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The Complete Guide to Landlord Insurance in California: What Every Property Owner in San Diego Must Know

Owning a rental property in vibrant San Diego market can be an excellent source of passive income. In recent years, the renter population has been growing, and there are many opportunities to grow the business. Having said that, renting out an investment property involves certain risks that go beyond basic wear and tear caused by normal use. These risks include perils (storms, wildfires, hail), vandalism, and similar accidents. Without adequate insurance coverage, your property can be damaged by a single accident, and you could suffer a substantial financial loss and lose your steady income source.

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For this reason, you should obtain landlord insurance policy. This coverage is specifically designed for rental properties and it serves to protect you against the unique risks related to rental business. If you are a landlord in San Diego, you can purchase this policy yourself, or you can seek assistance from professional property management companies who will offer insight and guidance on securing the perfect coverage for your needs.   

In this blog, we have compiled the most important information such as what is covered with this policy, what is not covered, how much it costs, how much coverage to get, and how to save money on premiums.  

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What Is Landlord Insurance?

Owning a rental property introduces new income opportunities, but also new challenges. When you become a landlord, your regular homeowners insurance might not be sufficient because it is designed for properties lived in by the owner and not for the rental ones. Landlord insurance addresses these deficiencies by offering coverage that is customized for rental business.

Landlord insurance, or ‘rental property insurance’, serves to protect owners of single-family homes or multi-unit buildings who rent out their properties to tenants. This is a type of property insurance that is specially designed to protect you against the peculiar risks related to owning and renting real estate.

What Is Covered

As with any other insurance, the exact scope of coverage depends on the insurance provider, as not all companies offer the same coverage.

Standard landlord insurances typically cover these areas:

  • Property damage – Also known as ‘dwelling coverage’, it helps pay for the repair or rebuild expenses in case the property structure or its contents are damaged due to general damage, fire, vandalism, etc. In addition, it protects other structures (fences, garages, sheds, etc.).
  • Liability coverage – This coverage helps pay for the medical and legal expenses if you’re found liable for someone else’s injury or property damage. For example, if a tenant or guest gets injured on the premises and decides to sue, this insurance will help pay for the legal fees.
  • Policy holder’s personal property – Landlord’s personal belongings that are left for the use of tenants are also covered by some policies. The belongings can include furniture, décor accessories, kitchen equipment, etc.
  • Lost rental income – Some providers offer protection in cases of lost income due to a covered loss.
  • Accidental damage caused by tenants – Some policies cover accidents that were caused by renters.

What Is Not Covered

Although landlord insurance provides numerous protections, there are certain exclusions:

  • Natural wear and tear – Gradual damage due to regular use is not covered.
  • Neglect / intentional damage – Neglecting to conduct regular maintenance and intentional damage are not covered.
  • Tenants possessions – Renters’ belongings are not covered either. In case of damage caused by a storm, for example, insurance will only help pay to replace your items, and not the renters’ belongings. This is why you should advise them to purchase renters insurance, which protects their own possessions.
  • Appliances / equipment repairs and replacements – General maintenance and equipment replacement is not covered. However, damage caused by faulty appliances can be covered.
  • Flooding and earthquakes – Flooding and earthquakes are not included and are purchased separately.

“Dwelling Policy”: 3 Types Of Landlord Insurance

The three most common types of landlord insurance include:

  1. Dwelling Policy 1 (DP1): Limited protection – It is the cheapest choice with only the basic coverage, which is why it is the least popular among the landlords. This policy is recommended for owners who need minimum protection and want to save money. Dwelling policy 1 covers only the depreciated cash value for accidents caused by listed perils such as explosions, windstorms, aircrafts, vehicles, etc.
  2. Dwelling Policy 2 (DP2): Moderate protection – This policy covers all perils from DP1, along with damage, falling objects, accidental water discharge, glass breakage, burglary, etc. Unlike DP1, it pays out the replacement cost value. In other words, it helps pay for the full expenses needed to restore the property to its original condition. If you are a landlord who needs more than basic coverage but without a lot of extras, this is the policy for you.
  3. Dwelling Policy 3 (DP3): All-inclusive protection – Also known as “all-risk” policy, this is the most common type of policy. It covers every peril and incident except for several exclusions.It helps pay expenses forreplacements, rent loss, and liability protection.This policy is perfect for landlords of non-owner occupied properties.

