Rental Property Owners Need Specialized Property Coverage

Insurance & Consumer Tips

(Los Angeles, Jan. 21, 2005) — With the stock market providing spotty returns in recent years, more investors are buying rental real estate, according to recent financial reports. These new real estate investors need to understand that regular homeowners insurance is not designed to cover rental homes, according to the Automobile Club of Southern California's affiliated insurance company.

Investors accounted for 8 percent of mortgages purchased in the first eight months of 2004, up from 5.4 percent in 2000, as reported by the Wall Street Journal. As many investors turn to real estate for the first time, they may not understand the differences between regular homeowners insurance and rental property insurance.

"While many of the same perils or events are covered by both homeowners and rental owners policies, the rental policies are focused more on the landlord/tenant relationship and cover incidents that may arise specific to that relationship," said Miranda Martinez, home insurance products manager.

Rental owner policies typically include the following coverage:

  • Loss of rental income — in case the building is rendered uninhabitable for a period of time due to a covered loss.
  • Landlord liability — Covers the landlord's legal liability for bodily injury or property damage resulting from the ownership, maintenance or use of the rental property
  • Landlord furnishings — Covers appliances and furniture in the rental property supplied by the landlord
  • Medical payments to others — Covers medical and funeral expenses due to bodily injury for a covered accident at the rental property
  • Repair of damage due to "Basic Named Perils" that include theft, aircraft, explosion, fire or lightning, riot or civil commotion, non-landlord owned vehicles, vandalism or malicious mischief, sudden and accidental damage from smoke

Also, investors need to consider the policy's property replacement coverage in the event the property is destroyed. For example, the Auto Club offers a new rental property owner's policy that allows policyholders to purchase an additional "extended replacement cost" coverage. This added endorsement will repair or replace the dwelling at today's costs — up to 125 percent of the policy's coverage limits. This coverage is available throughout Southern California. There are also available optional coverages for rebuilding the property according to current building codes.

Rental property owner insurance does not cover tenants' personal belongings. Renters should purchase renter's insurance to cover their personal property (e.g. clothing, furniture, electronics, jewelry, etc).

"The bottom line is that rental property may provide a good return to investors, but they need to be aware of the particular requirements and potential risks that come with being a landlord," said Martinez. A comprehensive rental property policy will aid in covering many of those risks."

The Automobile Club of Southern California, the largest AAA affiliate, has served members since 1900. Today, Auto Club members benefit by the organization's roadside assistance, financial products, travel agency and trip planning services, highway and transportation safety programs, insurance products and services and automotive pricing, buying and financing programs. Information about these products and services is available at www.aaa.com.

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