of course, earthquake coverage for those properties located near the West Coast.
If getting a policy that covers personal injury, be sure that it also covers libel, slander, discrimination, unlawful eviction and invasion of privacy. You not only have to protect yourself from the tenant – but also from all of their guests and visitors!
And as if all of the coverage we’ve discussed wasn’t enough, there is another option to consider – and that is an “umbrella policy,” which goes above and beyond the limits of your normal landlord insurance coverage. Fortunately, it’s very inexpensive – usually a few hundred dollars a year for an extra million or two in coverage – as opposed to standard policy premiums which are thousands of dollars each year. However, umbrella policies don’t take effect until your preceding coverage is exhausted; so, don’t think you can cancel you primary policy and still be covered under your umbrella.
Here is how an umbrella policy works: Say, for example, your liability limit is $1,000,000 with your primary landlord insurance policy, but you incur a loss that totals $1,500,000. Your primary insurance carrier will reimburse you for $1,000,000, minus the deductible of course, but now you are short $500,000. Fortunately, you also purchased a separate umbrella policy worth $1,000,000 which was more than adequate to pay for the remaining $500,000. So, if you’ve ever had even a single dream about catastrophic events pertaining to your tenants or your rental property – it’s never a bad idea to think about getting an “umbrella” before the storm hits and the sky starts falling…