Whether you own a few rental dwellings or rent out the apartment over your garage, the goal of your rental business is to earn money. Without the right insurance coverage, property damage and other business liabilities could deplete your profit.
Of course, you want to protect your rental property with the right liability coverage. You’re probably familiar with homeowners insurance. But did you know that homeowners coverage isn’t designed for the risks you are exposed to when you want to rent out property that you own? You may be considering businessowners insurance or dwelling fire insurance but are unsure what type of coverage you’ll need. Here’s what you need to know:
Why Homeowners Insurance Isn’t Right for Rentals
Designed to cover your house and the liabilities associated with living there, homeowners insurance has several limitations and exclusions for rental business operations. As soon as you collect rent, even from your spouse’s cousin living over the garage, you are running a business according to the definition in most homeowners policies. If the property you rent out is a detached garage, conducting business in it (renting it out) excludes the entire structure from your homeowners policy.
Your homeowners insurance policy will cover liability for personal activities but not those related to your rental business. If your dog bites the neighbor who accidentally wandered into your yard, homeowners insurance can cover related medical and legal bills. If your tenant’s dog bites the neighbor who wandered into your yard, you wouldn’t be covered.
The Purpose of Dwelling Fire Coverage
This can be a good choice for properties you own and rent out but don’t live in. Dwelling fire insurance can be used to cover rental property, multiple-unit dwellings, and multiple buildings on the same property. A dwelling fire policy can pay for repairs or replacement of the structure, including attached porches or garages, after a fire. The contents of the building are not covered by dwelling fire insurance, nor is there any liability protection with this type of policy.
A dwelling fire policy can be extended to cover damage caused by other events such as hail, volcanic eruptions, and riots. In its broad form, a dwelling fire policy could cover damage caused by a wider array of circumstances like falling objects, burglary, overflow of water, electrical damage, and several others. It is still limited to repairing or replacing the building and does not include contents. Additionally, many coverages are not available on a dwelling fire policy including loss of rents, cyber, employment practices liability, and equipment breakdown.
The Benefits of Businessowners Coverage
A businessowners insurance policy (BOP) is specially designed to include the three types of coverages landlords and rental unit owners need – liability, business interruption, and property. The first advantage of a BOP is that you can get the combined coverages for less than you would pay for each separately. You can also increase limits and add coverages to a BOP for a customized solution.
A BOP covers property owned or rented by the business. It also extends to business-related items stored on or near the premise. The liability portion of the BOP can cover tenant-owned items if they were damaged by a water leak or some other building condition you, as the landlord, were liable for. Personal injury claims can be included in the BOP liability coverage, even if injuries occur during business activities. The painter falling down the stairs would be covered, as would a prospective tenant tripping during a showing.
Choosing the Right Coverage
When deciding which coverage is best for your rental property, consider the one that will protect you against emerging liability. Adding one unit or 40 to your rental portfolio increases your liability, but we’re here to help. Identifying and managing risk for multifamily housing dwellings, affordable housing, and commercial real estate is our expertise. Let us assess your situation and provide the best solution to mitigate your risk and protect your business. It’s easy to find a local insurance agent who works with Millers Mutual Insurance to learn more.