Being a landlord can be a rewarding experience both in monetary and non-monetary terms. However, a landlord has to shoulder enormous responsibilities. In addition to being accountable for the regular maintenance and upkeep of the apartment/building, he has to protect himself against a number of factors that may cause damage or loss to his rental property. Since a home insurance policy is meant to protect the occupant of the house/apartment, it does not protect the landlord in case of unforeseen events. Hence a landlords' insurance is a must in case the property is purchased with the intention of letting it out on rent.
Property Insurance for Landlords
There are various kinds of landlord insurance policies available in the market. Depending on our requirement, we can choose a single policy or a combination of policies.
Property Insurance or Building Insurance
This is one of the most basic types of insurance that covers the apartment/building and its permanent fixtures. A permanent fixture is generally identified as a physical structure that cannot be removed without inflicting damage to the building. This insurance does not cover non-permanent fixtures, like washing machines. Hence, one needs a policy that provides a comprehensive coverage.
Contents Insurance or Personal Property Insurance
A contents insurance is aimed at protecting articles that are stored within the apartment/building. While renting a furnished apartment, a property insurance would not suffice, since any damage to the furniture would have to be borne by the landlord. In this case one would require a contents insurance. In case the landlord owns the entire building, it might be a good idea to opt for a contents insurance in addition to a building insurance. This will be beneficial since the lobby of every building is usually furnished.
Liability Insurance
A landlord is responsible for any injury a tenant might suffer on account of negligence on his part. The tenant however needs to be able to prove that the landlord fell back on regular upkeep and maintenance. This type of insurance policy covers the cost of medical bills and any other expenses that might accrue to the tenant on account of the injury sustained.
Buy to Let Insurance
This is the most preferred form of insurance that combines the features of building, contents and liability insurance. Most landlords tend to opt for this policy.
Protection against Natural Disasters (not including Floods)
Natural disasters can cause destruction of the rented property. These catastrophic events cause extensive damage. Hence, it is necessary to insure against them. Since the liability is high in these cases, the premium on such a policy is also high. These events are not covered by 'the buy to let insurance'.
Flood Insurance
Insuring against this calamity is a must, if the property is located in a flood-prone area. A higher premium needs to be paid in order to avail the facility of a flood insurance.
Mortgage insurance
This is an important policy for landlords, who are yet to pay off the mortgage on their rented property. In the event of their untimely death, the insurance company pays off the remaining mortgage balance on the rented property.
Loss of Rent Insurance
This insurance assumes importance in case the apartment becomes inhabitable due to unforeseen events. In this case, the lost rent is covered by the insurance company.
Premium and Coverage
The amount of premium on various policies is directly related to the risk. Greater risk would imply a greater premium. The premium is paid on a quarterly, monthly or yearly basis.
The amount of coverage provided by the insurance company can be of 2 types: actual cost or replacement cost. Actual cost coverage would imply that the depreciated value of a product is deducted from the cost price, while determining the amount of coverage. Replacement coverage on the other hand provides the ability to replace the product.
Insurance of any important investment is essential. More so, in case of fixed assets like apartments, whose replacement cost is very high and the loss incurred on damage is generally unsustainable.
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