Landlord Insurance Essentials: Protecting Your Albuquerque Rentals

When we talk about insurance essentials, it’s about protecting your Albuquerque rentals. 

And when we talk about protecting those investments, what we’re really talking about is risk.

Property owners buy comprehensive insurance policies for their properties because they understand the amount of risk that comes with renting out a home. 

Renting out properties in Albuquerque, you’re dealing with the potential of unpredictable tenants. There’s a risk they won’t pay rent on time. Or maybe they’ll damage your property. There are also concerns about the physical safety and health of your property. What if there’s a fire or a flood? What if there’s mold or some natural disaster? 

Fortunately, the risks and liabilities that come with owning investment property can usually be offset by good professional help and consistent policies and procedures. 

The most important tool in your risk management toolbox, of course, is insurance. 

A strong insurance policy is the natural starting point for protecting your Albuquerque rental property. 

We’re talking insurance strategies today, and sharing what those landlord insurance essentials are. 

What Does Landlord Insurance Cover in Albuquerque?

 

Your rental property will start with a landlord insurance policy, and basic landlord insurance typically covers the following:

Dwelling When your policy mentions the dwelling, it’s talking about the actual structure. The home. The building. The residence itself. Whether you’re renting out a single-family home or a condo or a unit in an apartment building, the dwelling in which your tenants live will be protected against loss from wind, hail, lightning, fire, and other covered losses.	Additional Structures What else is part of your property, other than the actual rental unit? You might have additional structures like fences, a garden shed, or a garage that’s detached from the property. These structures will also be protected from any damage during a covered loss.
Personal Items  The personal items that are covered in your landlord policy must belong to you. We’re not talking about your tenant’s personal items. Your insurance will only cover the personal items that belong to you and are used for maintenance and upkeep. Washers and dryers and other appliances, for example, belong to you even though they’re used by the tenant. Insurance will cover them.	Liability We’re going to explore liability a bit more, because it’s a big part of the insurance you need to protect your rental, but generally this covers you against claims. If someone is injured at your property and a court decides you’re at fault, you’ll be glad you have liability insurance.

There is going to be additional coverage you want, including loss of rent, which we will discuss in a bit more detail. An umbrella policy is always recommended when you’re renting out more than one property. 

There’s also a distinction to be made when your rental property is a condo. You’ll have your own insurance, but the condo association will also have insurance that might cover shared walls or roofs. Make sure you have a good understanding of inclusions and exclusions.

Money Matters – What Does Insurance Cost?

Many of the estimates we see as Albuquerque property managers are that basic landlord insurance should cost most rental property owners just over $1,000 per year, which is not too far from the national average. Remember that this is a rough estimate. The exact cost of your insurance will depend upon:

• The rental property’s age and condition
• The term and length of your lease agreement
• Whether or not the property has features like pools and fireplaces
• The specific coverage policy being purchased
• The size of the property
• The number of rental units you own
• The exact location of your investment

Control Your Risk Factors with Complete Liability Insurance

As the rental property owner, you have a lot more liability as a landlord than you have as an owner/occupant living in your own home. You’ll need more liability insurance than you might carry on your own home. Liability is real, whether we’re talking about the risk of a tenant injury or the potential for someone else being injured at your rental property. 

Perhaps the best reason to buy a robust insurance policy as a landlord is to cover any potential liability and protect you from the risk of claims, lawsuits, and disputes. These will be expensive, they will be time consuming, and they will be frustrating.

A good landlord insurance policy will provide you with adequate liability coverage. This is possibly the most crucial part of the insurance you buy. Anything can happen when tenants are living in your property. You can do everything within your power to make it a safe place to live, and an accident may still happen. 

Talk to your insurance agent (we can recommend one if you aren’t connected yet) about the required or recommended liability limits. If something happens and you’re sued, you want to be protected. 

