It’s a fact of life: as your family grows, your home needs to expand. But with each new addition comes the risk of expensive damage and loss. That’s why it’s important to have rental property insurance in place from the very start. It can also be helpful to establish policies for additional dwellings like secondary homes or vacation properties. After all, who knows how much you may need someday?
What is Rental Property Insurance?
Rental property insurance is a policy that covers your rental investment. It’s a type of home insurance that protects you against accidental damage or loss, such as fire and theft. This type of policy is especially valuable if you own several properties and operate them all as rentals. The policy name will tell you what you’re insuring. Rental property insurance covers your assets and is often referred to as “tenants’ insurance.”
Types of Rental Property Insurance
There are three types of rental property insurance: - Excess coverage - Excess coverage is the most common type of coverage. It allows you to protect a set amount above your actual coverage limit. That way, even if your actual coverage is low, you can still cover some losses. - Replacement coverage - With replacement coverage, you’re paying to replace your assets if they’re damaged or destroyed. This is usually a higher premium, so you may want to consider it only if the actual cost of a loss is very high. - Actual cash value coverage - With actual cash value coverage, you’re protecting your investment, not replacing your assets. This coverage is usually only for rental property.
Why Is Rental Property Insurance Important?
Rental property is often a huge risk, so it’s important to protect your investment with insurance. Excess coverage is especially important. If your home is damaged due to a fire, for example, you want to be able to claim the full amount of your excess coverage. Otherwise, your insurance will pay a much lower amount, and you’ll end up paying for the damage out of your own pocket. When you don’t have excess coverage, the insurance company decides whether your home is covered at all. Depending on the extent of the damage, the insurance company may decide your home is only partly covered. In that case, you’ll have to figure out how much of the damage is covered by your insurance and how much is covered by you. That’s a big risk as you may end up with a large bill when the situation is covered by insurance, but you have to pay for it out of pocket.
Coverage Matters
One of the most important parts of rental property insurance is coverage. Excess coverage is the only type of coverage that will protect your assets. If your home is covered by insurance with only actual cash value coverage, then even if the building burns down, the insurance company will usually take the value out of the insurance policy before paying a cent.
How Much Should You Spend on Rental Property Insurance?
You’ll want to do some research to find the right policy for your own specific situation. But in general, expect to spend about 3% of the value of your rental home on insurance. That percentage is based on the value of your home and may vary depending on the exact coverage you choose.
Conclusion
Rental property insurance is an important part of owning rental properties. It’s especially important to have excess coverage if your home is at high risk of damage or destruction. If your property is covered with only actual cash value coverage, then it’s a big risk and you could end up paying for the loss out of pocket. You can choose between three types of rental property insurance: excess, replacement, and actual cash value. Make sure to choose a type that has coverage that protects your assets.
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