Buying and selling real estate comes with many risks. In addition to the inherent investment risks, there are also physical and legal risks that can turn into liability issues. That’s why real estate investors carry the following insurance policies.
- Rental property insurance
Also referred to as landlord insurance, this policy is a bundle that covers a landlord’s basic needs. For instance, it might include hazard insurance, liability, and loss of income.
This kind of policy is just for landlords and their properties. Renters who want to protect their belongings need to get their own renters’ insurance policy.
If you’re a property investor and you’re wondering which policies you should acquire, talk to other real estate professionals in your area to find out what they carry and look for free guides from property investment companies. You can also ask your property management team for advice and suggestions if you’ve hired one.
- General liability insurance
No matter what, you need general liability insurance for every rental property you own. It doesn’t matter if it’s vacant or occupied; don’t allow your policies to lapse. When you own a property, you’re responsible for injuries that occur on the premises.
There are some circumstances where you can’t be held liable for an injury, but for the most part, you will be financially responsible. This responsibility extends to everyone, including tenants, their guests, maintenance professionals, and trespassers. For instance, if a squatter takes over your home and becomes injured on a broken fence that poses a hazard, they can sue you for damages.
Most trespassers would have a hard time winning a lawsuit, but it does happen. Also, there have been cases where even armed burglars have sued – and won – for being injured (shot) by a homeowner after breaking into their home. It can happen to anyone if the right circumstances exist, so don’t take that chance – make sure you’re covered.
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- Fire insurance
You can’t control mother nature and you can’t prevent every possible accident your tenants might cause. Some things will be beyond your control, like fires. Fires are an incredibly destructive disaster. Even when the structure of a building doesn’t burn much, the smoke and ash tend to ruin everything. On top of that, the chemicals used to extinguish a fire can damage things, too.
You need fire insurance for your properties. The policy terms vary by state and insurance carrier, but most will cover natural fires (not arson). If one of your properties ever experiences a fire, you’ll be thankful you have fire insurance.
- Flood insurance
Flood insurance isn’t exactly what you might think. The basic flood insurance policies landlords carry are really just meant to cover water damage from a broken pipe or other similar source.
There are major flood insurance policies that will cover disasters, like a real flood caused by nature or a storm, like a hurricane. However, those policies are more expensive and you really only need that if you’re in a flood zone.
- Rent guarantee insurance
What would you do if a tenant stopped paying rent? This loss of income is always a possibility, more now than before. This is something many landlords have been experiencing over the last couple of years because of the coronavirus pandemic.
When you have rent guarantee insurance, you’ll get reimbursed for the rent your tenant has decided not to pay. Before buying a policy, compare premiums so you don’t get stuck paying a premium that exceeds your potential loss of rental income.
- Sewer backup insurance
A backed-up sewer is one of the worst issues to deal with as a landlord. It’s messy, smelly, and causes serious inconvenience to tenants. Sometimes it’s so bad that tenants will live in a hotel in order to avoid the horrible stench inside their home.
Sometimes, clogged sewer lines are an easy fix. However, sometimes, the issue is more deeply rooted.
- Builder’s risk insurance
Do you fix and flip? Do you rehab properties yourself? You might need builder’s risk insurance. This is a short-term policy that will cover your properties against things like property damage, vandalism, and theft. It will also cover some injury claims filed by contractors.
Insurance policies are important
Some insurance policies are more expensive than what they’re worth. However, in the world of real estate, insurance policies are essential. You don’t have much, if any, control over your properties once they’re rented and one incident can put you out of business. Insurance policies will help you recover, should your rental property experience an unforeseen event.