Add-On Coverage Options For Maximum Protection

Due to unique hazards landlords are facing, it is worth investing in additional coverage options on top of your standard insurance. Depending on what is included in your primary policy, here are some additional coverages you may be interested in:

Loss of Rent Coverage

When your property is located in an area that is highly prone to natural disasters, there is a strong probability that it can be damaged and become uninhabitable. When this happens, you cannot collect rent, you lose your income, and you have to repair the damage before the tenants move in. For this reason, it is worth considering purchasing loss of income coverage. It will help you financially, you will recover faster, and continue with your business as usual.

Umbrella Insurance

Umbrella insurance serves as an added layer of protection as it provides additional liability coverage that helps you pay for the expenses beyond standard policies like homeowners, landlord, auto coverage.

This type of comprehensive coverage helps you in two ways:

  • It covers specific scenarios which are not covered by your primary policy
  • It helps pay for the cost of injury or damage claims in cases when your primary policy limits are exhausted

Theft and Vandalism Coverage

With theft and vandalism being a huge concern, obtaining this coverage would be a wise decision. It can protect you against things like unauthorized break-ins and intentional property damage.

How Much Coverage Do I Need?

Although some states require minimum purchase, in the state of California the amount of coverage is a personal decision. At the same time, there are certain aspects to consider when deciding on the limits of landlord insurance coverage, such as:  

  • Unique risks –Your property’s location determines how susceptible it is to damage from natural perils. If your real estate is located close to bodies of water, make sure to purchase coverage against these risks.
  • Personal property for tenant use – The worth of your property and personal property that are used by renters will define the limits of this policy.
  • Personal preferences –  Think of the amount of deductibles that make you comfortable, since lower premiums mean higher deductibles.

Who Needs Landlord Insurance?

Whether you need this insurance or not mostly depends on how often you rent out your property. You may want to consider acquiring landlord insurance in these cases:

  • Long-term occupancy – Landlords who are renting out space for longer periods (6 months or longer) can experience a worry-free rental experience if they purchase this coverage.
  • Short-term occupancy – If you are a host who owns a vacation rental that is regularly occupied, you might need to purchase commercial policy instead, as your place might be considered a business.
  • Occasional short-term occupancy – In case you only rent short-term a few times a year, there is a chance your home insurance policy offers coverage for the rental property. Contact your property manager or insurance provider to see whether you need to buy a home insurance rider.

Insurance Considerations for Landlords in San Diego

In California, landlord insurance is not mandatory by law, but some mortgage providers might require you to obtain one. Regardless, it is strongly suggested to purchase it and protect yourself with suitable coverage.

Check out some of the additional insurance considerations for landlords in San Diego:

Floods

When it comes to casualties and property damage, floods top the list as one of the biggest natural hazards in the US. With rising sea levels and increased flooding along the coastline, you should also consider adding flood coverage to your primary policy, because many standard landlord policies do not cover natural disaster flooding. Furthermore, The Federal Emergency Management Agency (FEMA) requires flood coverage for properties that are located in high-risk areas.

Wildfires

Rental owners must also review wildfire coverage so that their property is fully protected. Check your policy or consult with professional property manager or insurance agent in order to be able to make a wise decision. Please note that some carriers exclude wildfire for properties that are located in specific high-risk areas.

Earthquakes

Many policies do not include coverage against earthquakes. If your property is located in a place that is prone to earthquakes, you should consider purchasing this coverage. If your tenant gets injured during an earthquake because your property’s structure was not sound enough, you may be held responsible and liable.

How Much Does Landlord Insurance Cost?

