Last Updated on November 4, 2021 by Kravelv
Rookies make a common mistake – assuming their regular homeowners’ insurance would also cover their rental property investments.
Well, it may in some cases, but mostly, it is a big NO!
When it comes to rental properties they are not considered under the usual residential asset bracket. Instead, the insurance companies consider these properties as a source of income. Or better said a business.
For such situations, insurers usually offer a separate coverage policy – landlord’s insurance.
What Is A Landlord Insurance Policy?
As a landlord, your usual homeowner’s insurance won’t cover any liability or damages caused to your rental property. You would need extended coverage to protect you and your asset against all possible damages or liabilities caused by your tenant. Or even any third party while you’re not living on the same property.
In a nutshell, a landlord’s insurance policy covers the possibilities of damage to the structure, the loss of rental income, and even the liabilities for any accident on your rental property. However, it is noteworthy that these coverages would be the ones that your tenant’s individual homeowner policy won’t cover.
In this article, we shall discuss all the possibilities you must explore when buying a landlord’s insurance policy. Also, we would be giving away the tools to make the right purchase to protect your investment.
So, keep reading to learn more.
Understanding The Possibilities
When it comes to rental properties, as already mentioned, they are not considered residential assets. Instead, the insurance companies consider them as a business, and therefore, it also is determined a little differently.
Depending upon the options available to you, and the influencing factors, your policy may or may not include the following:
- Fire
- Vandalism
- Lighting
- External Damages
- Burglary
- Collapse
- Other Perils and Damages
That being said, your insurance coverage would usually depend on two major factors:
- The type of renter you are
- The type of insurance you seek
Let’s understand these in a little more detail.
Type Of Renter You Are
The duration and frequency of you renting your property usually determines whether you need a landlord’s insurance policy or not. For example, if you’re an occasional short-term renter, you may not even need a landlord’s policy. Instead, you can talk with your insurer, with whom you have your homeowners insurance to know whether they extend the coverage or not.
On the other hand, if you usually rent out a property for more than 6 months, you may need to get a landlord’s insurance coverage. Likewise, for short-term frequent renting, such as with vacation homes, you would need to get additional riders to your insurance cover.
Type Of Insurance You Have
Like your rental cycle, the type of insurance you choose would also decide the extent of your coverage. To put this into perspective there are three types of landlord’s insurance policies – DP-1, DP-2, and DP-3.
With every type of insurance policy, the extent of coverage varies. For example, “the best dwelling fire insurance” coverage is usually offered by DP-3 type policy. It includes all the standard features of the former two while offering extended coverage to the same. To mention a few, it includes damage due to water, war, neglect, laws and ordinances, and other perils.
When Do You Need Additional Rider?
Whether you buy the type-1, 2, or 3, you would receive basic coverage including protection against structural damages, personal liabilities, and loss of rental income, as already mentioned. However, there are several additional riders that you can include in your policy as well. Some of them are listed below.
Building Code Coverage
It needs no mention that building codes within any region are subject to change following necessary amendments. If your home is built according to the old codes, after being damaged, it may need to be renovated in accordance with the latest codes. Having an additional rider for building code coverage can help cover these additional costs.
Non-Occupied Dwelling Endorsement
Your insurer may deny you coverage for any damage or repairs if your property remains vacant for more than 30 days. To tackle with these issues, you can opt for non-occupied dwelling endorsement extension to your standard plan.
Reimbursements For Loss Of Heating And Air Conditioning
While your property is rented, any payments that you make towards your tenant due to a breakdown in heating or air conditioning can be reimbursed from your insurer. However, you’ll need to confirm with your insurer before you assume that the payments will be reimbursed.
How Much Does Landlord Insurance Cost?
According to a report from NAIC, published in 2019, average cost for homeowner’s insurance was $1,211, nationally. However, as already mentioned, rental properties are considered business entities and not residential assets, you can expect the cost to be 15%-25% higher than this national average.
There are a number of factors that come into play when deciding the cost of premiums for insurance. For example, the term of tenancy, location of the rental property, installations and fittings to be insured, and so on. Besides, your portfolio and your creditworthiness can also affect the premium you pay.
It is noteworthy that when you’re buying a landlord’s insurance, you must compare the rates and premiums. The premium for comparable factors can still vary from insurer to insurer. On top of this, the additional riders and features that you add to your policy would also increase the cost.
In a nutshell, the cost of landlords’ insurance is likely to be higher than the usual homeowners’ insurance.
The Takeaway
Before renting out your property, it is important to understand what you homeowners’ insurance would cover. Assuming what it may and what it may not, can be foolhardy. Not only would it add additional burden on your pocket, but can also damage your real estate portfolio in the long run.
It is rather beneficial to consult with your insurance agent to understand the intricacies. The professionals would be better equipped with the knowledge and necessary steps you’d need to take to protect your rental property.
