Protection Pays: Making the Most of Insurance

AMA8-10-13Dancers insure their legs and singers insure their vocal cords. Almost anything can be insured against loss, to the point of absurdity – and the insurance industry is happy to make money off people’s greatest fears. But the right insurance can save money – even it it’s never used. And for investors looking to make the most of their real property investments, it’s essential – and tax-deductible – expenditure.

Rental property insurance – as distinct from renter’s insurance, which responsible tenants should buy – is designed to protect the landlord/investor. New investors, particularly those who begin their investing careers by renting out a second residence, believe that a standard homeowner’s policy will work fine for investment properties too. But real estate and insurance professionals point out that a dedicated policy offers the best protection for rental related issues.

Unlike homeowners’ insurance, rental insurance doesn’t cover property inside a rental house, unless it belongs to the landlord. A tenant’s furniture, for example, isn’t covered, but a washing machine might be if it comes with the house.

Rental policies typically come in two types: comprehensive coverage, a broad-spectrum policy that covers nearly every problem imaginable, or “named” coverage that specifies certain kinds of incidents for coverage, such as fires or structural damage. Comprehensive coverage is of course the pricier option, but if certain risks are more likely, named coverage may take care of a landlord’s needs. For those with mortgage payments, policies can be written to cover the amount still owed on the loan.

Replacement of property is another variable in rental property insurance. Policy options include actual cash value, in which the policy pays out the current value of the property at the time of the disaster. The other, replacement cost settlement, provides the total amount needed to rebuild the property without deductions. Under the terms of actual cash value, what you do with the property is up to you. But if the policy covers replacement cost, you’re obligated to rebuild.

Liability coverage is the third element to consider. A renter who is injured on the property can hold the landlord liable. But it’s not that simple. The renter has to prove that the injury happened as a result of negligence or failure to maintain he property safely. But tenants can file lawsuits – and a landlord who loses can face the garnishment of assets to pay damages. Good liability coverage protects against those scenarios.

Many policies also offer options for coverage for periods in which the house can’t be rented out due to repairs or rebuilding. And rental property insurance is on the long list of tax deductions available to income property owners. As Jason Hartman advises, nvestment properties pay big dividends – and it pays to protect them with the right insurance. (Top image:Flickr/PaperCat)

Flisko, G. M. “Renting Out a Home? Get the Right Insurance.” BankRate Insurance., n.d. 9 Aug 2013.

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The American Monetary Association Team


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