If you’re a rental property owner, you know that while it can be a great way to earn some extra income, it’s not without its risks. Financial disaster can be just around the corner, especially if you’re not insured. Rental insurance for your business is your first line of defense, protecting your property and your bank account from unexpected events—fire, flood, or lawsuits from tenants.
If it’s replacing a damaged roof or paying off a lawsuit after a slippery walkway, rental insurance is the coverage you didn’t know you needed until it’s too late.
What is Business Rental Insurance?
Business rental insurance is a policy designed to protect property owners from financial losses associated with rental properties. Business rental insurance is tailored to the risks landlords face. This coverage typically includes:
- Damage to Property: Protects the building from damage caused by fire, wind, vandalism, and more.
- Liability: Pays for legal fees and damages if a tenant or visitor is hurt on the property and you’re found responsible.
- Loss of Rental Income: Reimburses you for lost rent if the home is rendered uninhabitable.
Difference Between Personal Insurance and Commercial Coverage
Many people assume their homeowner’s insurance will cover their rental properties. But homeowner’s insurance is meant for primary residences, and most policies exclude rental activities.
Homeowner’s insurance is meant for properties owners occupy. Business rental insurance is for properties rented to tenants. Insurance companies consider rental properties a higher risk due to turnover, lack of control over maintenance, and other factors, which is why they require specialized coverage.
For instance, if a tenant’s friend falls on the porch, a homeowner’s policy might not cover the liability, leaving you on the hook for damages. Relying on a homeowner’s policy for your rental properties leaves you woefully underinsured.
Pro tip: Be upfront with your insurance company about how the property is used.
What Kind of Coverage Do You Need
Here’s a breakdown of the main types of coverage every rental property owner should consider:
Damage to Property
This is your first line of defense against damage to the rental property. Whether it’s a kitchen fire or a hurricane-damaged roof, damage to property coverage pays for repairs or reconstruction.
- What It Covers: The walls, roof, floors, and sometimes attached structures like garages or sheds.
- What It Doesn’t Cover: Tenant’s personal belongings, they’ll need renter’s insurance for that.
Pro tip: Make sure your policy includes vandalism coverage for former tenants gone rogue, and optional coverage for fallen trees and other debris from windstorms.
Liability
Liability coverage is not optional, especially when tenants and strangers are involved. This essential coverage protects your assets if someone is hurt on the property and sues you.
- What It Covers: Court costs and legal fees if you’re sued. Medical expenses or settlements for injuries that occur on your property (e.g., a tenant’s child falls down your stairs).
- Why It Matters: Even small claims can lead to big payouts, and unlimited liability coverage protects your assets.
Pro tip: Increase your liability limits if your home has features that increase the risk of accidents, like a swimming pool or steep stairs.
Loss of Income
Your rental income is essential to making your mortgage payments. If your home is damaged and rendered uninhabitable, you’ll need a financial safety net. Loss of income coverage replaces a portion of your rent while your home is repaired or rebuilt.
- What It Covers: A portion of your rental income while your home is repaired or rebuilt.
- What It Doesn’t Cover: Vacancy or eviction-related loss of income.
Pro tip: Make sure you know how much your insurer reimburses and for how long—you’ll typically be covered for the repair period.
Do You Need Additional Coverage
If your home is in a region prone to severe weather or natural disasters, you may need additional coverage. Here are a few scenarios where additional coverage might be necessary:
- Flood Insurance: Mandatory if your home is in a floodplain. Covers damage from rising water.
- Earthquake Insurance: Essential if your home is in a seismic area. Protects against damage to the structure.
- Extended Replacement Costs: Make sure you can rebuild to current building codes and ordinances. Covers costs above your policy limit.
Pro tip: Talk to your insurance agent about the unique risks in your area and get coverage for those hazards.
What Affects Business Rental Insurance Costs
When it comes to business rental insurance, one thing is certain: no two policies cost the same. A range of factors impact your premium, from your business location to the type of building you rent. Understanding these factors can help you reduce your costs. Here’s a closer look:
1. Where Is Your Business Located
Location is everything when it comes to insurance costs. Businesses in areas known for crime, floods, or earthquakes are typically more expensive to insure. If you’re shopping for business rental insurance, your location is a key factor in determining your premium.
Natural disasters and high crime rates are common in certain parts of the country. If your business is in one of these areas, you’re more likely to file a claim, which increases your costs.
A coastal rental is more expensive to insure because it’s at risk for hurricane damage. A downtown rental is more expensive because it’s at risk for theft.
Tip: Before you buy a property, research its risk factors. If you can, consider locations with fewer natural disaster risks, such as tornadoes or earthquakes. You can also look into areas with lower crime rates.
