As an investment property owner, you realize the importance of dwelling and liability protection, but you can’t lose sight of five other coverages for landlords to consider to protect their business as a whole. You have a valuable real estate asset as a landlord, but it also comes with lots of responsibilities and, unfortunately, various risks. While standard insurance policies for residential rental properties cover many common risks, there are five additional coverages for landlords to protect their assets and avoid a big pitfall.
1. Employment Practices Liability Insurance (EPLI)
One of the first of the other coverage for landlords to consider is EPLI coverage. It covers claims made by employees against landlords for employment-related issues. These issues may include allegations of wrongful termination, discrimination, sexual harassment, retaliation, or other violations of employee rights. As a landlord, you might have employees working on your property such as maintenance staff or property managers. In such cases, it becomes crucial to have EPLI coverage to protect yourself from potential legal expenses arising from these employment-related claims. Even if you don’t have any employees directly under your payroll but hire contractors or third-party vendors for services like repairs or renovations on your rental properties, EPLI may still provide protection (carefully review your policy!). If an employee of one of these contractors alleges any form of workplace misconduct while working on your property, you could potentially be held liable as the property owner. Having EPLI coverage ensures that you have financial assistance in case an employment-related claim is filed against you as a landlord. It helps cover legal fees, settlement costs, and court awards that may arise.
Bonus Point: It’s important to quickly note that general liability insurance policies typically do not provide coverage for employment practices liability.
2. Vacant Property Insurance
Vacant property insurance is a type of coverage that caters to the needs of landlords who own unoccupied properties. This specialized insurance policy provides financial protection against potential risks and damages that may occur while the property remains vacant. Landlords often run into situations where their rental units or other properties are temporarily vacant, such as during tenant turnover, renovations, or when they search for new tenants. During these periods, standard landlord insurance policies may not provide adequate coverage since they typically assume a certain occupancy percentage and regular use of the property. Vacant property insurance addresses this big gap by offering specific protections designed to meet the risks that are created by unoccupied buildings.
It safeguards landlords from various risks like vandalism, theft, fire damage, water damage caused by burst pipes or leaks, and liability issues arising from injuries sustained on the property. When selecting a vacant property insurance policy as a landlord, there are some key factors to focus on. These include the length of time your property will be unoccupied (some policies have limitations), any planned renovations or repairs during vacancy (this might require additional standalone coverage), and whether you intend to rent out the property or list it for sale shortly. Insurance companies offering vacant property coverage typically assess risk factors like the location (including crime rates and proximity to fire stations), condition of the building’s systems (electrical, plumbing, HVAC, etc.), previous claims history on similar properties owned by the landlord, and security measures implemented at the site (such as fire extinguishers and 24-7 remote monitored alarm systems).
Without proper insurance in place for an empty rental property, you could face significant financial losses if unexpected events occur. Speak to an insurance professional to understand the important details and don’t assume that your existing landlord insurance will provide needed coverage in the case of a property vacancy — the risks are too great!
3. Flood Insurance
To protect against potential losses from flooding events such as heavy rainstorms, hurricanes, or overflowing rivers and lakes, landlords need to obtain separate flood insurance policies. These policies are offered through the National Flood Insurance Program (NFIP), which is administered by the Federal Emergency Management Agency (FEMA) as well as private insurers which offer flood coverage options outside of NFIP.
NFIP permits flood insurance policies for residential and commercial properties located in participating communities. NFIP policies provide coverage for both building structures and personal property within those buildings. Factors like property location, proximity to bodies of water or high-risk areas, historical flooding data, and construction type are all important considerations that impact premium costs and policy terms. It’s worth noting that there is a 30-day waiting period after purchasing an NFIP policy before it becomes effective.
Private insurance companies also provide policies that will cover the building and contents for landlords with rental properties. Compared to NFIP, the coverage limits for the building and contents that are available are typically significantly higher. Additionally, the private flood market continues to expand in recent years providing several different insurance company options to explore for suitable coverage and competitive pricing.
Whether NFIP or a private carrier is chosen, flood insurance must be a major priority. As an example, according to the claims statistics, even low-to-moderate risk flood zones experience significant damage from flooding. By securing comprehensive flood insurance coverage that caters to rental properties, landlords can protect themselves financially from potentially significant damages caused by floods. It covers structural elements such as foundation, walls, electrical systems, plumbing fixtures, appliances, carpeting/flooring installations as well as personal belongings within the rented premises up to certain limits outlined in the policy (again the limits can vary depending on the program selected). Also, it’s important to keep in mind that there is typically a 30-day waiting period from the date of purchase before flood insurance becomes effective. So landlords and property managers have to plan to ensure they have sufficient coverage well in advance of any potential flooding events.
Bonus Point: While NFIP and private insurers provide valuable protection against floods caused by natural disasters like hurricanes or heavy rainstorms, they do not cover other types of water-related incidents such as sewer backups or pipe bursts. Landlords need to obtain additional endorsements to their landlord insurance or separate policies to address these specific risks.
4. Cyber Insurance
In today’s almost-always online world, landlords must be aware of the risks associated with cyber threats. In fact, even small to medium-sized businesses have to give careful thought to this risk. Cyber insurance is a vital coverage that protects rental property owners from the financial consequences of cyberattacks, data breaches, or other malicious activities targeting their electronic systems and data. Landlords may handle sensitive tenant information, such as social security numbers and bank account info, etc. making them potential targets for cybercriminals. In the event of a breach, cyber insurance can help cover the costs of investigating the incident, notifying affected parties (remember, this can be a legal requirement to complete!), restoring data, and potential legal defense, settlement, and judgment costs. Putting aside the important financial safety net created by cyber insurance, maintaining this type of coverage should be a selling point for landlords and property managers to show not only operational best practices to prospective tenants but also a differentiator against the competition!
5. Commercial Umbrella Insurance
The last of the five other coverages for landlords is umbrella insurance. Whether a landlord has a few rental homes or a larger investment property portfolio, commercial umbrella coverage should be obtained. While most standard landlord insurance policies provide liability coverage, the underlying policies may have insufficient limits to cover large claims. Commercial umbrella coverage acts as an additional layer of protection by extending liability limits beyond what the primary policy covers. This coverage becomes essential in the event of a significant liability claim, such as a serious injury or something as unfortunate as wrongful death on your rental property. In these situations, the legal defense costs alone can potentially erode your coverage, depending on the amount and structure of your underlying liability policy.
The Takeaway on 5 Other Coverages for Landlords
Depending on an investment property owner’s operations, they may face a unique set of risks and responsibilities that necessitate at least 5 other insurance coverages for landlords, not simply a one-off policy for the asset itself. While standard insurance policies offer essential protection (remember the need for property, liability, and loss-of-rent coverage), it’s still crucial to consider these five additional coverages, among others, to ensure adequate protection for your rental properties. By understanding the importance of these other coverages for landlords and obtaining some, or perhaps all, of these policies, investment property owners can create a more reliable insurance program to protect their rental business and not simply their properties. In doing so, you protect your overall financial well-being!
IMPORTANT NOTE: The contents of this blog article are for educational purposes only and shall not be relied upon for any purpose, in any context. No representation or warranty of any kind or nature is provided. Some of the information herein may be incomplete and may not be updated. If you have any questions about insurance, insurance coverage, or any other information contained herein, you must consult your own engaged insurance advisor or other relevant professional for any advice, consultation, or opinions. Some of the information herein may be incomplete and may not be updated.