Running a rental property carries various risks, from fire to equipment accidents. Here's what fire insurance and facility liability insurance cover, and what to check before you sign up.
- Fire insurance covers damage to the building itself and is a basic safeguard for rental property owners.
- Earthquake insurance is an optional add-on that must be bundled with fire insurance — it can't be purchased on its own.
- Facility liability insurance covers cases where the building's equipment or structure causes damage to a third party.
- A tenant's own belongings and liability are covered by the fire insurance the tenant carries (contents and tenant liability coverage).
- Whether coverage is needed and what it should include vary with the building's structure and age, so check on a case-by-case basis.
The Basic Role of Fire Insurance
Fire insurance covers damage to the building caused by fire, lightning, wind, or flood. In the rental business, it's a basic safeguard that protects the building itself — the owner's core asset — and many owners carry it. Coverage and deductibles vary by insurer and plan, so it's important to check the terms of your policy.
Earthquake Insurance as an Option
Earthquake insurance is an optional policy that can only be added on top of fire insurance. Because damage caused by earthquake, volcanic eruption, or tsunami isn't covered by fire insurance alone, owners who want to be covered for that risk consider adding earthquake insurance. It's also worth checking that how coverage amounts are set and how payouts work differ from ordinary fire insurance.
What Is Facility Liability Insurance?
Facility liability insurance covers your liability if a defect in the building's equipment or structure, or a lapse in management, causes damage to a third party — a tenant or a passerby, for example. Accidents that could make the owner liable — falling exterior wall material, water leaking from plumbing, and so on — do happen, so many owners consider this coverage as part of managing their rental risk. Water leaks in particular can spread to other units or the floor below, so it's worth keeping in mind that the damages involved can end up being substantial.
How This Differs from the Tenant's Own Fire Insurance
The fire insurance a tenant carries typically includes "contents insurance," covering their own belongings, and "tenant liability insurance," covering damage they cause to the building as the renter. Since the owner's fire insurance and facility liability insurance cover different things than the tenant's own fire insurance, it helps to understand that each plays a distinct role in covering risk.
What to Check Before Signing Up for Coverage
When signing up for coverage, check the scope of coverage, the deductible, the basis for the insured amount, and whether you need earthquake insurance. If you own multiple properties, bundling them together can sometimes lower the premium, so it's worth choosing coverage suited to the building's structure and age in consultation with your management company or an insurance agency.
When to Review Your Coverage
Insurance isn't something you set once and forget — there are moments to revisit coverage, such as after building repairs, equipment upgrades, or changes in the surrounding area. It's a good idea to check your coverage around renewal time and, if needed, consult your insurer or agency to adjust it. After new construction or a major renovation, the building's assessed value may change too, so it's worth reconsidering the insured amount at that point as well.
Frequently Asked Questions
Do I need both fire insurance and facility liability insurance?
Since they cover different things, many owners consider carrying both depending on their risk. Needs vary by property, so we'd recommend consulting an insurance agency.
Is earthquake insurance mandatory?
No, it's optional. Damage caused by earthquake, eruption, or tsunami isn't covered by fire insurance alone, so whether to add it depends on how you weigh that risk.
Does the owner's insurance cover accidents caused by a tenant?
It depends on the cause and circumstances. If a defect in the building's equipment is the cause, it may fall under facility liability insurance, but a specific case needs to be checked with the insurer or a specialist.
Summary
Running a rental property carries various risks, from fire to equipment accidents, so it's important to have the right coverage in place — fire insurance, earthquake insurance, facility liability insurance — matched to the purpose. Choose the right coverage for your property in consultation with your management company or insurance agency.