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empty vacation homeWhen your business enterprise owns a property and is making plans on renting it out, there are a few procedures to doing so which are not as easy as putting up a “for rent” sign outside your yard. Your business will require having an insurance premium specific to your rental properties. Moreover, you will also have to factor in considerations that are not found with the insurance policies for standard homeowners. For instance, if you have rented out your home and have not given that information to your insurance, the premium you pay for may not have your home covered against the risks that are under your cover document. This happens if a business rents out vacation homes for its top management to tenants with no permanent residence status on the properties as such poses significant risk for the policy issuer.


Regardless of what the business wants to do with such property, it is critical to give any relevant information to your insurance company as dishonesty may lead to insufficient coverage or denied claims. When it comes to the insurance policies for rental properties, the main concern for any business would be the structure itself including other buildings within the property, the foundation, and the roof. A business may make inquiries regarding multi-family dwellings if the property is a duplex, a condo or an apartment. Regardless of the type of properties, there are a few critical factors to take into consideration when it comes to taking an insurance policy for your rental property. In this article, we are going to discuss what a business should know regarding insurance before deciding to purchase a rental property.


1. Having the Rental Income Protected

One of the critical factors that a company should take into consideration about your insurance policy is whether or not you want to cover the income generated from the rental properties. Your tenants will be forced to look for an alternative rental housing if a storm or fire damage makes the rental properties unlivable. Until the house can be renovated and ready for renting out again or re-renting to former tenants, you will not be getting any form of rental income from the properties during that specific time. An insurance company can make payments to fill up that gap if you have taken an insurance policy for rental protection. In an event of loss, you can have a policy that will give you fair rental income coverage. A business will need to determine the total amount of rental income that a property will generate and get an insurance premium for the calculated amount. If your finances are tight and your company budget depends on the income generated from the rental property, taking such insurance coverage is very important. 

2. Making a Choice Between Cash Value and Replacement Cost Insurance
A company will only receive the amount of money that would be enough to make the necessary repairs to bring the property to the status it was before the loss occurred with the value of depreciation included. The only way to get a full compensation is to have a full replacement cost. If you don’t have one, you will be forced to use more resources from the business to have the rental property fixed correctly. It will cost your business more to have a full replacement cost insurance coverage. However, such coverage will be less expensive as compared to the number of resources that your business will be forced to invest in the properties to have it fully operational after a loss. 

3. Furnishing the Property and the Appliances

When a business acquires a rental property and leases it out to a third party, it will need to have insurance for the property itself but not a premium for all of the contents inside. This exception includes any appliances that a business owns inside the properties including such things as dryers, washing machines, refrigerators, stoves, and dishwashers. The standard fire insurance policy does not include the coverage for such appliances, and it is critical for a company to take insurance coverage for those appliances. A business needs to calculate the total cost of all the appliances in the property and ensure that it is the minimum amount that is insured against personal property damage. Any appliances that belong to the tenants will not be under the responsibility of the property owner but theirs. You can advise your tenants to take a personal property cover for items that they bring with them to the property against eventual loss. Your business will need to make them understand that it will not be responsible if a fire breaks out and destroys their belongings.

4. Making Smart Insurance Choices to Maximize Rental Income Profits

Any business that buys a rental property wants to generate profit from the rental income. The maintenance costs, repairs and property taxes will not stop by renting out the property to someone else. Consequently, a company will need to do everything within their power to ensure that the worth of rental income is as a high as possible. This can be achieved when a business makes the right decisions regarding the insurance policies to take to boost the net profit after tax. Considering a higher deductible is one of the incentives that will help you achieve the highest possible profits.


Valerie Cox is a contributing writer for Greenlee Realty Group.

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7910 Ralston Rd., Ste 7
Arvada, CO 80002

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