When it comes to the cost of landlord insurance, there is no one-fit-all rule. The exact cost will be determined based on several important factors, which are listed below:

  • Location – Geographical location can also influence insurance rates. For instance, high-crime areas or areas of high risk of natural disasters typically cause higher costs.
  • Type of Property – Property type (single-family home, apartment complex, etc.) can also affect the total cost.
  • Deductible – The amount of deductible determines how high the premium will be, a higher deductible means lower cost policy.
  • Your Claim History – Your history of claims will also influence the final cost. A history of no or few claims will secure a more affordable rate.
  • Coverage Amount – More comprehensive coverage with higher limits will have higher annual premiums.
  • Safety Features – The extent of safety features implemented on the premises will also affect the cost of the policy.
  • Bundling multiple policies – When you decide to bundle several policies into one, you are usually offered a discount.

6 Tips On How To Lower Landlord Insurance Premiums

Insurance premium cost depends on several factors, as mentioned above (geographic location, property condition, construction type, exposures, and so on). Naturally, some things cannot be changed, but there are factors that you can adjust in order to lower your premiums, such as coverage limit and deductibles.

Below, you can find 5 tips on how to reduce premium rates.

1. Regular property maintenance

Regular maintenance checks are of utmost importance because they help you identify potential problems. By keeping your property well-maintained, your rental unit is at lower risk of damages and is attractive to insurance suppliers. Ensure all safety features on the premises are fully operational and functional at all times and act promptly if you notice any irregularities.

Ensure your property is up to standards:

2. Raise a deductible

When you raise your standard deductible it gives you an opportunity to lower the premium. However, be mindful of taking on a considerable deductible, as it means you may need to make larger than expected payments for claims in the future.

3. Create a safety plan

Designing a safety plan and taking precautionary measures is another way of lowering your premium. Some providers even offer discounts when safety is prioritized. Here are some ideas on how to enhance safety:  

  • Carbon monoxide detectors
  • Tankless water heater
  • Fire-resistant roof coverings
  • Upgrading alarm systems
  • Installing video surveillance

4. Asking tenants to acquire renter insurance

While this policy is not mandatory by law, you can ask your residents to purchase renter insurance. This way, they are not only protecting their belongings, but also protecting your investment and helping you lower your premium.

5. Moving to a safer locating

If you are thinking of relocating, consider a property that is outside high risk areas (fire, flooding). This way, you are reducing risks and able to save money on annual premiums.

6. Utilize FAIR program

This method does not reduce your premium, but it is useful for those owners who have troubles purchasing property coverage. The FAIR Plan enhances your standard policy and has more inclusive coverage.

Commonly Asked Questions

1.      Should I ask my tenants to purchase renters insurance?

Certainly! By purchasing this policy they will have coverage for their personal property, liability, and additional living expenses. Furthermore, when your occupants purchase renters insurance, you have the possibility of lowering landlord premium rates.

2.      What is the difference between homeowners insurance and landlord insurance?

Since these two policies are very similar it is no wonder why people get confused. There are several differences between them, mainly in a few additional aspects that landlord insurance offers. Homeowner’s insurance is intended for individuals who reside in the property, while landlord insurance is intended for owners who rent the property to someone.

3.      Is landlord insurance mandatory in San Diego?

While this coverage is not mandatory in the state of California, it is highly advisable to purchase one to protect your investment. It provides financial security, peace of mind, and protection against potential risks.

4.      How much does loss of rent coverage cost?

This additional coverage typically costs about 10% or less of the total policy premium. It is one of the policies that gives you great value for the money paid.

5.      How much liability coverage do I need?

Liability coverage helps pay for expenses of lawsuits for bodily injuries or property damage up to your policy limits. Ideally, you should have at least $500,000 in personal liability coverage.

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About the Author

David Miller is Real Estate Advisor at Swell Property. Whether you’re eyeing a new home, an investment property, securing the best mortgage, or aiming to enhance your property’s value, my focus is on providing personalized guidance and strategy for your success. I listen to your needs attentively, ensuring that my expertise aligns perfectly with your real estate goals. My clients’ satisfaction and referrals are the true measure of my success in San Diego’s dynamic real estate market. If you’re searching for a real estate professional who’s deeply committed to your success, I’m eager to demonstrate my expertise and win your trust. Let’s connect and start this journey together.

David Miller Real Estate Advisor

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