How Do You Choose Your Insurance?

Choose a landlord policy in this order: decide which losses you could not pay out of pocket, set limits for those, pick the highest deductible you can cover from savings within any lender or servicer limits, then get quotes on identical coverage from licensed insurers with good complaint records and financial ratings. Different insurers charge different premiums for the same coverage, so the NAIC advises comparing several. Disclose every material fact about the property, because a misrepresentation can void the policy.

Rank the losses you need to insure

Start with the losses that would force you to sell the property or take on debt. Those include:

1. Losing the building. A fire or windstorm that destroys the rental. This sets your dwelling limit, which should match the cost to rebuild, explained in how much coverage to buy.
2. A liability judgment. A tenant or visitor injured by a defect on the property. This sets your liability limit and whether you add an umbrella policy; see whether liability coverage has a maximum amount.
3. Months of lost rent after covered damage makes the rental unfit for use, while you still owe the mortgage, taxes, and insurance. This sets your fair rental value limit. The cited dwelling form limits payment to the shortest time needed for repair or replacement; ordinary vacancy and tenant nonpayment do not qualify.
4. Perils your policy excludes, such as flood or earthquake, if the property is exposed to them. See which disasters landlord insurance covers.

Small, frequent losses are the ones to pay yourself. The NAIC notes that how often you file claims, and what kind, affects your premium and whether the insurer renews you, and that insurers share claim histories through databases such as CLUE. If a repair costs little more than your deductible, paying it yourself may cost less over time.

Choose a deductible with the numbers

A deductible is what you pay on each claim before the policy pays. A higher deductible lowers the premium, but the NAIC cautions that you should be able to afford it when a loss happens. Compare the premium saved with the extra cash you would pay on a claim.

Example with two quotes for the same coverage:

The $2,500 deductible saves $300 a year. It takes $1,500 / $300 = 5 claim-free years to recover the extra cost of one claim. If you file a claim less often than once every 5 years and have $2,500 in reserve per property, the higher deductible comes out ahead. If you have several units on one policy or a building prone to small losses, the lower deductible may be worth it.

Check every deductible on the quote, not just the main one. Wind, hurricane, and earthquake deductibles are often a percentage of the dwelling limit, so 2% on a $400,000 limit is $8,000.

Compare quotes on identical coverage

The NAIC tells buyers to request the same coverages and limits and give the same property information to every agent or company, and to get quotes in writing. For a rental, line up these items across quotes:

When one quote is much cheaper, check these lines first and ask the agent to explain each difference in writing.

Check the insurer before you buy

• License. Confirm with your state insurance department that the company and the agent are licensed in your state. The NAIC warns that an unlicensed company might not pay claims or refund premiums.
• Complaints. The NAIC's Consumer Insurance Search lets you look up complaint information by state, company, and insurance type for the past three years, and many state insurance departments publish a complaint index that compares a company's complaints with its size. The NAIC advises weighing complaints alongside financial data rather than relying on one factor.
• Financial strength. Check ratings from independent agencies such as A.M. Best, Standard and Poor's, or Moody's.
• Surplus lines. Hard-to-insure rentals may be placed with a surplus lines insurer, a company the state allows to operate without a standard license. The Texas Department of Insurance warns that these insurers are not members of a guaranty association, so claims could go unpaid if the company fails, and that the policies carry fewer consumer protections. Ask your agent whether a quote is surplus lines and whether a licensed insurer will write the risk first.

Work with an agent who writes rental policies

The NAIC describes three ways to buy: independent agents, who quote several companies; exclusive agents, who sell one company's products; and direct sales online or by phone. For a rental, an independent agent who places dwelling policies regularly can compare several landlord forms at once.

Give the agent the facts that change the risk:

• Number of units, and whether you live in one of them.
• Lease length, and any short-term or furnished rentals.
• Planned vacancies or renovations.
• Pools, trampolines, wood stoves, or dogs on the property.
• Prior claims on the building.

The standard dwelling form provides no coverage to anyone on the policy if an insured intentionally conceals or misrepresents a material fact, before or after a loss. For how insurers and states treat misstatements on applications and claims, see what insurance fraud is.

Use inspections and upgrades to lower the premium

The NAIC lists features that many insurers discount: smoke detectors, burglar alarms, sprinkler systems, deadbolts, window security devices, storm shutters, updated electrical or plumbing systems, and a new roof. Older homes and homes in poor condition usually cost more to insure.

1. Before you request quotes, inspect the rental for roof wear, electrical and plumbing age, missing smoke detectors, and trip hazards. Fix what you find and keep receipts.
2. Ask each agent which upgrades earn a discount with that insurer and how much.
3. Expect the insurer or agent to inspect or photograph the property. If the insurer asks for repairs, get in writing what it requires and by when.
4. Act on hazards tenants report. A policy is not a maintenance contract: it pays for sudden damage, not for items that wear out, and under the dwelling form you must protect the property from further damage after a loss.

For the coverages to include before you shop, see whether you need landlord insurance for a rental property.