2. What Is Your Rental’s Type and Age
The type and condition of your rental property impact your premium. Newer rentals are typically less expensive to insure because they often feature modern amenities and are built with safety features in mind. What insurers consider:
- Age: Older buildings often have outdated plumbing and electrical systems, which increase your risk.
- Materials: Buildings made from fire-resistant materials could be eligible for lower premiums.
- Maintenance: If your rental passes inspections and is safe for tenants, you may be able to lower your costs.
A rental in a new building with modern features is less expensive to insure than a century-old mansion you rent out to tenants.
Tip: If you rent a unique or historic building, you may need to insure it for its full value instead of the lower value of the land it sits on. This is known as “replacement cost value” or “actual cash value” coverage.
3. How Much Coverage Do You Need
The limits of your coverage and your deductible impact your premium. Here’s why:
- Coverage Limits: Increasing your limits provides more comprehensive protection, but so does increasing your premiums.
- Deductible: A higher deductible saves you money on premiums, but it means you’ll pay more out-of-pocket per claim.
You could afford to pay the first $5,000 of damage to your rental each year, so you opted for a $1,000 deductible.
Tip: Find a middle ground. Keep your coverage levels sufficient to protect your investment, and choose a deductible that’s affordable.
4. Have You Filed Claims in the Past
Your claims history can haunt you when you switch to a new policy. Insurers may view you as a higher risk if you’ve filed claims in the recent past. If you’ve filed multiple claims or been paid out for large claims in the last few years, you’re considered a higher risk.
A landlord who files claims for regular water damage every year or so will pay more than one who only files a claim for a total loss after a fire.
Tip: Only file claims for major damage. If your rental is damaged in a minor way, consider hiring a handyman or contractor to fix it. You can also use unused rent income to cover repairs.
5. Does Your Rental Have Security Features
Installing safety features and security systems is a great way to protect your tenants and your investment. It can also save you money on your premium. Features that help:
- Fire alarms and sprinkler systems
- Burglar alarms
- Fire-resistant roofing and construction materials
- Deadbolt locks
- Surveillance cameras
Insurers reward you with lower premiums if you take steps to protect your rental and prevent damage.
Tip: Ask your insurer which features are eligible for discounts before making upgrades. You may be able to lower your costs and protect your investment at the same time.
What Are the Average Costs
Understanding average costs and how they vary based on your rental property can help you plan and budget for insurance. Here’s a closer look at what you might expect to pay and how certain factors impact your premium.
National Average Premiums
Across the country, rental property insurance premiums typically range from $800 to $2,000 per year. This is significantly higher than homeowner’s insurance, which averages around $1,200 per year, because rental property insurance covers more risks. Your premium is based on your home’s value, not the value of the land it sits on. This is known as “replacement cost value” or “actual cash value” coverage.
A suburban single-family home is likely to cost $1,200 per year for landlord insurance. A condo or apartment complex in the same neighborhood could cost $2,000 to $3,000 per year or more.
Tip: Get quotes from multiple insurers to ensure you’re getting the best rate for your rental.
How Much Are You Charged Based on Your Property Type
The type of property you own affects your premium. Single-family homes are typically less expensive to insure than multi-unit buildings.
- Single-Family Homes: Typically cost between $800 and $1,500 per year for standard coverage.
- Multi-Unit Buildings: Can cost $1,500 to $3,000 or more per year, depending on the size of your building and location.
A two-unit duplex might cost $1,800 per year to insure, while a four-unit apartment building could cost $2,500 per year. If you have multiple properties, ask about bundled policies. Some insurers offer discounts for bundling your policies.
How to Lower Your Costs
Insurance is essential for protecting your rental investment, but it doesn’t have to be expensive. You can lower your costs without sacrificing coverage by implementing a few strategies. Here’s what helps:
- Raise Your Deductible: Increasing your deductible is one of the easiest ways to lower your premiums. This can lead to significant savings, but be careful not to choose a deductible that’s too high for you to afford in the event of a claim.
- Bundle Policies: Your insurers love it when you bundle policies. Combining your rental property insurance with other policies, such as your homeowner’s or auto insurance, can result in discounts.
- Install Safety Features: Making your rental more safe reduces risks and saves you money on insurance. Safety features are especially important if you plan to rent out a duplex or larger building.
- Shop Around: Your insurer is not your only option for rental property insurance. In fact, rates can vary dramatically from one provider to another. Taking the time to compare quotes can help you save significantly.
Are You Protecting Your Investment Wisely?
Have you factored in your property’s location, condition, and coverage limits when thinking about your insurance costs? Have you recently evaluated your insurance needs? Your property risks and the market can change over time, which is why it’s important to review and update your policy regularly.
Need extra help? Why not explore trusted resources or talk to a professional insurance advisor? They can help you create a plan that’s tailored to your property and financial goals. Taking the right steps now ensures peace of mind later—so, what are you waiting for?