Regardless of how many rental units you own, you need to protect your investment with the right insurance coverage. That means covering the property in case of fire, vandalism, and other physical losses as well as protecting yourself in case of liability claims.

"You work hard to build a portfolio of income-producing property, so take the time to make sure it is adequately protected with insurance," says real estate investment expert Russ Whitney. "At the same time, you don't want to over-insure, so pay attention to the details of this process."

Russ Whitney is the bestselling author of The Millionaire Real Estate Mindset (Doubleday). He says the first step in insuring your rental property is to find an independent insurance agent with experience in this type of coverage. You want an independent agent so you can shop various carriers for the best rate and coverage package. Don't just assume that the agent who has been handling your personal insurance for years has the expertise you need; ask how much rental property experience the agent has, and if you're not comfortable that he or she can evaluate your needs and make appropriate recommendations, find a new agent.

If you own just a few units, or occupy one unit of a multi-unit building, your homeowners insurance may provide sufficient coverage. This is done with an endorsement called "additional residence rented to others," and it typically works for up to four separate residential properties.

Once you have built your rental portfolio beyond four units, you have two options for insuring the properties. You can either find an insurance company that will write separate policies for each property, or purchase a commercial policy that covers all your non-owner occupied properties.

What kind of coverage do you need?

Your insurance should pay for the cost of repairing or rebuilding the property after a covered loss, and should also allow for additional costs if local ordinances require upgraded materials. In addition, the policy should provide coverage for loss of rental income when the property cannot be occupied due to a covered loss. You should also have coverage for any furnishings and appliances you own which are located at the rental property.

Remember that your insurance will not cover contents belonging to your tenants; they need to obtain their own coverage in the form of a renter's policy. Jeffrey Taylor, property management expert and author of The Landlord