When you have your rental properties held in an LLC (Limited Liability Company), the insurance process can be a little more complicated and involve a lot more paperwork.
This blog post will cover everything real estate investors need to know about insuring LLC rental property so that you can make the best decision for your business.
What Kind of Insurance Do You Need For Your LLC-Owned Rental Property?
As a landlord, you're responsible for making sure your rental property is insured, but what kind of insurance do you need for an LLC-owned rental property?
There are three main types of landlord insurance coverage: property damage, liability, and loss of income:
- Property damage insurance is critical for LLC-owned rental properties because it can help cover the cost of repairs or replacement if the property is damaged by a covered event. This type of insurance can help protect your investment, as well as your tenants, by ensuring that the property is repaired in a timely manner.
- Liability insurance is also important for LLC-owned rental properties because it can help protect you from lawsuits if someone is injured on your property. This type of insurance coverage may also help if you're accused of wrongful eviction, as it can provide asset protection against legal fees and damages if the landlord is found liable.
- Loss of income insurance is another type of coverage that can be important for LLC-owned rental properties. This type of insurance can help cover your lost rental income if your property is uninhabitable due to a covered event. This coverage can help ensure that you're able to continue to make mortgage payments and other expenses even if your property is damaged or destroyed and you’re not collecting rent.
How to Get Insurance for Rental Property in an LLC
LLCs can complicate the process of getting insurance for your rental property. Many insurers will only work with LLCs if they are insured using a commercial policy, or each separately named as insureds on the policy. This means that if you have multiple LLCs, you may need to purchase multiple policies.
Fortunately, there are a number of ways to get around these obstacles and find the right insurance for your LLC-owned rental property. By following the steps outlined below, you can be sure to find the coverage you need at a price you can afford.
1. LLC-owned rental properties can be added to a personal lines policy as an additional insured in most cases.
For example, if your rental property is already insured and you transfer it into an LLC, your carrier may be able to add the LLC as an additional insured. To do this, you'll need to provide your insurance company with the LLC's articles of organization and a list of all the LLC's members. In some cases, the insurance company may require additional information, such as a property management agreement.
2. LLC-owned rental properties can also be insured with a commercial policy.
This type of policy is typically more expensive than a personal lines policy, but it can offer more comprehensive coverage. To get a commercial policy for your LLC-owned rental property, you'll need to provide your insurance company with the LLC's articles of organization and a list of all the LLC's members, as well as information about the property, such as its square footage and number of units.
3. In most cases, you'll need to purchase a separate policy for each LLC-owned rental property.
However, some insurance companies offer broader master policies that can cover multiple LLC-owned rental properties. These broader master policies typically have higher limits than individual policies, so they can provide more protection if there's a major loss.
4. When shopping for property insurance, be sure to compare quotes from multiple insurers to get the best rate.
Many investors find using an online insurance broker like Obie is a good way to get simple, affordable, and transparent insurance quotes quickly. Also, make sure to read the policy carefully so you understand what's covered and what's not.
You can add LLC-owned rental property to a personal lines policy in most cases, or you may need to purchase a commercial policy. In either case, be sure to compare quotes from multiple insurers and read the policy carefully to understand what's covered.
Risks of Not Having LLC Rental Property Insurance
LLC rental property insurance is important even though LLCs provide some liability protection for landlords. LLCs help to protect landlords from being held personally liable for debts or lawsuits against the LLC. However, LLCs do not provide protection from all risks.
For example, LLCs would not protect a landlord from a fire that damages the rental property or from a tenant who is injured on the property. In these cases, the landlord would be liable for the damages unless they had rental property insurance.
Rental property insurance can help to protect landlords from these and other risks, making it an essential part of owning real estate. One of the purposes of having landlord insurance is to help provide protection from unforeseen events. Here are some of the potential risks of not having LLC rental property insurance:
- Fire at the rental property - the landlord could be liable for the damages.
- Guest of the tenant is injured on the property - the landlord could be liable for the medical expenses.
- Rental property is burglarized - the landlord could be responsible for replacing the stolen items unless they had rental property insurance that includes theft coverage.
- Plumbing in the rental property breaks and causes water damage and mold infestation - the landlord would be responsible for repairing the damage using capital reserves or going out of pocket.
- Tornado or hurricane and the rental property is damaged - the landlord would be responsible for repairing the damage, or risks losing the entire investment if the property was leveled and had to be rebuilt from the ground up.
- Roof of the rental property leaks and causes water damage - the landlord would be responsible for repairing the damage, which could mean replacing part or all of the roof and making repairs to rafters and trusses in the attic.
- Tenant slips and falls on the property - the landlord could be liable for the medical expenses, paying for a tenant's loss of income if they are unable to work, and potential claims of emotional distress.
- Tenant's car is damaged in the parking lot - the landlord may be responsible for repairing the damage, which could easily run thousands of dollars or more, even for a used car.
- If vandals break windows or spray paint graffiti on the rental property, the landlord would be responsible for repairing the damage as quickly as possible to avoid complaints from the neighbors, fines from the local zoning department, or running the risk of the tenant vacating early.
- Someone sues the landlord for something that happened at the rental property - the landlord would be responsible for their own legal expenses, even if they win the case.
These are just some of the potential risks that landlords face when they don't have LLC rental property insurance. While LLCs do provide some protection, they don't protect landlords from all risks. It's important to have the right insurance in place to help protect yourself, your investment, and your tenants.
How to Get The Best Deal on Rental Property Insurance
Insurance is a must for any LLC that owns rental property. However, it can be tricky to find the right policy at the right price. Here are a few tips to help you get the best deal on LLC rental property insurance:
1. One way to keep the cost of rental property insurance low is to maintain your property well. This means regularly inspecting the property and making any necessary repairs in a timely manner. By keeping your property in good condition, you can avoid costly claims that would increase your insurance rates.
2. You can also get a discount on your rental property insurance if you install certain safety features, such as smoke detectors and deadbolt locks. These safety features can help to lower the risk of damage to your property and injuries to your tenants, which can save you money on your insurance premiums.
3. When it comes time to renew your insurance policy, be sure to shop around and compare rates from different insurers. You may be able to get a better deal by switching insurers or negotiating for a lower rate with your current insurer.
4. Finally, you can use an online insurance broker like Obie to get the right coverage for rental property held in an LLC. Obie offers landlords a free quote tool that makes it easy to compare rates from different insurers. In many cases, Obie can help you find a cheaper policy than what you would get by working with a captive insurance agent. On average, landlords save 25% with Obie.
So if you're looking for the best deal on LLC rental property insurance, be sure to get a quote from Obie today.
