In order to generate a little extra income, many people choose to rent out a home. They might market it as a vacation rental in a big city or a touristy location or market it as a long-term rental unit. Either way, you’re in for an exciting adventure of meeting new tenants and making a good side income.
As you become a landlord, you’ll learn a lot about renting out your property. For example, you’ll soon understand the importance of getting good tenants. Performing your due diligence including accepting online applications, running a tenant background check free of charge, and meeting the tenants in person will help you avoid criminal activity, potential neighbor disputes, defaulted rent payments, or damage to your property.
You’ll also discover the importance of landlord insurance. Having a good insurance policy will be a lifesaver for you, even if it’s an additional monthly expense that you’re not excited about paying. When renting out your house, here are a few reasons you’ll need landlord insurance.
Your Homeowners Insurance Might Deny a Claim
Landlord insurance might seem like an extra, unnecessary expense when you already have homeowners insurance. However, homeowners insurance doesn’t cover everything, especially when you’re renting to tenants. Under certain circumstances, your homeowners insurance might deny a claim solely on the grounds that you’re renting it out.
This is especially important if you’re crossing state lines. For example, say you have homeowners insurance in New Jersey for your property located there, but you live in New York. Policy coverage can be blurred here, and landlord insurance covers you no matter where you are, not just your property.
It Offers Additional Liability Coverage
Your liability concerns increase as soon as you let someone else live on your property. If your tenant is seriously injured while on your property because of your negligent or even intentional actions, you can face serious legal and financial repercussions.
For example, say it’s in the contract that you will handle all snow removal. However, you’re unable to shovel the sidewalks and lay down ice salt on the morning that it snows. Your tenant slips on the icy sidewalk and breaks a wrist.
The injury can be pinned on you because it was your responsibility to keep the property safe and habitable. Your tenant might sue if you don’t have proper liability coverage to cover their medical bills and damages.
It Protects You When You Experience a Rent Loss
The goal as a landlord is to keep your rental units filled at all times. However, this isn’t realistic, and there will be times when your units will be empty and you won’t have rent money coming in. Since you have a mortgage and other expenses related to owning a rental property, this can be detrimental to your operation.
Additionally, tenants may default on their rent. Most landlords give their tenants a couple of months to make up the difference, but if they don’t, you’ll be out the money. If your policy includes rent interruption insurance, it will cover the rent for a period until you’re able to fill your unit with a reliable, rent-paying tenant.
It Covers Tenant Vandalism
Even if you’ve done your due diligence and carefully screened tenants before allowing them entry to your property, you may still experience tenant vandalism or major accidental damage. You should hold your tenant responsible, but if they don’t have the funds to pay, your landlord insurance will cover the repair expenses for you.
It Covers Legal Costs
If a tenant is injured on your property and files a personal injury claim against you, or you’re being sued for violating your contract, landlord insurance will cover your legal expenses. These can be very high, particularly if the case ends up in court, and you’ll be eternally grateful for your landlord insurance policy.