When going into the residential rental business, buying a property is only the first step. Next you must limit your liability if anything goes wrong, both before and after you have a tenant in place. Figuring out the coverage you need depends to some extent on where your property is located. Some state laws require specific coverage for rentals. In this case, you may have fewer options.
You Should Notify Your Insurance Company
If you plan to get by with a basic homeowners policy, make sure you inform your insurance company that you're renting out the property. If you don't, and if something goes wrong, it's possible the company can deny your claim if they didn't know a tenant was living there. Most companies issue separate, special policies for rentals.
There Are Many Tiers of Coverage
The simplest landlord policies usually cover only fire and vandalism. You can increase your coverage to include coverage for natural disasters. The most comprehensive policies cover just about everything except for specific exclusions. For example, such a policy might say that it protects your property against anything but a terrorist attack.
If there's smoke damage from a neighbor's fire, you can usually make a claim for this (as long as a terrorist didn't cause the fire). This is true even if your policy doesn't specifically state that you're protected against secondary damage. Like regular homeowners policies, landlord insurance should also cover you if anyone is hurt on your property - even though you don't personally live there.
Not Everything Is Covered
A landlord policy may or may not protect you against loss of rental income. If your property is empty because of damage that has made it uninhabitable, this is usually covered. If your tenant breaks the lease and leaves the property vacant, this is not usually covered.
You Can Require Your Tenant to Carry Insurance
If your lease states that your tenant must carry renters' insurance, you may have double coverage. A renters' policy protects you as well as your tenant, because it usually covers injuries to others that are caused by your tenant's failure to maintain the property in a safe condition.
A renters' policy, however, is quite different from a landlord policy. Your tenant's insurance won't protect you from damage to your property that wasn't caused by the tenant. If a fire that was not caused by the tenant destroys your property, you won't be covered.
A Real Estate Lawyer Can Help
The law surrounding insurance coverage and claims on residential rental property can be complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a real estate lawyer.