If you’re considering investing in real estate and becoming a landlord or have already gotten started, you need to protect your investment. Habitational insurance covers rentals, duplexes, multi-family homes, single-family homes, eight plexes, and other types of rental properties. Keep reading to learn more about what it does for you.
What is Habitational Insurance?
Habitational insurance is a combination of coverages that protects landlords from losses due to property damage and liability. In addition to traditional landlords, it also provides coverage for homeowners’ associations, condo associations, and bed and breakfast hotels.
What is the Difference Between Habitational and Landlord Insurance?
Habitational insurance and landlord insurance can sometimes mean the same thing. When an insurance policy is sold as landlord insurance, it’s often geared towards people who are renting out a single home. Habitational insurance may cover one property or a group of properties. Habitational insurance also often has higher limits available, which could be important if you have more than one property and need to protect your entire portfolio against potential lawsuits. To know exactly what you’re buying and the potential differences between a landlord insurance policy versus a habitational insurance policy, you’ll need to review the specific policies you’re considering.
What Coverages Does Habitational Insurance Include?
Most habitational insurance policies come with a standard set of coverages. Depending on the provider, each coverage may be included or optional. You may need to purchase some coverages separately.
- General liability: General liability protects you from lawsuits when someone is injured on your property. This might include a tenant being injured by a faulty appliance or any person slipping and falling in a common area. It may also cover property damage such as your maintenance worker kicking up a rock into someone’s windshield while mowing the lawn. While liability protection is often thought of as for lawsuits, it generally doesn’t cover non-injury or property damage liability claims such as discrimination or wrongful termination.
- Property coverage: Property coverage covers damage to your own property from disasters such as storms and fires. Certain types of incidents may be excluded from general property coverage. Flood and earthquake coverage are usually either add-ons or require a separate policy. Vandalism, theft, and other criminal acts sometimes also fall under separate coverage.
- Signage: Outdoor signs often don’t fall under your standard insurance coverage, because they’re at higher risk of wind or other damage. If you have a multi-family property and have made a serious investment in your signage, you may find it worthwhile to carry insurance in case you need to repair or replace it.
- Business property: If you have an office or maintenance area, business property coverage can protect your computers, furniture, yard equipment, tools, and other assets.
- Loss of Rental Income: While your building is uninhabitable, under repair, or being rebuilt, loss of rental income replaces the rents you would have received during that time.
- Crime: Landlords generally don’t have liability if a third-party commits a criminal act against a tenant, but landlords have been held liable in some cases where they didn’t take adequate safety measures such as providing adequate lighting or maintaining exterior gates. Crime insurance protects against that scenario.
- Directors and officers or errors and omissions: Directors and officers (for an association board) or errors and omissions (for a landlord or property manager) covers claims that your professional negligence caused financial harm to someone else.
How Much Does Habitational Insurance Cost?
Habitational insurance premiums vary based on property value, location, and other risk factors. The limits and deductibles you select will also affect your premiums.
If you’re a small investor renting your second home, you can generally expect a higher premium than your personal homeowners’ insurance rates, even for the same amount of coverage. That’s because renting generally comes with more risks than an owner living in their own property.
What Are the Policy Limits on Habitational Insurance?
The building itself is generally covered in full, although you’ll need to read the policy to see how the insured value is determined. The premium for building coverage is based on the appraised value when you buy your insurance policy and is usually reviewed every few years.
You select your own liability limits, which are often $1 million or greater to cover most types of potential lawsuits and protect your entire investment portfolio as well as other personal assets. Similarly, you can select what limits you want for any other business property or fixtures not covered by your coverage on the building. You may be able to choose between current replacement value or full (i.e., brand new) replacement cost.
Can I Just Make My Tenant Buy Insurance?
Many landlords require tenants to buy renters’ insurance, and this is a good practice. However, renters’ insurance generally only ensures that the renter’s liability for injury or damage they cause to others is covered. It typically won’t cover your building. In addition, to the extent that a tenant’s renters’ insurance would protect you, you would have no protection if they dropped their coverage without informing you.
Talk to Your Insurance Agent
Figuring out what habitational insurance you need can be confusing, especially if you’re a first-time landlord. Working with a local insurance agent can help you figure out what you need without sales pressure from an insurance company. Strobel Insurance Agency is a small, local agency in Eau Claire, WI that helps landlords of all sizes. Schedule an appointment or contact us now to learn more about how to protect your rental property investment.
