If you’re planning to rent out your home or have recently purchased an investment property, it’s time to start thinking about protecting your investment.
Landlord insurance is the first step in getting your Orange County property rent-ready—you shouldn’t even be considering renting your property without landlord insurance in place. Landlord insurance offers you protection against a variety of situations that are outside your control. You can have peace of mind knowing that if the unthinkable happens, you’ll have coverage to ease the financial burden.
But what is landlord insurance, what does it cover, and why do you need it? We’re covering this and more in our guide to landlord insurance for Orange County rental properties.
Table of Contents
What is Landlord Insurance?
Landlord insurance was created to provide financial protection to property owners who rent out their properties. It covers the property, your personal property, liability, and loss of rental income.
While there are similarities between landlord insurance and standard homeowners insurance, a standard homeowners policy only offers limited coverage for rental properties. A standard homeowners insurance policy most likely won’t cover damage to a rental property and won’t provide assistance for lawsuits against you involving the property. This is why a separate landlord policy is essential for your protection.
A landlord insurance policy provides protection if your rental property is damaged, becomes unlivable after something like a fire or a storm, or if someone is hurt on the property. Expanded insurance can include coverage for:
- Stolen property
- Vandalism
- Construction expenses to bring the building up to code
- Builder’s risk insurance
If You Have Landlord Insurance, Do Your Tenants Need Insurance?
While tenants are not legally required to have tenant insurance in California, it is in both parties’ best interest for all tenants to have renters insurance. Much like homeowner versus landlord insurance, tenant insurance provides coverage for different things.
Renters insurance in California includes four types of coverage:
- Personal property: Personal property coverage protects tenants’ belongings in case of damage or theft.
- Liability: Liability coverage protects tenants in case someone is injured at the rental property and sues them for damages.
- Additional living expenses (ALE): ALE coverage pays for tenants’ temporary living expenses if your rental property becomes inhabitable. This can include temporary housing, food, transportation, and more.
- Loss of use: Much like ALE, loss of use coverage provides tenants with compensation for any costs incurred if they have to live somewhere else while their rental is being repaired.
As a landlord, you can enforce a policy requiring your tenants to have active tenant insurance as part of the lease agreement. We highly recommend that all landlords add this policy to their agreements.
What Does Landlord Insurance Cover?
Depending on your needs, many different landlord insurance policies are available. Typically, two main types of coverage are included: property and liability.
Landlord property protection
Protecting your physical property is essential as a landlord—your property is your investment, so ensuring you’re covered if anything happens is extremely important. Landlord property protection covers other physical property or equipment you keep on-site to maintain the property. This coverage includes:
- Dwelling: This coverage helps pay to repair your property in the event of damage by fire, lightning, wind, and other covered losses.
- Other structures: This coverage helps repair any detached structure on your rental property—detached garages, sheds, or fences are all included in this part of the policy.
- Personal equipment used to service the rental property: If you have a lawnmower at the property that your tenants use to maintain the yard, landlord insurance may cover the cost of that equipment if it is damaged.
Landlord liability protection
Landlord liability insurance helps you cover costs for another person’s medical bills or your legal expenses if someone is injured on your property and you’re found responsible.
If your tenant slips on the stairs of your rental property and it’s determined that you failed to maintain the railing, you could be responsible for your tenant’s medical and legal bills. Your landlord insurance can help to pay for those expenses.
Adding Umbrella Insurance to Your Policy
An umbrella policy is additional liability insurance that goes beyond what is included in your landlord insurance. This adds an extra layer of security in case you are sued for damages. If your property is held in your name, a tenant can sue you personally. In a worst case scenario, this could exceed the $500,000 liability most people have. We recommend having a policy with $1 million in liability, plus an umbrella policy with $1-3 million additional liability.
Other coverage options to consider
There are other coverage options that landlords should consider. While standard landlord insurance should be something every landlord invests in, these coverage options may be suitable for some property owners rather than others. These include:
- Vandalism: Damage caused by vandalism isn’t typically covered by a traditional landlord policy unless you purchase additional vandalism coverage. This coverage helps you pay to repair the property, other structures, and contents if they are vandalized. If vandalism occurs to the property after it has been vacant for 90 days or more, it is no longer covered.
- Burglary: A standard policy will cover repairs to the interior and exterior windows and doors if they’re damaged during a break-in. Extended burglary coverage ensures all damage caused by burglars illegally entering the property, and damage to personal property is also covered.
- Rental property under construction: If you are renovating your rental property, you may be able to purchase additional coverage to protect it until it’s ready for tenants.
- Building codes: If you’re repairing or replacing part of your property, you may be legally required to upgrade certain things to bring it up to code. This coverage helps cover the costs of bringing your property up to code.
It’s important to understand any habitability clauses or exclusions in your policy. We are seeing more and more habitability lawsuits where a tenant alleges a property is “uninhabitable” for a variety of reasons. If you have habitability coverage, you’re better protected.
Most policies have it included but larger properties may have more trouble getting it, leaving those properties vulnerable to repairs and/or lawsuits. Working with a professional property management company is a great way to ensure you stay up-to-date with habitability requirements—doing it yourself may leave you vulnerable as you may not fully understand the requirements.
What Doesn’t Landlord Insurance Cover?
Landlord insurance helps mitigate the risks of sudden and accidental losses. That said, there are some things that are excluded from most policies. A landlord policy may not cover:
- Maintenance and equipment breakdowns: If the HVAC system or washing machine in your rental property breaks down, you will have to pay out of pocket for any needed repairs or replacements.
- Property that you live in: If you live on the property and rent out a room or a floor of the home, you typically are not eligible for a landlord policy, as they are designed for “non-owner-occupied” properties.
