Learn why Lessor’s Risk Only insurance coverage is a must for investment property owners.

Read about basic rating factors and classification levels used for Lessor’s Risk Only coverage.

Risk is inherent in investment property ownership. While insurance is not designed to address every business risk, investment property owners need Property and General Liability insurance for broad-based risk protection.  A lesser understood, but very essential, insurance coverage for investment property owners is Lessor’s Risk Only insurance.

Lessor’s Risk Only or landlord insurance (LRO) is designed to cover you, the investment property owner, for property damage or injuries suffered by your tenant(s) while on your premises. Often included in a businessowner’s or package policy, LRO is distinct from your Property insurance and General Liability insurance. The examples that follow for each of the three basic coverages are for illustrative purposes only. Bear in mind that actual policy terms, conditions, and limits always apply to actual claims.

As an investment property owner, you need Property insurance to cover loss to your property from perils such as fire, smoke, wind, vandalism, and theft. You also need General Liability insurance for loss or injury that occurs on your property and results in a third-party liability claim. An example might be a delivery person becomes injured from a fall on the steps of your property due to a loose handrail. The medical payments provision of your General Liability policy would cover the medical bills of the delivery person sustained from the fall. If the delivery person’s injuries from the fall were severe, your General Liability policy would respond to his/her lawsuit for damages.

The distinction of LRO coverage is that it only applies to your liability as investment property owner to the tenant(s) arising out of tenant occupation and use of your property. Suppose a tenant (as opposed to a delivery person in the example above) falls on the steps of your property and is injured. Your LRO policy would respond to the tenant’s injury claim. Another example involves the landlord’s liability for business income loss suffered by other tenants due to a fire in one tenant’s location. Suppose your investment property is a strip shopping center, and one of your tenants is a bar/restaurant. A fire breaks out in the bar/restaurant that spreads to space occupied by a hardware store next door, rendering the hardware store inoperable. Your LRO policy would respond to a claim made against you by the hardware store owner for lost income. LRO coverage is vital protection for investment property owners whose tenants fail to maintain their own insurance coverage or whose coverage has lapsed when a loss occurs.

Rating factors used by insurance companies for LRO include size and type of occupancy, location and condition of the investment property, and maintenance of loss prevention measures. The higher the occupancy hazard, the higher the rate. A schematic of typical investment property occupancies from lowest to higher rating classifications is:

Lowest:                  Single family dwelling for rent
Low:                       Apartment building
Medium Low:       Mixed use apartment and retail
Medium:               Mixed use apartment and retail, where one tenant is a restaurant
Medium Higher:  Strip shopping center with various occupancies
Medium High:      Manufacturer’s job shop
Higher:                  Carpenter’s shop
Higher:                  Auto body repair shop with paint

Safety is a key responsibility for landlords, and insurance companies view well-maintained properties, including those with operating smoke detectors, carbon monoxide detectors, sprinklers, fire extinguishers, and alarm systems, favorably.

Richey-Barrett Insurance is your Trusted Choice Independent Insurance Agent for investment property insurance. Contact us today to make sure your coverage includes LRO and to discuss any insurance-related concerns.