7 Insurance Types Every Real Estate Investor Should Have

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Insurance on properties can give real estate investors a safety net against partial or full losses, claims from tenants, or even costs arising from lawsuits. However, there’s no one-size-fits-all insurance for all kinds of properties. 

Choosing the right insurance that best suits a real estate property is important. Otherwise, it will only cause overpayment for unnecessary coverages and even lose business and personal funds.

If you’re planning to invest in a real estate property or already own one, here are different insurance types you need to know. 

Landlord insurance is a must-have in every real-estate investor’s portfolio. Also known as a rental property, it provides additional protection to rental properties and property owners from the associated tenancy-related risks. Specifically, these include damages caused by the following: 

• Catastrophic events, such as accidental fire and smoke;
• Natural catastrophes, such as windstorms, hail, ice, or snow;
• Criminal activities, such as theft and vandalism;
• Impact by vehicles; and 
• Sudden and accidental escape of water.

Landlord insurance doesn’t only cover property damages and any equipment on the property to maintain it. It also bundles together various types of coverage that most property owners and landlords usually need, such as liability insurance and loss of income insurance. 

As stated, liability insurance is one of the coverages that real-estate properties can add to their landlord insurance. It covers the medical fees of renters, their visitors, and even repair staff who get into accidents on a property. It also covers costs associated with legal defense, whether or not the property is found to be at fault.

For example, property owners are held liable if a tenant suffered a severe injury due to the property’s defective flooring, which likely resulted from a lack of repair or maintenance. They’re also held liable for property damage caused by break-ins due to incidents of negligence, like poorly-installed locks. 

In these cases, property owners can be in serious financial jeopardy from hefty medical and legal fees without landlord liability insurance. 

Additional coverage for sewer and water lines can typically be added to a landlord insurance policy at a minimal cost. It protects real-estate properties from the financial consequences of damages arising from a sump pump, drain, and sewer overflow or backup. Clogged pipes, tree roots, and broken lines usually cause these. 

Specifically, water or sewer backup insurance only covers costs of damages in the sewer line that runs from the property house to the city main. It also covers the costs of removing standing sewage from the property and repairing the damages caused by it. 

However, water or sewer backup insurance doesn’t cover damages caused by a faulty or damaged plumbing system, lack of maintenance, or flood. They’re usually covered by separate insurance.  

Should it be the tenant’s liability? In most cases, the real estate owners are responsible for fixing and maintaining their property’s sewer line and parts. Otherwise, it’ll cause inconvenience to every tenant in a multifamily building and make a single-family rental property uninhabitable. In other words, it’ll be a huge loss on the real-estate owners’ end.

If the property is in a designated flood zone, flood insurance is highly recommended. It’s the only insurance that covers home flood-related losses. Landlords’ and renters’ policies don’t cover any damages caused by floods, including inland flooding, flash floods, and floods from seasonal storms.

Additionally, if there’s a need to talk about “how much renters insurance do you need” to a tenant, it’s better to mention different flood insurance. Be clear that landlord flood insurance will only cover the property, excluding the tenants’ belongings. They must invest in separate flood insurance if they want their possessions to be insured against floods. 

Loss of income insurance covers real-estate properties if their rental property is rendered uninhabitable for a lengthy period. These are common occurrences, especially if a fire or natural catastrophe damages the property. 

If there’s only one rental property with a low-interest mortgage, property owners may make ends meet even if the place is left unoccupied for many months. However, when their rental property portfolio expands, and their income is dependent on rent, it’s a good business sense to invest in a loss of income insurance. 

Another way to secure a property’s income is through tenant rent default insurance. It protects real-estate owners against loss of income if tenants fall behind or default on rent payments. With this, real-estate owners can get reimbursement of lost rent, typically up to six months but may still vary, depending on the insurers.

Real-estate investors are advised to consider obtaining builder’s risk insurance if they’ve got a financial interest in the construction project. Particularly, they should have it if they recently purchased a vacant property and are renovating it. 

Builder’s risk insurance is a short-term insurance policy that covers property damage, theft and vandalism loss, and contractor injury claims. Moreover, if any property damage causes a delay, it can also help cover additional soft costs that aren’t directly related to construction, such as: 

• Lost sales
• Rental income
• Additional interest on loans
• Real estate taxes

However, it doesn’t cover earthquakes, floods, wind, or beach zones. It also doesn’t cover damages caused by engineers and employees, like theft. Wear and tear, rust and corrosion, mechanical breakdowns, and faulty design are excluded from the builder’s risk insurance coverage as well. 

Without insurance, real-estate owners may lose money or miss out on possible returns if unforeseen catastrophes happen. While each landlord’s insurance coverage differs significantly, they often cost just a few hundred dollars annually—a small price for a great piece of mind!