- Tenants’ belongings: Landlord insurance doesn’t cover your tenant’s personal possessions. This is why it’s important to require your tenant’s
- Extreme weather conditions: Like homeowners insurance policies, landlord insurance policies exclude earthquakes, volcanic activity, erosion, mudslides, and more.
- Pollution: Landlord insurance doesn’t cover “pollution”—this refers to mold, lead, asbestos, etc. While pollution coverage can be added in some cases, it’s often cost-prohibitive to do for a single building.
Is Landlord Insurance Required in Orange County, California?
In California, property owners are not legally required to have landlord insurance by the state. But that doesn’t mean you should go without it. While the state doesn’t require you to have landlord insurance, most mortgage companies will require you to have it and provide proof before they work with you. It’s also the best way to protect your interests and give yourself peace of mind.
6 Reasons Why You Need Landlord Insurance
A landlord insurance policy can help you mitigate risks and manage unexpected situations. Here are six reasons why all Orange County, California landlords need landlord insurance.
1. Homeowners insurance doesn't cover rental property
First and foremost, homeowners insurance will not cover a rental property because there are different risks associated with a rental. So, if you are converting your primary residence into a rental property, your current insurance will leave you at risk.
Homeowner policies are designed to meet the needs of owner-occupied properties. In contrast, landlord insurance policies are meant for properties occupied by tenants and tailor their coverages to meet the needs of landlords. If you try to make a claim against your homeowner policy when you have tenants, odds are the home insurer will deny the claim.
2. Protect your investment property from disasters
Weather happens—it’s out of your control, but that doesn’t mean it can’t have devastating consequences.
Landlord insurance can protect your investment in the event of damage from a natural disaster such as fire, hurricane, or tornado. Your policy will also cover the cost of repairs if the property is uninhabitable due to a covered loss. This could include damage to the property’s physical structure and essential systems like plumbing and electrical, ensuring the property is in livable condition as quickly as possible.
Additionally, landlord insurance can protect your investment property from other disasters—burst pipes, sudden roof leaks, and fires can be catastrophic when it comes to your property. With landlord insurance, your property will be protected from these covered events, and all repairs, replacements, and lost income will be covered, less your deductible.
It’s important to know that standard policies exclude some natural disasters, like earthquakes and floods. Being in California, it’s important to understand what is and isn’t covered in your policy. It’s also a good idea to opt for additional coverage to ensure your property is fully protected.
3. Cover costs of replacements and repairs
When an incident occurs at your rental property, the costs of repairing or replacing parts of your property can be substantial. While landlord insurance does not cover equipment breakdowns or regular maintenance, it does cover the costs associated with repairs and replacements after a covered incident.
Each policy will have different coverage provisions and exclusions, so you must read the fine print before signing. It’s also important to work with an insurance company that takes the time to walk you through your policy details to ensure you understand what is and isn’t covered.
It’s important to remember to always keep your receipts for any replacements or repairs that are completed on the property. Insurance providers will ask to see evidence of updates or repairs. So, having the receipts helps ensure your claim is processed correctly.
4. Protect yourself from tenant-caused damage
Accidents happen no matter how much tenant screening you do to find the perfect tenant. And often, these accidents come in the form of damage to your property by your tenants. It could be anything from a burst pipe in the bathroom to a shattered cooktop in the kitchen.
Landlord insurance is there to safeguard you from the unexpected expenses that come with accidents.
As mentioned before, in the event of a covered incident, your policy should cover some, if not all, of the cost of repairs. Whether replacing damaged appliances, repairing water damage, or addressing any resulting issues like mold, your landlord insurance policy is your financial cushion to give you peace of mind.
5. Limit your personal liability
As a landlord, you could be liable if someone is injured on your property. With liability insurance, you can protect yourself from the financial burden of legal fees and medical bills that can come with a visitor or tenant being injured on your property. Some policies also cover the costs of your legal defense if you’re sued so you can manage the financial impact of personal injury claims and property damage lawsuits.
6. Recover lost rental income
Suppose your property suffers water or fire damage, or something else results in your property becoming uninhabitable. In that case, landlord insurance can help to cover the loss of rental income. Typically, this coverage will pay out the rent you would have collected during the time it takes to repair your property.
We often see water damage claims that result in lost rental income, so be sure to speak to your insurance agent to see how they handle these cases. Most policies don’t cover mold, so keep that in mind when selecting a policy.
We Can Help You Manage Your Orange County Investment Property
At Good Life Property Management, life should be enjoyed, not spent sweating the small stuff like rental history checks and income verification. That’s why we set out to make property management easy. We care about you, your property, and your tenant. And we do it all so you can Live the Good Life.
Schedule a call to speak with one of our Good Life experts.
Landlord Insurance FAQs
What is the difference between landlord insurance and tenant insurance?
Landlord insurance is designed to cover property damage, loss of rental income due to damage to the property, and liability if someone is injured on the property. Tenant insurance typically covers damage to their property due to theft, fire, or water damage.
What is the purpose of tenant insurance?
The purpose of tenant insurance is to protect the tenant’s personal property—from clothing and furniture to electronics and jewelry. It can also provide liability insurance for the tenant and cover additional living expenses in case of an incident that renders the property uninhabitable.
What does landlord insurance cover in California?
While every landlord insurance policy is slightly different, most offer two main coverage types: property and liability. The property coverage covers damage to the structure, other detached structures and personal equipment used to service the rental. Liability protection helps cover costs of medical or legal bills if a person is injured on the property.
Is landlord insurance mandatory in California?
No, landlord insurance is not mandatory in California. However, we recommend that all rental property owners invest in rental insurance to limit risk and protect their investment.
How much does landlord insurance cost in California?
The average cost of landlord insurance in California is $1,728 per year. The average cost of tenant insurance is $146 per year.
Steve Welty
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