Darren Nix, founder and CEO of Steadily, has reviewed thousands of landlord insurance claims and identified three critical mistakes that drain landlord profits and leave properties exposed.
The first mistake involves underinsuring properties. Landlords often base coverage limits on purchase price rather than replacement cost. A $300,000 property might cost $450,000 to rebuild after total loss. When claims occur, landlords face massive out-of-pocket expenses. Insurance companies pay only up to the stated limit, leaving owners short.
The second error centers on inadequate liability coverage. Standard policies typically include $300,000 in liability protection. A serious injury on the property can generate lawsuits exceeding $1 million. A tenant slips in the stairwell, fractures a hip, requires surgery. Medical bills alone climb to $200,000. The injured party sues for pain and suffering. The landlord's $300,000 limit covers a fraction of the judgment. Personal assets face attachment. Nix emphasizes that liability limits should match local risk profiles and property types. Multifamily buildings need higher limits than single-family homes.
The third mistake involves skipping loss of rent coverage. When a fire or flood damages a rental property, the landlord loses incoming rent while repairs proceed. Repairs take months. Mortgage payments continue. Property taxes continue. Utilities continue. Without loss of rent insurance, landlords drain savings or borrow money to cover these gaps. This coverage costs relatively little but protects cash flow during recovery periods.
Nix notes that most landlords address insurance only at purchase or after disaster strikes. They don't review policies annually as properties age, rents increase, or local construction costs rise. Coverage that was adequate in 2018 becomes inadequate by 2024.
Landlords should request replacement cost valuations from contractors, not rely on