Landlord insurance is a little different from your standard homeowner’s policy you are accustomed to having on your primary residence. The difference is that a landlord insurance policy covers those issues that are directly related to the landlord-tenant relationship.
For example: If a hurricane drifts into town and wipes out your rental property, your standard homeowner’s policy wouldn’t cover your loss of rent – nor would it protect you if you had a faulty fuse box that shut off the electricity in the middle of the night, leading your tenant to trip and fall on his or her way to the bathroom before sunrise. Your standard homeowner’s policy wouldn’t cover your tenant’s injuries, loss of wages, etc., etc….
Great – just another bill, right? Actually, landlord insurance could very well be a blessing in disguise – but, first, you must weigh the pros and cons to determine its necessity in your individual case. After all, if luck’s on your side, insurance sometimes never has to pay for itself. So the question is… “Do ya feel lucky?”
No one wants to have to pay another bill, but this is one that may actually pay you back one hundred times over. The decision to have a standard homeowner’s or automobile policy is made for you by your lender or state’s law, so you have no choice but to have both of them (unless you’re fortunate enough to own your home with no mortgage attached).
The general rule of thumb when determining if you need insurance coverage is to determine whether or not you have anything to lose. This is most likely why many low income drivers (against their state’s law) answer this question by either canceling their vehicle’s policy once the car is paid off or simply pay for a car with cash and never even bother to insure it. In the end, what’s the risk to them – a possible ticket or a suspended license, but only if they’re even caught? In their mind, they clearly have nothing to lose by not paying for insurance.
However, you do have something to lose – remember, this is an investment property, not your primary residence, for those of you living in a homestead state, where your primary residence is protected from almost anything – except for mortgage liens, mechanics liens (liens from those who have performed work on the house, but who never got paid) and, of course, federal tax liens (the IRS always gets its money, one way or another!).
If you are a small landlord, you may not think you have more than one vulnerable asset, your rental property, but chances are you probably do. So the question then becomes how much do you have to lose?
If you have considerable assets that are not “creditor proof” (and you’ll want to consult with your financial planner or attorney on that matter), you need to realize that a landlord can easily be liable for tenant (and visitor) injuries caused by dangerous or defective conditions on your rental property, as well as criminal activity and environmental hazards – such as lead paint and asbestos.
The laws in most states are very “tenant-friendly” – enabling almost anyone to be able to file a lawsuit against you for medical bills, lost wages, pain and suffering, permanent physical disability or disfigurement, emotional distress – or even an unlawful eviction. So ask yourself, do you – personally – have enough to lose to justify paying for the extra protection and piece of mind? Only you can make this decision…