An expert walks us through the what, why, and when.
Published May 31, 2023 1:00 AM
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Taking several deep dives into how one successfully transforms a property into a vacation rental—Darrel Maxam, for instance, was able to pay off his mortgage by listing a couple of tiny homes on Airbnb—pushed us to the realization that we had only scratched the surface. More specifically, we still knew little about the less enticing (but arguably even more important!) side of how homeowners can actually protect the hard work and money that goes into running a destination stay. Because with all the glittering promise of rental rewards inevitably comes a whole heap of harrowing risks. The answer we were looking for begins with something called landlord insurance.
After dialing up Datha Santomieri, a former flipper and insurance expert who has worked in the industry for more than a decade, we were able to gain the following insider intel: If you ever envision opening up your doors to long- or short-term guests, seriously consider finding coverage. The act of getting insured, however, can be easier said than done. It was the primary catalyst behind Santomieri’s decision to cofound Steadily, an online policy provider offering coverage across all 50 states. We had her walk us through the ABC’s of landlord insurance, from what it is to who it’s for to why it might be a good idea for you. Let’s dig in.
Landlord insurance offers financial protection against all sorts of risks (natural disasters, burglaries, electrical fires) that come with rental properties that provide income. And this isn’t limited to apartment buildings and condos; it also includes single- and multi-family homes. Santomieri actually prefers to call it real-estate investor’s insurance. That’s because not everyone is a traditional landlord (i.e., an owner of multiple rental properties for long-term leases).
“Fix-and-flippers” and “fix-and-renters” are also great candidates, Santomieri points out. These types of owners are likely to invest a lot of funds in furniture and decor, and the right policy will cover the entire cost of that personal property loss.
Both kinds are all about protection against risk to the building and property within it, but the former is only available if you personally live in the home. A homeowner’s insurance policy also likely won’t cover damages to items you bought specifically to run your rental—think: a security system—especially if caused by a guest who is staying for more than 30 days.
A common misconception is that landlord insurance covers normal wear and tear at a property. “It’s not a maintenance policy. It’s for large losses that are unexpected,” Santomieri stresses, and there are often caveats. Some policies have exclusions for tenant-caused damages. “It’s important to know what you’re buying and to ensure it’s going to include any damage caused.”
Typically, though, a policy protects you financially in the event of a freak accident—think: flooding, lightning strikes (which are more common than you’d think), fire, hail, wind, or a busted pipe—as well as lawsuits, vandalism, theft, and tenant injuries. If something were to happen, you’d receive the monetary equivalent of the cost of repairs and renovations. So marble countertops and hardwood floors will warrant a far greater payout than, say, laminate.
“You also have exposure to loss of rent,” Santomieri adds, explaining if a tenant isn’t able to occupy your place, insurance can cover that, too. “If you depend on those dollars for your livelihood, that can make a pretty big dent.”
According to the Insurance Information Institute, landlord insurance tends to cost 15% to 20% more than a homeowner’s policy. An average premium annually, Santomieri shares, is around $1,500. But installing safety devices, like a fire sprinkler system, Steadily’s site notes, can help drive down the overall price.
As early as the renovation period for a rental, Santomieri says, although “it tends to be more expensive because the risk is higher—you’ve got contractors coming and going, you’ve got tools, it’s vacant.” But once construction is completed, you should be able to contact your provider to switch it over to a standard (read: less expensive) landlord policy.
From a purely legal perspective, no. However, without it, you’ll have to pay out of pocket if things go south. If you’re regularly renting out your space, even if it is your primary residence, insurance carriers will consider your property as a business more akin to a hotel or B&B as opposed to a standard home. If you’re still on the fence, Steadily’s licensed agents are on standby with answers to any and all questions (you can use the chat feature on the website for immediate assistance) and can help get you set up with the right policy.
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