No property owner wants to obsess over all of the dreadful worst-case-scenarios, but a tenant could fall down the stairs. A tenant’s guest could get injured walking across the driveway. You need to be prepared for any potential claim or legal action, and you need to make sure you don’t lose your property over them.

Landlord liability coverage will actually cover more than you might expect, especially if you have a good policy in place. Mitigate your own losses by knowing for sure that your insurance will help you pay medical expenses for tenants who are injured at your property. The right policy will also cover legal defenses and court judgments that might be won against you. 

Here are some of the risks that are most often covered by liability insurance.

• Tenant Injuries

Tenant injuries could occur for any number of reasons, including what the courts would consider to be landlord negligence. Maybe there are some slippery steps up to your property during the winter, or loose handrails on the stairs. A tenant could trip and fall on some carpet that’s coming up, or broken steps could cave in when someone uses them. Imagine a tenant tripping over some exposed tree roots in the yard. The what-if scenarios are numerous. 

If a property owner is found negligent in maintaining the property, or if a court decides that a landlord should have warned a tenant of a potential safety risk, landlord liability can cover your legal expenses in court. Any damages awarded to the tenant will also be covered. There’s a lot less exposure to you financially.

• Security Risks

Keeping tenants safe has to be a priority, and sometimes personal harm may come to tenants or a tenant’s guest due to a lack of security at your property. That’s going to be a problem. 

There are many ways in which this risk can manifest. Perhaps you’re renting out an apartment building, and the lights go out in the parking lot. A tenant may trip or even hit another car with their own. Perhaps the lights go out in your stairwells and someone falls down the stairs. There could be a break-in or an act of vandalism. Security is more important than ever, and tenants expect to feel safe when they move into a rental home. If something happens, expect a lawsuit.

• Pets

We happen to be big fans of pets. We encourage rental property owners in Albuquerque to allow pets in their property for all the right reasons; they reduce vacancy and turnover, there’s better satisfaction, you can earn more – etc. But, pets also come with a lot of liability. There’s a risk that tenants or their pets cause harm to others.

Imagine a massive fight between your tenant’s large dog and a neighbor’s tiny cat. If a tenant’s Pit Bull bites a small child or even a mail carrier, there will be a legal situation that requires some good liability insurance. Your liability insurance protects you.

• Accidental Damage

What does a claim for accidental damage look like? It could be that your tenant breaks something in the property. If they don’t fix it, you can file a claim and have your insurance pay for whatever repair or replacement is necessary.

• Personal Injury Protection

A possible scenario is a tenant suing you or claiming injuries due to some attack they believe you have launched against them. You might be accused of libel, slander, invasion of privacy, or wrongful entry. You could find yourself sued in court for wrongful eviction. You need to protect yourself against the claims and lawsuits that could be brought against you by current and former tenants.

Loss of Rent Coverage

Let’s talk about loss of rent.

One of the major risks you face as a real estate investor with rental properties is suddenly having your rent not come in. This will be problematic for your own financial situation. You’ll have to make payments on your mortgage, your taxes, your insurance, and all the other expenses that come with renting out a home.   

So, let’s think about what happens if you lose that rental income, through a covered loss that is no fault of your own or your tenant’s.

Most of the landlord insurance policies that are currently on the market will include some kind of loss of rent coverage. If your existing policy doesn’t already include this, consider adding it. This coverage is typically called Fair Rental Value Coverage. It will cover lost income due to your property being declared unlivable due to a covered loss.

Think about what might happen if you can no longer rent your property out to tenants because of safety or repair issues. What will you do without rental income if your property is no longer habitable and your tenants need to move out while repairs are made? Having this coverage in place will not only provide financial coverage but also peace of mind. It’s important to cover yourself in case you have to move your tenant out of the property. 

What if a wall collapses or the roof caves in? Suppose there has been a fire that has made most of the home unlivable?

Your tenants will not be able to stay in your rental property, which means you may have to put them in a hotel or another property. If they can’t live in your property for an extended time, you’ll lose a lot of rental income in addition to paying out of pocket for costs like hotel bills. 

