Sometimes choosing the right insurance coverage for a rental property business can be confusing. You know you need coverage for your property in case a fire or a bad storm causes severe damage. But what happens if someone falls and gets hurt on your property? What if one of your rental units is burglarized? What if a tenant’s dog bites the neighbor’s kid? Are you liable? Will you be covered? Does your businessowners policy (BOP) cover it all?
What Does Business Insurance Cover?
A businessowner’s policy (BOP) is designed to bring together the three areas of coverage your business needs in a simpler, more economical package. The specifics and the limits on each BOP can differ, but here are the basic areas of coverage:
Property coverage is a major concern for most rental property business owners. Your property is the most valuable part of your business and keeping it in good repair is a top priority. A BOP covers damage to your building due to a weather event, fire, or other covered incident. The coverage also extends to business-related items stored on or near your property. For example, the computer and printer you use in the office in the detached garage would be covered by the property portion of your BOP (while they are not covered by your homeowner’s insurance).
In the property rental business, business interruption is usually tied with property damage. If one of your rental units was damaged and uninhabitable for several months, your business income would be interrupted. As long as a covered incident caused the underlying damage, you could be reimbursed through your BOP coverage for a portion of the income your business was losing while repairs were being made.
As a rental property owner, you have legal liabilities that are enhanced by the fact that you rent that property to people for their residence. Property insurance, for instance, covers what you own but not your tenant’s personal property. However, if your tenant’s personal items were damaged because of a water leak in the building, you could be held legally liable for the value of those lost items. Your legal liabilities may also extend to property visitors and neighbors who are injured on your property. Liability coverage can cover costs for medical care and legal fees in certain situations.
What Other Coverages Does Your Business Need?
A businessowners policy covers these three important areas, but that doesn’t mitigate all your risk. Rental property businesses may face other risks that fall outside of BOP coverage.
If you hire a property manager or maintenance staff, you might need employment practice liability insurance (EPL) to protect you against potential employee lawsuits for discrimination, sexual harassment, wrongful termination, or a number of other illegal employment practices. Even if you’ve done everything right, without EPL coverage, you might face out-of-pocket legal expenses to defend yourself and your business in court.
You also have a legal responsibility to defend your tenants’ personal information against cyberattacks. As a landlord, you collect and store rental histories, phone numbers, and other sensitive information about tenants and prospective tenants. The losses sustained from identity theft can be huge. Securing your business files with data response and cyber liability insurance could save you a lot of money in fines and legal fees if your business ever experiences a data breach.
Liability claims against your rental business could add up quickly and far exceed the value of your real property and the amount of cash you have on hand. An umbrella policy could give you peace of mind knowing that even if the amount of a claim exceeds your insurance liability limits, you are still covered. Umbrella insurance works like a rainy-day policy. If you face a liability claim that exceeds your basic policy limits, your umbrella coverage can provide an additional payout.
Other Considerations to Protect Your Rental Business
As an astute rental business owner, you want to consider ways to prevent catastrophes before they happen. This includes keeping your property in good repair, preventing accidents whenever possible, and appropriately screening prospective tenants to reduce your liabilities.
Your insurance will not cover damage to your tenant’s possessions. For instance, if there is a fire in their apartment, your insurance will help you repair the building, but it won’t replace the tenant’s possessions. Without renters insurance, tenants may be tempted to sue you for liability to recover their losses. Requiring renters insurance as part of the lease agreement shows tenants an inexpensive way for them to protect their possessions. It also provides you some peace of mind that your tenants are taking responsibility for themselves.
Fire Mitigation Devices
Fire is one of the primary causes of property damage in multiunit dwellings, and in many cases, it can be prevented. Unattended or careless cooking can be a leading cause of fire, but installing StoveTop FireStop devices in every kitchen can severely reduce the risk of fire. Fire extinguishers are important safety devices, as well. Since a fire grows exponentially every minute, installing fire extinguishers in each rental unit and educating tenants on how to use them could keep a small fire from becoming a big one.
Carefully screening your tenants is one way to avoid issues before they arise. A credit check, eviction history, and criminal background check can tell you all you need to know to make an informed decision about approving a rental application. If your rental business is small, you may want to use an online tenant screening service to be sure you get the most accurate and up-to-date information about your prospective tenants.
Common BOP Coverage Myths
When it comes to insuring your rental business, you have a lot at stake. A small accident, like a pot unattended on the stove catching on fire, could end up costing you more in repairs, medical expenses, and legal fees than you have cash on hand. Rely on a trusted insurance agent to identify potential risks in your business and recommend the right coverage so you don’t end up being fooled by these common myths:
Myth: General liability covers all risks.
Fact: General Liability Insurance is coverage that can protect you from a variety of claims including bodily injury, property damage, personal injury and others that can arise from your business operations. It does not cover damages to your property caused by a tenant or guest. Also excluded from general liability coverage is damage to your vehicle while you are using it for your business or losses caused by a professional error. Landlords can also face discrimination lawsuits that are not covered under a general liability policy. General liability is just that, general.
Myth: A one-unit property rental business is too small to need a BOP.
Fact: The minute you began collecting rent for that extra space over your garage, you entered the rental business. The size of your property or the amount of revenue it generates are not determinants of whether you are running a business. A property that is fully insured with a homeowners policy is not adequately covered when any portion of it becomes a rental property. For instance, if you rent out a small apartment over your detached garage, the entire structure is excluded from your homeowners policy. In addition, any losses sustained as a result of business activities would be excluded from liability coverage under a homeowners policy. That means that if someone is on your property for business purposes, like a tenant or a prospective tenant, any injuries they sustain would not be covered. The size of your business does not matter. You are either running a business or not and if you are collecting rent, you are running a business, and you need a businessowners policy.
Myth: Your small property rental business is not at risk for a cyberattack.
Fact: When people submit their information to you, for a rental application or to pay the rent, they have an expectation that you will take reasonable care to protect that information. If one of your tenants has their identity stolen, they may try to hold you liable for their losses. Data response and cyber liability coverage can limit your out-of-pocket expenses to defend against a lawsuit and pay any damages you are responsible for.
A rental business like yours needs the right insurance coverage to protect against losses – physical and financial. Contact Millers Mutual to find an insurance agent today with access to the coverage your rental business needs. We’ll help you protect what’s important to you.