Posted on February 27, 2010 by Carole Somer

You finally have your dream investment property and you are worried.

What will happen if the apartment building catches on fire? Can the tenants sue me, if the fire causes them loss of life or loss of personal property? All these questions are valid and should be addressed with one simple solution. The purchase of a landlord’s insurance policy, a policy that will protect you for more than you can imagine or hope for.

Remember that a homeowners policy will not cover the home when it is being rented. So with an apartment building you would have a different type of insurance policy, but with a multi-family unit you may have home owners coverage, as per your mortgage agreement. You need to check with your insurance company to see exactly what is covered.

What does a landlord’s policy cover:

1. Your property is covered in case of fire. For all repairs.

2. Income loss by the tenants not being able to occupy the property.

3. If you have a legal expense coverage, then bad tenants needed evicting, is covered including all legal fees.

4. Theft and malicious vandalism by the tenants.

What is the likelihood of you having bad tenants in your investment property:The bank will allow for a 25 percent vacancy when they figure the debt to loan ratio, so there is a fairly good chance that you will see vacancies every year. The chances that you will have a tenant who refuses to pay and will not leave is higher with the foreclosure market present. It would be hard to estimate in this economy exactly what percentage it would come to, but it is assumed that you would have these problems sometimes within the next three years.

How is the insurance figured:

The insurance is on the building cost of the structure. So, not what the loan value is but what would it cost to rebuild your entire investment property. Too many homeowners, quote the cost of the building when they purchased the building, but that is not correct.

Subtract for the cost of the land. The land in many areas is quite expensive and there is no need to pay for the land again as even fire will not destroy land.

Location, location, location. The insurance company will look at where the building is located. This means that they will look to high crime areas opposed to low crime areas.

The will look for past claims, what type of tenants you have, age of the building and the type of building, such as duplex or apartment structure. With all these things in mind, the insurance adjuster comes up with one figure for you to pay. You may pay one policy for all your investment properties. There is no need for separate properties.