Landlord rules 101: Get the right insurance policy - East Valley Tribune: Business

Landlord rules 101: Get the right insurance policy

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Posted: Monday, August 3, 2009 9:24 am | Updated: 1:24 am, Sat Oct 8, 2011.

If you are having trouble selling your home, maybe it's time to think landlord.

A growing number of homeowners who need to relocate for a job or other reason are renting out their homes instead of selling them so they can wait until the market improves. At the same time, investors are taking advantage of low prices to buy rental properties.

Allstate has seen a 27 percent increase in the number of homeowners who switched their insurance policies to landlord policies, compared with year-ago figures. Travelers also said they're seeing a similar increase. So is State Farm Insurance, but less so.

"When you become a landlord, your property goes from a residence to a place of business," says Julie Parsons, vice president of consumer household at Allstate.

That requires a landlord insurance policy, which covers the property and your exposure if anyone gets hurt in it.

These typically cover the building in case it's damaged or destroyed by fire, lightning, wind, hail, cars or collapse from ice, snow or sleet. It also covers the landlord's personal property used by the tenant or used to maintain the house. This could include appliances and landscaping machinery like snow blowers and lawnmowers.

Landlord policies don't include any protection against flooding or offer compensation for damage to renter property. And depending on the how extensive the coverage is, it might also exclude damage from sewer backup, earthquake, vandalism and theft.

Allstate's average annual premium for a basic landlord policy package is $650, but costs can vary widely depending on the state, the amount of insurance and the deductible. Insurance companies also take into account building costs, neighborhood crime, square footage, as well as features like pools and fireplaces, and credit history.

To get a discounted price, some insurers offer an umbrella policy that combines other insurance, like car and homeowner's insurance, with the landlord policy.

More important, the coverage helps protect you from liability if someone gets hurt on your property. Some policies also pay for some or all of your legal expenses. It also will pay for some or all the medical expenses for people injured on the property if the landlord is found responsible.

Unlike a homeowner's policy, the landlord policy also will compensate for lost rent if the building is uninhabitable because of damage that is covered by the insurance. This is a big deal for a landlord who relies solely on that income, especially if a building is under repairs for a long time.

"What if you need to rebuild the building? What about that income?" says Ed Charlebois, vice president of personal lines at Travelers.

Landlords can add on other options, for a price, to either increase how much money an insurance company will pay out or to expand coverage to certain events.

For example, a landlord may want protection from burglary or vandalism. Or, he may want to insure against building code violations and fire department charges. Some companies allow you to insure specific property like satellite dishes.

Like homeowner's insurance, landlord policies don't include any protection against flooding. That coverage is available through the National Flood Insurance Program. It includes building coverage with personal property coverage as an option.

While flood coverage can be expensive in high flood zones, it could help offset a huge hit to your finances if your property is flooded. The average flood claim totaled more than $33,000 over the past 10 years, according to the government, and just a few inches of water can cause damage costing thousands of dollars. And most mortgage lenders require flood protection if you live in a high flood zone.

Renters also can get their own flood insurance from the National Flood Insurance Program to protect their personal belongings. Landlords may want to recommend tenants to buy that and their own renter's insurance since landlord policies don't cover a renter's property. Some of the large national apartment owners require their tenants to buy renter's insurance.

To head off any disputes with your insurance company if you need to file a claim, have dated photos of your property, both inside and out, to show its condition before any damage.

Also, make your property safer by regularly inspecting it for any hazards like cracked or uneven sidewalks, broken handrails and burned out light bulbs, State Farm recommends. Make repairs quickly and make sure your renters have the numbers for repair and service companies to address any maintenance problems if you're not around. If you're an out-of-town landlord, you may want to hire a property manager to deal with these problems promptly.

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