Do you know what does landlord insurance cover you for? Learn what are the typical landlord insurance coverage for rental properties here.
Property Fire Insurance
What does landlord insurance cover: fire insurance will cover any losses from fire damage to your property. It typically covers fires from both man-made (e.g. fires from cooking or smoking) and natural causes (e.g. forest fires).
Your insurance coverage amount should be equal to the cost of rebuilding your entire rental property. This amount will be lower than the total property value because it excludes the value of land.
It's important to give accurate estimate for your rebuilding costs. If the value you quote is too high, you end up overpaying for your insurance premiums. On the other hand, the insurance payout will not be able to cover your losses if you underestimate the rebuilding costs - Click here for 5 proven methods to lower property insurance costs.
In general, insurers offer two types of insurance coverage: replacement cost vs cash value. A replacement cost policy will reimburse the full cost of replacing any damaged items while a cash value policy offers less compensation - It will only pay you the current (depreciated) value of the item.
Both fire insurance and landlord liability insurance are essential landlord insurance coverage for rental properties. In fact, most lenders won't grant you a rental property mortgages until unless you have these two insurance covers in place.
Landlord Liability Insurance
Managing a rental property is similar to running a business in numerous ways. Just like most business owners, a landlord is vulnerable to being sued by tenants or the local housing authority.
Landlord liability insurance (also known as third party liability insurance) will cover your losses in the event of a rental property related lawsuit. This includes your own legal fees and all damages awarded to the other party (plus their legal expenses).
While the risk of running into lawsuits as a landlord isn't high, liability insurance is still highly recommended because the potential losses from a single lawsuit can be devastating - A typical lawsuit can rake up a few thousand dollars in filing fees, court costs, attorney fees and damages.
For example: If your property has structural faults or exposed wires that causes injury to your tenant, you may sued by the tenant or local housing authority for negligence and failure to maintain your property.
To fend yourself against aggressive lawyers who habitually sue landlords for all that they're worth, your liability insurance amount should cover your entire net worth. Since most landlord insurance only covers you for $100,000 to $300,000, Click here to learn how to boost your landlord liability insurance with minimal costs.
Now move on and let's examine the other typical landlord insurance coverage for rental properties:
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