How Much Liability Insurance Do I Need For A Rental Property?

Accidents happen. And when they do, you don’t want to lose your home and all your assets. Liability insurance is a protection against that happening. There are some insurance policies that are not required to have liability coverage. If you’re insuring a car, a certain amount of liability insurance is required by law. If you’re insuring a house, not all policies come standard with that protection. Regardless, if you are a homeowner or a renter, it is important to be prepared in the event of any unexpected incidents. So, how much liability insurance do you need for a rental property?

Liability Insurance For Your Rental Property

When a homeowner considers renting their property at any time, and for any reason, they should check their policy to see if they’re covered. If you are only renting for a very short time, and not often, you may have no issue with your homeowner’s insurance policy covering liability claims. But if you are planning on renting for any extended period of time and/or more frequently, you want to look into liability insurance.

What Does Liability Insurance Cover?

Liability insurance covers physical damages to third parties and their own personal property. If someone suffers any physical injury, including animal bites, while on your property, they may seek compensation. Liability insurance is to protect your assets in the event there is a lawsuit. It can be used to cover fees involved retaining legal representation, as well as paying out to the other party, if necessary. If a person were so inclined, he or she could even sue for slander or defamation. Some policies cover this as well.

Factors That Influence Liability Insurance Needs

There are several factors that must be taken into account when obtaining a liability insurance policy. These are: the total value of the property, your net worth, and if your property is mortgaged. When considering purchasing a liability insurance policy, you need to weigh these considerations against your budget and determine what best suits you.

Total Value Of The Insured Property

The total value is the exact amount of money it would take to fully replace the property. This amount is not what you might owe on your home but rather its current market value. If your home would take $250,000 to replace, you need a policy that will cover at least that amount. The same principle applies for any value of a home.

There are different ways to find out your home’s value. If you just recently purchased your home, then an official appraisal would have been performed. If you did not recently purchase your home, there are different options for calculating value. Common real estate websites such as Zillow or Redfin have a function that does this. However, there is a high probability that it is not 100% accurate. You could also choose to pay a professional to appraise the property for a more exact number. A professional appraiser takes into account things like what surrounding properties are selling for, the current market in the area, and the details of the property itself.

Property Owner’s Net Worth

Your net worth also plays a role in how much coverage you need. The higher your net worth, the more assets you have that need protection. If you have a high net worth, you should consider increasing your coverage to account for that. When these cases go to court, one way to collect compensation is by seizing your home and assets. The ideal policy would protect those assets, which are directly related to your net worth.

So how do you calculate your net worth? Assets ($) – Liabilities ($) = Net Worth ($). Liabilities in this context are any debts that you have. Any kind of loan, for example, would be a liability. Assets are any funds or possessions that are yours outright. These would include savings accounts, stocks, bonds, any vehicles or properties which no money is owed on, and more.

If The Property Is Mortgaged

Your mortgage is calculated as a liability, as mentioned above. Mortgage lenders require homeowner’s insurance. As part of that, they also specify exactly how much liability insurance you have to have to be approved for a mortgage. By lending you the money, these companies have a stake in your home, and thus, they also stand to lose if you don’t make the payments. Making a liability insurance policy of a certain amount ensures that they don’t suffer a loss if you do.

Reach Out To A Professional Personal Insurance Agency

Navigating the world of insurance can be difficult and confusing. Speaking with a professional is the best way to ensure that your specific needs are being met with your policy. JMG will help you to understand how much liability insurance you need for a rental property. Most policies start at a minimum of $100,000 – $300,000 coverage, but depending on the value of your property, your own net worth, and your mortgage status, you may need more. A professional is able to look at all the factors and inform you of the best choice for your situation.

Reach out to our team today. You can reach us by phone at 1-844-304-7332. We look forward to working with you.