An Investor’s Guide to Understanding Insurance

As a property investor, you should have a plan to protect your assets. While some have the cash on-hand to protect against damage, lawsuits or the unthinkable loss of the property due to fire or natural disaster, most investors protect themselves with insurance.

But what should you look for when researching insurance options? And what exactly does it all cover?

Homeowners Insurance Versus Landlord Insurance

For owners using a mortgage or other bank-supported financing towards an investment property, you will be required to carry some form of insurance. For a single-family home, homeowners insurance is the standard requirement. However, these policies are meant to protect your home from any issues occurring while you are a resident. If you are using the property to generate income with long-term renters and you do not reside in the home, you may find many of the protections in your homeowners policy void.


What Does Landlord Insurance Cover?

Landlord insurance does two things:

#1: It protects the structure of your home

#2: It protects you in a lawsuit

Structural Protections

Quite simply, landlord insurance protects your rental property from damage (think fire) or vandalism. The level of coverage depends on the tier of insurance.

For example, say your home burns in a fire, the first tier of insurance would give you back the amount you paid for the home, while the 3rd tier gives you the market value of the home.

*Keep in mind, in places like California, earthquake coverage is never included, but it can be added onto existing coverage.

Legal Protections

Landlord insurance also offers you some protections against lawsuits. If a renter is injured in your home or slips on the sidewalk out front, your insurance will pick up the tab on any legal judgements (up to the amount specified in your insurance policy). Most insurance professionals recommend investors are insured at a minimum of one million dollars.

What About Renters Insurance?

Landlord insurance is there to protect the landlord. Because of this, items inside the property are not insured. While you are not at all required to offer any protection over tenant possessions, it’s a good idea to recommend renters insurance to residents on the oft chance theft or damage does occur. When you invest with HomeUnion, it’s required that renters obtain renters insurance to help protect their belongings.

Author Credit: Michael Isaac, MBA

Owner of Omni Safe Insurance,

Sources: Insurance Information Institute, BankRate

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