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Landlord insurance may sound self-explanatory, yet many landlords still question if they need it. While it is typically not required by law, property owners take a substantial risk by not carrying it on their rental properties. If they have a mortgage, the lender will probably require it anyway. However, some landlords still push back at the notion. Keep reading to learn more about landlord insurance and four reasons you need it as a landlord.

What Is Landlord Insurance?

In basic terms, landlord insurance is a policy property owners hold to protect the properties they rent. For single-family homes, condos, or other dwelling spaces, it can have overlapping terms and conditions with homeowners insurance. Property owners must be careful not to assume it functions identically.

For example, homeowners insurance usually encompasses your personal belongings while landlord insurance does not. Furthermore, the renters’ personal belongings are only protected if they choose to get their own renters insurance policy, which is not the landlord’s responsibility. One other difference to note is landlord insurance can cover lost rental income while repairs are taking place whereas homeowners insurance does not have such a clause.

Why Do I Need Landlord Insurance?

Now that you have a firmer grasp of what landlord insurance covers, let’s examine some key reasons to carry a policy.

1. Avoid Large Medical Liability

One of the worst-case scenarios involving a rental property is if a tenant or their guests are injured on your property. Depending on the severity of injuries and how many people suffer damage, the medical bills can pile up for tens of thousands of dollars. This can force you into a dire financial situation and possibly bankruptcy. If you have a comprehensive landlord insurance policy, you can protect yourself against any amount exceeding your deductible.

2. Natural Disasters

Let’s face it. Some things are beyond your control. Even if you write extra clauses into your rental agreement to cover damage caused by the tenant, you cannot hold them accountable for natural disasters or similar catastrophic events.

Even the cheapest landlord insurance policies include coverage for fire and lightning, internal or external explosions, and hail or windstorm. Additional coverage levels include damage from tornados or the weight of ice and snow on your roof. Speaking of cold-weather problems, freezing of pipes or accidental discharge of water or steam are usually included in mid-range policies.

3. Events Not Involving Your Tenants

Again, you may think you have protected yourself because your leasing agreement requires the tenant to pay for any damages they cause. What if your property is damaged by someone else? For example, what if a reckless driver runs off the road and into your place? What if someone vandalizes your property and you cannot prove who did it?

If your property is uninsured, you will be responsible for the full cost of restoring the place. Additionally, if the damage makes the place uninhabitable, you will likely need to void the lease and lose all income until the property can house tenants again. If you have landlord insurance, these events are covered. Not only will the policy help pay for the repairs, but you can also be reimbursed for lost rental income during the time your property is being restored.

4. Avoid Awkward Disputes With Family

One situation where someone thinks landlord insurance is unnecessary involves renting an extra room or the entire property to a close friend or family member. However, this might be one of the most important times to carry a policy.

Just because you have always had a great relationship with your friend or relative, don’t assume they will take responsibility for any damage they cause to your property. First, they may not be able to afford the repairs. Second, they might assume you already have the proper amount of insurance in place. In this case, they will view your lack of coverage as your problem and not feel compelled to reimburse you for the damage.

Regardless of the specifics, holding an insurance policy can prevent awkward conversations or unnecessary disputes with the people you care about the most. Disagreements intensify when significant amounts of money become involved. Don’t risk a close relationship with someone because you are too cheap to purchase landlord insurance.

Conclusion

These are a few common reasons to maintain the proper insurance coverage for your rental property. By no means is this a comprehensive list, but it should increase your awareness to how much risk you take by declining coverage. One incident can result in more than $10,000 of liability. Furthermore, many of the events that cause this level of damage are uncontrollable. To protect your peace of mind and your bank account, find a landlord insurance policy that covers your rental property.