The Basics of Rental Property Insurance | Santa Rosa Property Management - Article Banner

When you become a Santa Rosa landlord or invest in rental properties, you need to protect your investment. There are many ways to do that. Inspections are important, good tenant screening can help, and preventative maintenance is essential. 

None of that matters, however, if you don’t have comprehensive insurance. 

The insurance you buy to cover your valuable investment will have a big impact on how effective you can be in keeping your property and your tenant safe.   

The right insurance starts with an experienced and knowledgeable insurance agent. Work with someone who understands the unique needs of rental properties, because what you buy to cover your investment is different from the insurance you’ll use to cover the home you occupy. 

A good agent should have the best idea about what types of coverage will serve you and your property. You can rely on their experience and recommendations to completely cover your risk without spending too much money on premiums and deductibles. 

It’s also necessary to review your coverage annually to ensure you’re protected. Always revisit what coverage you have and keep the discussion moving with your insurance agent. Your property value changes from year to year, and your investment is likely worth more now than it was when you first purchased insurance. That’s going to affect the dollar amount you’ll need to collect if you suffer a loss and need to rebuild or replace systems. There’s also the matter of age and property condition. Your rental home is also getting older. You may need more or less coverage depending on these changes. 

Saving money is always important when you’re investing in real estate, but don’t buy the budget policies that barely manage your minimal risk. You don’t want the least amount of coverage or the cheapest policy. When you take that path, you’re risking your investment and your financial future. It’s dangerous. 

It’s better – and a smarter investment decision – to make sure you’re covered for every potential loss. 

Let’s take a look at the basics of Santa Rosa rental property insurance.

Are You Renting Out a Home You Once Lived in?

In some cases, a rental property owner once occupied the property that’s being listed. If that’s your situation, your first job is to switch your homeowner insurance policy to a landlord insurance policy. Generally, the coverage is similar. Your landlord policy will cover anything that happens to the home, and will pay for repairs or replacements that are necessary after a covered loss, just like your homeowner’s insurance policy did. 

However, that homeowner’s policy also covered your own belongings and your personal possessions that were inside the home. A rental property policy does not do that. Once you move out of the home, your insurance policy recognizes that you’re still the homeowner, but because you’re renting the home out to tenants, the coverage is a bit different. 

The main difference between your landlord insurance policy and the homeowner’s insurance policy you have on the home you live in is that your landlord policy doesn’t cover any personal belongings that aren’t yours. 

Once you convert from a homeowner’s policy to a landlord’s policy, your own possessions are covered, such as appliances. But, your tenant’s personal items are not the responsibility of you or your insurance policy.  

The other difference between the two policies is that the landlord policy generally provides more liability coverage than a homeowner policy. This is necessary due to the added risk that you assume as a landlord. If something happens to a tenant or a tenant’s guest at your property, there’s added pressure. You could be sued, and you’ll need additional protection.

Let’s talk more about liability.

Liability Insurance for Santa Rosa Rental Property Owners

Perhaps the best reason to buy a full coverage insurance policy as a landlord is to protect yourself against any liability you take on when people are living in your home. You may also find yourself fighting claims, lawsuits, and disputes. 

A good rental property insurance policy will provide you with a comfortable amount of liability coverage. Talk to your insurance agent about the required or recommended liability limits. If something happens and you’re sued, you want to be protected from total financial collapse. 

Landlord liability coverage will cover more than you might expect. It will help you pay medical expenses for tenants who are injured at your property. It will also cover legal defenses and court judgments that might be won against you. Pay attention to policy limits and talk to your agent about including coverage for situations such as injuries, personal harm to the tenant, dog bites, accidental damage, and personal injury protection. 

No one likes to think about worst-case scenarios. But, you have to be prepared. Liability is tough to avoid when you’re renting out a Santa Rosa property. If it seems like your coverage amount is unnecessarily high, it is probably just enough. 

Loss of Rent Coverage 

You also want coverage for loss of rent. Have you thought about how you would handle a property that isn’t habitable? You won’t have rental income if something happens and you need to move your tenants out of the home. 

If there’s a fire at the property or a tree crashes through the roof, your tenants will not be able to stay in the home while it’s repaired. You’ll need to find another place for them to live or put them in a hotel. Over that period of time, you’ll lose a lot of rental income even while you’re paying your deductible and other out-of-pocket expenses.  

If your landlord policy doesn’t already include loss of rent coverage, consider adding it. This coverage is typically called Fair Rental Value Coverage. It will cover lost income due to your property being declared unlivable due to a covered loss. You never think you’re going to need this, but it’s a good policy to have and it can protect you financially.

Shifting Property and Rental Values

When we talk about the loss of rent and replacing property, it’s impossible not to think about inflation. 

Inflation protection has become increasingly important. Your property value has likely increased over the last two years, with prices for everything being driven higher and higher. The amount of rent you’re asking is also climbing year to year. When you have a specific Inflation Protection plan built into your policy, you’ll find that it automatically adjusts your coverage limits to keep pace with inflation. This adjustment should include premium discounts.

Require Renter’s Insurance from your Tenants 

Always require renter’s insurance from your Santa Rosa tenants. It protects you and it protects them.

Enforcing renter’s insurance isn’t always easy, but if you require your tenants to add you as an additional insured on their policy, you will be informed if the policy cancels. You’ll get some peace of mind when you know that your tenants have a policy in place to cover anything that happens which is their responsibility.  

How can you position renter’s insurance as a benefit to your tenants? 

  • Explain that their personal property is not protected by your policy. Tenants likely have some expensive electronics that they want to protect. They’ll need to replace any furniture, clothing, or other personal belongings that could be damaged or lost in a covered incident. 
  • Let them know that renter’s insurance is typically not expensive. It’s especially affordable if your tenants bundle the renter’s insurance with their automobile insurance. 

Additional protections are always available when you’re buying insurance for your rental property, and you should consider them carefully. Flood insurance and earthquake insurance can be important considerations for rental property owners in Santa Rosa.

Santa Rosa Property Managers as Additional Insureds

Landlord PolicyYou need to make sure there’s a consistent defense if a claim is made against your landlord policy. For that reason, including your Santa Rosa property manager in your policy is an excellent idea and increasingly necessary. 

As property managers, we have our own insurance, and you won’t be providing coverage for us. But, when we are listed as an additional insured on your policy, we can do a better job of protecting your investment when a claim is made or a lawsuit is filed. It also helps us form a unified defense when necessary. If a tenant is going to sue, they’re going to sue everyone. When we’re both defended under one policy, we’re in a stronger position against the claim.

When we manage your rental property, we’ll also ask that your tenants include us as additional insured. This allows us to monitor the policy and ensure it’s kept current. 

We know insurance is a huge topic. Remember that your premiums are tax deductible, and it’s better to have more coverage than you need instead of less coverage than you need. 

If you’d like some help planning your insurance, or you need a referral to a great insurance agent, please contact us at Prestige Real Estate & Property Management. We manage homes in Sonoma County, including Santa Rosa, Windsor, Sebastopol, Petaluma, and Rohnert Park.