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What Is Investment Property Insurance and Do You Need It?

Investment property insurance protects landlords and real estate investors against structural damage, natural disasters, and liability lawsuits. Insurance needs vary between properties and locations. A Clever Partner Agent can help you figure out the best insurance policy for any investment property.
Investment property insurance protects landlords and real estate investors against structural damage, natural disasters, and liability lawsuits. Insurance needs vary between properties and locations. A Clever Partner Agent can help you figure out the best insurance policy for any investment property.

If you’re counting on an investment property to generate income, the last thing you want is for some unforeseen expense to obliterate your profits. Not only would this be counterproductive, but it could potentially leave you personally liable for costs you can’t afford.

The answer is investment property insurance, also called landlord insurance. Just like homeowners insurance, landlord insurance protects against property damage, unexpected losses, and liability lawsuits.

Insurance needs — and therefore costs — will differ between properties, locations, and investment strategies. However, all landlords and real estate investors need an insurance policy of some sort. In fact, potential investors should estimate a property’s insurance costs well before they buy in order to most accurately calculate the return on investment (ROI).

Because insurance needs vary so much, it’s a good idea to consult with a professional real estate agent to better understand the costs of a potential investment.

What Are the Different Types of Investment Property Insurance?

Investors have many options when purchasing insurance for an investment property, and these options must be mixed and matched depending on individual needs.

Some types of landlord insurance are almost always necessary. These include liability insurance (to protect against lawsuits), hazard and fire insurance (to protect against structural damage caused by natural disasters), and sewer backup insurance (which is generally an inexpensive add-on to a hazard insurance policy).

Then there are some types of insurance that only apply to specific investments. These include loss of income insurance (if you rely on your rental income), workers compensation insurance (if you have employees or contractors working on your property), flood insurance (which is not usually covered by a standard hazard policy), and even terrorism insurance (if your property is at special risk of being targeted). This list is by no means comprehensive — so be sure to look at all the insurance policies and types available in your local market.

How Does Investment Property Insurance Differ From Homeowners Insurance?

While both landlord insurance and homeowner insurance cover similar losses — namely property damage and liability costs — each policy targets a different arrangement.

To qualify for homeowners insurance, you must be physically living in the property being insured. This will cover you and the family living with you, but may not cover losses caused by a tenant renting out a guest room. This will depend on your specific policy and the arrangement you have with your guest.

And if you’re renting out an entire property, you definitely need landlord insurance. In this case, liability coverage will apply only to the rented premises — compared to a broader application of coverage in most homeowners insurance policies. Also in contrast to homeowners policies, neither your personal property nor your tenants’ property will be covered by landlord insurance. In fact, your tenants will likely want their own renters insurance policy to cover their personal belongings.

Should You Get Investment Property Insurance?

If you have an investment property, yes.

If you’re thinking about buying an investment property, also yes — but make sure to factor the insurance costs into your ROI calculations first. If the cost of insurance will eat up too much of the property’s profits, then it’s probably not a good investment.

If you want to get the best possible understanding of an investment property’s insurance costs, Clever can help. Clever Partner Agents are top performing real estate agents across the country who know their local markets better than anyone. That means they know how to calculate not just a property’s insurance costs, but other important values like rental income potential, vacancy rates, and expected appreciation.

If you want to make the best investment for you in your local market, connect with a Clever Partner Agent today.

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Andrew Schmeerbauch

Andrew Schmeerbauch is the Director of Marketing at Clever Real Estate, the free online service that connects you top agents to save on commission. His focus is educating home buyers and sellers on navigating the complex world of real estate with confidence and ease. Andrew has worked on projects for the United Nations and USC and has a particular passion for investing and finance. Andrew's writing has been featured in Mashvisor, L&T, Ideal REI, and Rentometer.

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