5 Insurance Considerations for Investment Property Owners

Purchasing a rental property or renovating a home for resale can create another source of income, but it also introduces risks that may not be covered by your homeowners insurance. The insurance needed for an investment property depends on how the property will be used, whether it will be occupied, and what work will be completed before it is rented or sold.

Insurance should be discussed before closing on the property or beginning renovations. These five considerations can help you prepare for that conversation.

1. Match the Policy to the Property's Intended Use

A home you live in, a long-term rental, a short-term rental, and a vacant property undergoing renovation do not present the same risks. They may also require different types of insurance.

A property rented to tenants will generally need landlord insurance, sometimes called rental dwelling or dwelling fire insurance. A property that will remain vacant while it is renovated and sold may require vacant-property coverage, builders risk insurance, or another policy designed for renovation projects.

Do not assume that a standard homeowners policy will cover a property simply because it is a house. Tell your insurance agent how the property will be used, when renovations will begin, how long it may remain vacant, and when tenants are expected to move in.

2. Review the Property, Liability, and Rental Income Coverage

Landlord insurance may include several forms of protection, depending on the policy.

Property coverage can help pay to repair or rebuild the insured structure after damage caused by a covered event. Coverage may also extend to appliances, maintenance equipment, or furnishings owned by the landlord and kept at the property.

Premises liability coverage may help protect the property owner when someone alleges that unsafe conditions at the rental caused an injury or damaged their property. Coverage remains subject to the policy's limits, exclusions, and conditions.

Loss of rental income coverage may replace some of the rental income lost when a covered property loss makes the home uninhabitable. It does not ordinarily cover every vacancy, missed rent payment, eviction, or general decline in rental income.

Flooding, earth movement, sewer backup, equipment breakdown, and other risks may require separate policies or endorsements. Review the causes of loss covered by the policy instead of relying only on the coverage limits shown on the declarations page.

3. Account for Vacancy and Renovation Work

Vacant properties can face greater risks from vandalism, theft, undetected water leaks, fire, and unauthorized entry. Many insurance policies restrict or exclude certain coverage after a property has been vacant for a specified period.

Renovations can create additional concerns. Removing walls, replacing electrical or plumbing systems, leaving the building open to the weather, or storing construction materials onsite can significantly change the risk.

Provide your insurance agent with a clear description of the project, including:

• The expected start and completion dates

• Whether the property will be occupied during the work

• The estimated renovation cost

• The type of work being performed

• Who will complete the work

• Whether the contractor carries liability and workers' compensation insurance

Coverage should be arranged before work begins. Waiting until a claim occurs may leave the owner responsible for a loss that the existing policy was never designed to cover.

4. Separate the Landlord's Property From the Tenant's Property

Landlord insurance protects the building and certain property belonging to the owner. It generally does not insure a tenant's furniture, clothing, electronics, or other personal belongings.

Renters insurance can help tenants protect their belongings and may provide personal liability and additional living expense coverage. Property owners may choose to require renters insurance as a condition of the lease, subject to applicable laws and lease requirements.

Requiring renters insurance does not replace the landlord's coverage. Each policy protects different people, property, and financial interests.

5. Consider the Risks Beyond One Building

Owning an investment property can expose more than the property itself. A serious liability claim may affect the income and assets of the property owner, particularly when the available liability limit is not enough to resolve the claim.

Discuss whether higher liability limits or umbrella coverage are appropriate. Your agent should also know how the property is titled, whether it is owned individually or through a business entity, and whether you employ anyone to perform maintenance or property-management work.

Owners with several rental properties may need a broader insurance program rather than separate policies purchased one at a time. Reviewing the full portfolio can help identify inconsistent limits, coverage gaps, and policies that no longer match how a property is being used.

Discuss Insurance Before You Purchase the Property

The best time to address insurance is before you close, sign a lease, or begin renovations. Share the property address, intended use, occupancy plans, renovation details, expected rental income, and ownership structure with your insurance agent.

An early review gives your agent time to identify the appropriate policy, request any necessary inspections, and explain the coverage options available for the property. It can also help prevent an investment from being placed under a policy that was never designed for its risks.

Concklin Insurance Agency can help property owners review coverage options for rental homes, vacant properties, renovation projects, and growing real estate portfolios. Contact our team before purchasing or changing the use of an investment property.