7 Reasons Why Commercial Landlord Insurance Is So Important In 2021

As a landlord, you could be dependent on renting your property as a significant source of income. However, renting your property can be risky, and in some cases, you could go bankrupt because of an incident or natural disaster.
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Luckily, you can opt for commercial landlord insurance to sustain your rental business and future-proof it against unpredictable events.

Sure, you’ll have to pay for it, but almost everyone agrees that the benefits of landlord insurance far outweigh the costs. In this guide, we’ll walk you through the top 7 reasons why commercial landlord insurance is so important in 2021, so stick around!

What Is Landlord Insurance?

Commercial landlord insurance is designed to cover landlords in case of financial losses in the properties they rent out to tenants.

For instance, if a tenant accidentally starts a fire in your property or causes heavy damage, the insurance provider will pay for the repair costs needed to make the house suitable for renting again.

Also, if the tenant was injured during the fire, the insurance provider will cover liability expenses, including hospital and legal costs.

Commercial Landlord Insurance Types

There are two types of commercial landlord insurance: property insurance and liability insurance.

In the case of property insurance, only materialistic things are covered, including any damage to the property. Some of the losses that property insurance covers include extra expenses due to wind, fire, hail, vandalism, tornadoes or theft.

That’s the scope of coverage you get with a basic plan. If you opt for an advanced plan, your property will also be covered in case of terrorism, floods, earthquakes, hurricanes, and money theft.

On the other hand, liability insurance only supports your legal case if an incident happens on your property, which may include theft, death, or injury.

However, liability insurance doesn’t cover injuries that happen to you. Also, vandalism acts that are done on purpose to benefit from the insurance in an improper way are also not covered. It doesn’t cover property damage, either.

Many insurance plans provide an all-inclusive approach by covering both property damage and liability. If you have one of those, you won’t likely need to apply for any other type of commercial insurance.

Some insurance companies provide very specific insurance policies that cover a particular event or natural disaster.

For example, in cities where hurricanes are more likely to happen, your insurance provider may offer hurricane insurance that only covers your property in case of a hurricane. Another example is crime insurance, which is usually offered in cities with high crime rates.

On a side note, these types of insurance are sometimes offered as add-ons to other insurance plans at extra premiums. For instance, if the insurance provider is aware that a certain region is more susceptible to floods, it may offer flood insurance only as part of an extra coverage package.

1. Loss of Rental

Leaving your property unoccupied for several months due to out-of-control circumstances makes you eligible for insurance coverage.

However, this doesn’t mean that you can make insurance claims if you can’t find someone to rent it; it means that something happened to the property, like heavy damage, and because of that, you’re unable to rent the property for a prolonged period.

With landlord insurance, you don’t have to worry about receiving zero revenue from your property in case you need some time to be able to rent it again. Sure, the money you’re going to receive from insurance might be a bit less than what you’d receive from rental, but it’s definitely way better than nothing.

2. Protection in Case of Malicious Damage

A property that gets rented frequently will always be prone to damage. And while some forms of damage are controllable, many of them aren’t. Things like damaged walls, ceilings, or utilities can be pretty hard and expensive to repair. It’ll also force you to keep the property unoccupied until the damage is repaired.

Some cooperative tenants may suggest paying for the damage they caused, while others won’t, especially if the tenancy agreement states that the tenant isn’t obligated to pay for the damage. With landlord insurance, you won’t have to worry about this issue.

3. Unpredictable Weather Conditions

Weather can be pretty unpredictable, particularly in the United States. Hurricanes, floods, and other natural disasters could happen when you least expect them. These weather fluctuations could cause heavy damage to your property.

Did you know that the 2019-2020 floods that hit the country were responsible for the damage of 1,650 houses? That’s a huge number, so never underestimate the extent of the impact a natural disaster could have on your property.

With insurance, you don’t need to worry about expensive repair bills in case of natural disasters. However, make sure that your insurance plan does cover some or all forms of natural disasters just to be on the safe side.

4. Covers Legal Costs

Delayed rent payments are quite common, and as a landlord, you’ll likely deal with them at one point or another. If you didn’t solve the problem with the tenant in a friendly manner, your last resort would be to take legal action against them.

However, legal costs could be so expensive that filing a lawsuit to claim your money may not even be worth it. However, if you’re covered by landlord insurance, the insurance provider will take care of all the legal costs for you.

5. Public Liability

In some rare scenarios, a tenant or one of their friends or family may get injured or even die on your property.

In such a scenario, you could be liable if the tenant or one of their family members decided to file a lawsuit against you. However, by having landlord insurance, you don’t have to worry about public liability because most insurance providers cover any legal costs associated with it.

6. Rent Default and Theft

Dealing with uncooperative tenants who refuse to pay the rent on time for all the excuses in the world is risky business. A tenant may go for months without paying you a single dime and then disappear out of nowhere.

In that case, it’s almost the same as leaving your property unoccupied, and maybe even worse, especially if the tenant caused damage to the property.

