What are the types of insurance for landlords and property investors? Every property is different and there are many different types of commercial property and liability insurance available for landlords of both commercial and residential properties.
Types Of Insurance for Landlords
Insurance is a subject that many property investors and landlords will overlook. After all, it's not their home that they're buying, so why do they need to insure it? It's a big expense too, and when you're in the game to turn a quick profit, you might wonder if it is really worth it.
But while this might be a tempting approach, it is actually absolutely vital that all property owners consider insurance: even if they're only going to be flipping the home, or leasing it out to others.
After all, if you invest a large amount of money into real estate with the plan of selling it and making a profit, then a fire or a earthquake could completely destroy your business overnight and you could find yourself financially devastated. Likewise, if you have tenants, then you need to insure yourself against the unique types of damage that they might cause - this has led to many a landlord becoming unstuck.
But with proper types of insurance for landlords, you can ensure that you never fall victim to these surprises. It's simply the right business move. The only remaining question then, is what type of property & liability insurance you should purchase. Following are a few coverages to consider.
Landlord Insurance Types
Hazard And Fire Insurance
This is insurance that will protect the physical property itself against fires and other hazards. The precise things that this insurance policy will cover will be outlined in the policy and this can vary a lot from one insurer to the next (so make sure you read the small print!). But what's true in every case is that you should always be protected at least from fire.
These types of insurance for landlords that protects you against lawsuits. There are actually a wide number of reasons that you might find yourself on the receiving end of a lawsuit as a landlord - whether your tenants injure themselves on your premises, or they feel as though you haven't fulfilled your side of the contract.
Either way, if their charges are successful, you could find yourself being forced to pay a large amount of money. And even if they're not, you could find yourself needing to pay for a large amount of legal fees. This is where liability insurance comes in - and it's why it's an absolute must for landlords.
Commercial Flood Insurance
Flood insurance will only be necessary for properties that are located on a flood plain. These are regions that are particularly prone to flooding and you can find out from your local council if your property is in a designated flood zone.
Always be sure to check this out: if you're on a flood plain, then this might mean that hazard insurance doesn't cover you for the flooding - and it simultaneously increases your chances of needing that kind of insurance. Likewise, if your property is in a hurricane and this leads to flooding, then you may find that your regular hazard and insurance policy does not cover the loss. Again, research whether this is something you might need.
It is truly a sign of the times that terrorism insurance is a real thing. However, it's also a very sensible type of insurance to take out if you live in an area that could be a major target.
Builder's Risk Insurance
This type of insurance for landlords will only be necessary for those property owners investing in largely empty premises. If you are buying an empty building or plot of land, or if you're just overseeing major renovations, then you may want to get builder's risk insurance in order to protect yourself against a host of issues:
- Slip and falls experienced by the contractor
- Property damage (if renovations go wrong)
Loss of Income Insurance
Loss of income insurance does precisely what it sounds like: it protects you against loss of income. For instance, if you have a tenant staying in your property and that property should be flooded, then you will need to pay for the damage caused by the flood - hopefully your flood or hazard insurance will cover this.
But at the same time, you will also find that you need to evict the tenant during this time and can't find a new lodger until the repairs are made. During this time, you won't be earning the income that you should be and thus you will be taking on even more financial burden. This is precisely what loss of income insurance is there to prevent.
General Contractors Insurance
This type of insurance for landlords that should be taken out by general contractors. If you are overseeing the work yourself, then you will need this type of insurance in order to pull your own permits for renovation jobs etc.
Workers' Compensation Insurance
Workers comp is needed when you have employees (in most states). Workers compensation protects people who are injured or disabled while working. The coverages provides the injured workers with payments until they are able to work or not.
An umbrella insurance policy is a type of insurance that provides excess liability protection - above the underlying liability polices.
Major Types Of Real Estate And Rental Property Businesses
- Apartment Buildings - Apartments are residential structures built to provide living accommodations for multiple individuals or families through a rental agreement called a lease. Apartment buildings can be one story or multi-story, include two through dozens of living units, and may provide services such as clubhouse facilities, fitness center, laundry, parking garages, playgrounds, and swimming pools.
- Cooperatives - Cooperatives can be residential or commercial. They are similar to condominiums, but the title to the building is owned by a corporation made up of the members of the cooperative. Each member owns shares of the cooperative, pays rent to cover the mortgage, taxes, and maintenance of the building, and actually leases their apartment or unit from the corporation. The cooperative agreement will state exactly what is owned and how it must be insured. The corporation is also responsible for administrative operations, such as setting and enforcing rules for the cooperative's membership.
- Duplexes - Duplexes and doubles are residential structures built to provide living accommodations for two separate individuals or families through a rental agreement called a lease. Duplexes and doubles have often been converted from other original occupancies, particularly larger homes that have been remodeled into two units. The dwelling premises may include outbuildings, such as a storage shed or garage.