Inflation Protection 

Ooh. Inflation. 

They tell us it’s easing, but are things any less expensive? 

Maybe you never thought you’d need inflation protection insurance. 

Inflation, however, is a risk, and that has become increasingly apparent over the last few years. If you want to protect your Albuquerque investment and your own profitability, consider inflation protection.

Why? Your property value has likely increased over the last few years, with prices for everything being driven higher and higher. When you have inflation protection built into your policy, you’re mitigating a risk that isn’t always present but can certainly throw you a curveball if you do file a claim and you find that your insurance limits don’t quite cover what it costs to make repairs or replacements. You’ll find that this type of insurance automatically adjusts your coverage limits to keep pace with inflation. This adjustment will usually include premium discounts.

It’s a good deal. Your coverage increases at a higher rate than your premiums do.

Renters Insurance Protects Owners and Properties

We think it’s a smart idea to require renters insurance from the tenants who rent your home. A lot of rental property owners don’t do it, thinking it’s too difficult to enforce, but we think it’s a valuable resource for tenants as well as owners. It helps us to mitigate a lot of risk and it also means that your insurance policy will not be the first place to turn if a tenant causes expensive damage to the property. 

Tenants should have their own protection and insurance. 

There is renters insurance and there’s also tenant liability insurance. These are not expensive policies, especially if they have automobile coverage that they can bundle. 

Renters insurance is becoming increasingly more common, but it helps to educate your tenants on the need for this coverage. Most of them don’t know that their own personal electronics, clothing, and other belongings aren’t covered by your insurance. 

What about tenant liability insurance? It’s not as easy to require this, but it can be especially useful if your tenant is moving in with a pet or if there are extra risks associated with the tenancy. The difference between tenant liability insurance and renters insurance really comes down to this: renters insurance protects a tenant’s personal property and possessions. Tenant liability insurance protects your tenant financially from any damage they may cause – accidentally or otherwise. 

We’ve put together this resident-insurance-at-a-glance chart so you can take a closer look at the policy or policies that might make the most sense for your own tenants. 

Renters Insurance Protects ALL Tenants and Their Property Renters insurance is essentially a type of insurance that protects the interests of the tenant, but it also protects you, too, as the owner. Renters insurance will protect the tenant’s electronics, clothing, furniture and other personal belongings that might get damaged or destroyed during a covered loss. Landlord policies do not cover anything belonging to the tenant. Renters insurance also comes with some liability protection.

Tenant Liability Insurance Protecting You from Liability and Lawsuits No one likes being sued. What if your tenant accidentally leaves a stove on and they end up burning down your kitchen? Your insurance company will likely look to your tenant when it comes to covering the costs of repairing and replacing the damaged kitchen.  Liability insurance reduces the risk that comes with living in someone else’s house. Tenants can protect themselves and their own finances.

Who Should you Include on your Insurance Policies?

You want to be clear about who is covered on an insurance policy.

• Additional Insured. 
• On your landlord policy, always include your property manager as an additional insured. This isn’t because we need the coverage – we have our own insurance – but because it allows us to better protect your investment. With everyone protected by the same policy, we can advocate better for you. It also helps us form a unified defense when necessary. If a tenant is going to sue, they’re going to sue everyone. When we’re both defended under one policy, we’re in a stronger position against the claim.
• Our tenants are also instructed to include us as an additional insured. This allows us to monitor the policy and ensure it’s kept current. We recommend that you have your tenants add you as an additional insured if you’re not working with a management company.

Here’s some good news about your insurance premiums. They’re tax deductible! Covering yourself and your property makes for an easy write-off at tax time. 

Thinking about how to protect your rental property in Albuquerque? We’re always thinking about this, too. Contact us at Blue Door Realty to talk about insurance options and other methods for protecting your investment. We professionally manage residential rental homes and HOAs.