With commercial landlord insurance, you can apply for rent default or theft protection by presenting the contract you had with the tenant.

7. Extra Premiums Coverage

This coverage can come in handy if the tenant keeps hazardous materials in the property or does anything that could potentially raise your insurance premiums. In that case, you can use your insurance policy to claim the extra costs from the tenant.

Know Your Options

There are lots of companies that provide landlord insurance across the UK. But if you really want to get the most out of your insurance plan, dealing with a reputable company is a must. Some of the most well-known landlord insurance companies in the country including:

  • QBE
  • Zurich Allianz
  • Sutton Underwriting
  • AXA
  • Gresham Underwriting
  • NIG
  • Thistle

Before deciding on a company, make sure that you compare multiple insurance plans and check which offers the highest value of money.

Not all protection plans provide the same amount of coverage, so always keep that in mind before signing a contract with a company.

On top of that, consider asking your insurance provider these questions:

What isn’t included in my insurance plan?

It’s essential that you’re fully aware of what your policy covers and doesn’t cover.

Is there anything I can change in the property to reduce insurance costs?

In certain situations, removing or adding something to the property could affect the value of your insurance premiums.

Are there any discounts that I might be eligible for?

In some cases, your insurance provider won’t offer any discounts unless you inquire about them.

Do you offer discounts on insurance renewals?

Some companies offer discounts on the first and second years of renewal.

How much would the deductibles cost me?

A deductible is the amount of money you’ll be obligated to pay before your insurance provider intervenes. For instance, if your property acquires £5000 worth of damage, you might be required to pay £500, and the rest will be covered by the company. So, make sure that you know the average values of deductibles and how they’re calculated.

What’s the average replacement cost, and how do you calculate it?

It’s important to make sure that the company puts realistic estimates of the replacement cost.

Enforce Some Additional Requirements on Your Tenants

When you sign up for commercial landlord insurance, you’ve already done the best you can to protect your property.

However, some factors are dependent on the tenant, not the landlord. And as a landlord, it’s highly recommended that you make some additional requirements for your tenant to free yourself from various forms of responsibility.

Before signing a rental agreement with a tenant, you should:

Ask the Tenant to Get Business Interruption Insurance

Business interruption insurance protects both the tenant and the landlord when the tenant’s business stops or slows down for any reason.

This is important because if the tenant couldn’t pay rent due to business interruption, they can still get money through insurance and pay you.

Check if the Tenant Has Commercial Auto Insurance

If the tenant owns or regularly rents any licensed vehicle and they’re going to park inside the property, consider asking them to add you as an additional insured to their commercial auto insurance policy.

This type of insurance covers the vehicle in case of theft, accidents, and by adding yourself as an additional insured, you free yourself of liability.

Frequently Asked Questions

Do I Need Landlord Insurance?

The short answer is yes; as a landlord, you should definitely opt for insurance coverage. A tenancy agreement won’t do you much when your property is havoced or a tenant decides to turn the place upside down.

Who Pays for Commercial Insurance?

As a general rule of thumb, the landlord is responsible for paying for commercial insurance. However, some landlords may decide to include insurance premiums as part of the contract with the tenants, but it’s up to the tenant to agree on that.

There are no legal laws that obligate either the landlord or the tenant to pay for insurance. However, the landlord must clearly state the value of insurance costs in the contract to avoid legal disputes.

How Much Does Commercial Landlord Insurance Cost?

You should expect to pay a little over £1000 annually for landlord insurance. That’s slightly more than what you’d pay for homeowner insurance.

There are multiple variables that affect the cost of a landlord insurance plan, including:

  • The overall condition of the property
  • The date the building was built
  • The integrity of the installed security system, if any
  • Safety features like carbon monoxide or smoke detectors
  • The number and size of rental units
  • The location of the property
  • The average length of rental agreements

Some insurance providers may also take into account the existence of potentially dangerous elements like pools and fireplaces.

Is Commercial Landlord Insurance Legally Required?

As a landlord, you’re not obligated by law to have landlord insurance. However, if you decide to opt for a commercial mortgage, many lenders will require that you cover the property with insurance before starting the contract with you.

Also, remember that if some sort of major incident happens on the property, you’ll be liable. That’s why many landlords prefer to get insurance to protect themselves from bankruptcy.

How Do Homeowners and Landlord Insurance Policies Differ?

Homeowners and landlord insurance differ in many ways. For example, landlord insurance policies will include extra coverage for rental-specific terms, like rental loss, liability, and tenant theft.

On the other hand, homeowners insurance policies will only cover damages to the property. It’s also worth mentioning that landlord insurance is somewhat more expensive than homeowners insurance.

When Should Landlord Insurance Start?

You can start landlord insurance at any time you want. However, it’s advisable that you go through the application process before renting the property, just in case it took longer than expected.

Ideally, you should apply for insurance coverage the moment you market your property for rental.

Final Thoughts

To recap, signing up for commercial landlord insurance is a passive form of investment that could save you thousands of pounds down the line and ensure that your rental business remains profitable.

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