- Dwellings - Dwellings are residential structures built to provide living accommodations for one individual or family through a rental agreement called a lease. The dwelling premises may include outbuildings, such as a storage shed or garage.
- Manufacturing or Mercantile - Manufacturing or mercantile rental properties lease space to various tenants, including manufacturers, restaurants, retail, and service establishments. The leases can be offered on a short-term basis or extend through a number of years.
- Mobile Home Parks - Mobile home parks or courts provide lot space for mobile home residents. Some may rent lots and hook-ups to utility services on either a long-term or an overnight basis. Others offer mobile home transport services, tie-down services, repair services, skirting services, or sales or rental of owned mobile home units. Mobile home parks or courts can have buildings for laundry or recreation. They may have a swimming pool, retail convenience or grocery store, tennis courts, playground or other recreational facilities. Some parks occupied on a seasonal basis permit mobile homes or campers to be left on premises for storage in the off-season.
- Office Buildings - Office buildings lease commercial space to various tenants, including professional service providers, medical providers, and sales offices. The leases can be offered on a short-term basis or extend through a number of years.
- - Shopping centers lease space to retail and service tenants. The leases can be offered on a short-term basis or extend through a number of years. Shopping centers can be of the strip mall type with as few as five tenants or may be large mall-type mega centers.
- Shopping Centers - Shopping centers lease space to retail and service tenants. The leases can be offered on a short-term basis or extend through a number of years. Shopping centers can be of the strip mall type with as few as five tenants or may be large mall-type mega centers.
Insurance Classification Of Landlords
Insurers classify landlords using several coding systems. You can wind up paying more for your insurance if your real estate business is not properly classified - and there are several classifications of commercial landlords. Below are the three most commonly used coding systems for commercial property owners:
- ISO General Liability Codes: 46202, 60010, 60011, 60012, 60013, 60015, 60016, 63010, 63011, 63012, 63013, 61212, 61216, 61217, 61218
- NAICS CODES: 531110 Lessors of Residential Buildings and Dwellings | 531120 Lessors of Nonresidential Buildings (except Miniwarehouses) | 531311 Residential Property Managers
- SIC CODES: 6512 Operators of Nonresidential Buildings | 6513 Apartment Building Operators | 6514 Dwelling Operators (excluding apartments) | 6515 Operators of Residential Mobile Home Sites
- Suggested Workers Compensation Codes: 9012, 9015
SIC Code 6512 - Operators of Nonresidential Buildings
Here is the official OSHA SIC code description for Operators of Nonresidential Buildings:
Establishments primarily engaged in the operation of nonresidential buildings.
- Bank buildings, operation of
- Insurance buildings, operation of
- Lessors of piers, docks, and associated buildings and facilities
- Operators of commercial and industrial buildings
- Operators of nonresidential buildings
- Retail establishments, property operation only
- Shopping centers, property operation only
- Theater buildings (ownership and operation)
SIC Code 6513 - Apartment Building Operators
Here is the official OSHA SIC code description for Apartment Building Operators:
Establishments primarily engaged in the operation of apartment buildings. Apartment buildings are defined as containing five or more housing units.
- Operators of apartment buildings (five or more housing units)
- Operators of apartment hotels
- Operators of residential hotels
- Operators of retirement hotels
SIC Code 6514 - Dwelling Operators (excluding apartments)
Here is the official OSHA SIC code description for Dwelling Operators (excluding apartments):
Establishments primarily engaged in the operation of dwellings other than apartment buildings. Dwellings other than apartment buildings are defined as containing four or fewer housing units.
- Operators of dwellings (four or fewer housing units)
- Operators of residential buildings (four or fewer housing units)
SIC Code 6515 - Operators of Residential Mobile Home Sites
Here is the official OSHA SIC code description for Operators of Residential Mobile Home Sites:
Establishments primarily engaged in the operation of residential mobile home sites.
- Operators of mobile home sites
Further Reading On Business Property Insurance
- Commercial Flood Insurance
- Commercial Property And Business Interruption Insurance
- Commercial Property Insurance Basics
- Commercial Earthquake Insurance
- Flood Insurance Requirements For Commercial Property
- How To Calculate Commercial Property Insurance Rates
- Landlord Insurance
- Types Of Insurance For Landlords
- Waiver Of Subrogation In Commercial Property Insurance
Types Of Insurance for Landlords - The Bottom Line
We hope this article on types of insurance for landlords was informative. This might seem like a long list of different types of insurance - but it's actually not everything! There are many more options for landlords and property developers. Of course you won't need every type of commercial insurance, and it's up to you to do your research, ask around, and make sure you are covered for every eventuality.