Even in a volatile investment market, rental income property remains a relatively low-risk purchase, with the potential for long-term returns as long as tenants are in place to pay rents. One way to lower the risk on the investment even further is by purchasing rental insurance. A variety of policies, some designed specifically for investors, offer protection for the investment under circumstances ranging from natural disasters to a loss of rental income.
Insurance experts recommend that investors ranging from individuals renting out their own home to owners of multiple properties purchase some form of rental property insurance in order to avoid loss of investment income.
Among the main benefits of landlord’s insurance, as opposed to homeowner’s insurance, aside from the obvious protection in case of accidental damage or natural events such as a flood or tornado, is liability insurance. If anyone – a tenant or a visitor – is injured on the property, the landlord/investor is covered for legal fees pertaining to any lawsuit or counterclaim. Covered injuries vary depending on the company and coverage selected, but typically include falls and injuries due to unsafe conditions on the property.
A key provision for investors considering the purchase of rental property insurance involves the number of properties covered. Although policies vary, they typically cover up to five properties per policy – an important consideration for those following Jason Hartman’s recommendation to diversify investments by purchasing as many properties as possible. Since most mortgage lenders consider multiplex properties of up to four units to be the equivalent of a single family home, this option allows investors to cover relatively large numbers of property holdings for a relatively low cost.
Rental property insurance isn’t cheap. Policies can cost as much as a third more than an equivalent homeowner’s policy. But, as insurance specialists point out, insurers typically pay out more claims on tenant-occupied properties. These claims arise when tenants don’t take care of properties, creating unsafe situations and the deterioration of structures, or when visitors to the property experience accidents due to unsafe conditions or risky behaviors, such as a party that gets out of hand.
This kind of insurance can also protect against complaints or lawsuits by neighbors for covered situations, such as a problem on the income property that affects a neighbor’s house or land – an unsafe fence, for example, or blowing debris that damages a window. A settlement in any of these situations could take a considerable toll on investment income.
Another significant way insurance protects income property has to do with loss of tenant income. Return on the investment depends on keeping homes and multiplex units rented. A slow rental market, or an extended period of repair to a property that requires a unit to be vacant can also put a dent in income from the investment. Insuring against loss of rents can protect the investment in those situations.
Rental property insurance is also tax-deductible; one of the numerous tax breaks available to income property investors. And, if an investor chooses to hire others to manage the property, any insurance taken out on their behalf can also be claimed as a tax deduction.
Investing in rental property as Jason Hartman recommends can be a low-risk way to establish a long-term investment income. Insuring rental properties is a smart way to preserve long-term returns in case of unexpected events of all kinds. (Top image: Flickr/JoeShlabotnik)
The Jason Hartman Team
