If you own rental property, it’s likely you already understand the importance of insurance. A home is a valuable thing to own. To protect property, owners need to be sure they are fully insured.
When it comes to insurance, there are so many options available. If you are new to renting out your property, your options may be a little confusing. Accidents happen, so making sure you understand and select the best insurance policy to fit your needs is necessary.
There are insurance policies that have been created with landlords in mind to make sure they have all of the coverage they need. These insurance policies provide additional protection and help landlords avoid any financial loss they might face from a rental property.
If you are a landlord assessing your options, you are likely contemplating whether a landlord insurance policy is better than a homeowners insurance policy or vice versa. Would a standard homeowners insurance policy suffice? Let’s find out!
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What are the main differences between landlord insurance and homeowners insurance?
Landlord insurance covers liability and damages that might occur in homes occupied by tenants, while homeowners insurance covers homes occupied by the owner. If you are not planning to rent your property out on a full-time basis, homeowners insurance might be a better option for you.
Cost is another factor to consider when comparing landlord insurance and homeowners insurance. This cost will be specific to your situation. You will need to weigh the value of the rental income your policy can supply you with if your rental property faces damages.
Landlord insurance tends to cover loss of money from tenants not paying rent, the structure of the home, and premises liability, which is necessary if someone is injured by something unsafe or defective on your property. A standard home insurance policy will not be able to replace the loss of any income.
Landlord insurance protects the property and any items that are specified as being covered. This does not include the belongings of tenants. You might encourage them or even require them to get renters insurance. With renters, insurance tenants can protect their possessions and themselves.
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What coverage comes with landlord insurance and homeowners insurance?
Your coverage will depend on the insurance company you go through and the policy you pick. You may also have the option to add additional coverage to the plan you choose. It also depends on what you feel comfortable spending.
It is up to you and your insurance provider to assess your options and figure out exactly how much coverage you need.
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There are a few different types of homeowners insurance options to choose from.
What is available for you may change depending on the company you go through.
- HO1 policy– This option is the most basic. This policy covers theft, vandalism, smoke damage, fire, lightning, hail, windstorms, and only a few more events. It does not include floods, earthquakes, and other pretty common risks. An HO1 tends to be the least popular option as it provides little coverage, meaning you will have to pay quite a lot out of pocket.
- HO2 policy– This policy is pretty similar to HO1. It is still fairly basic. An HO2 policy provides coverage for the same things in an HO1 policy, with a few additional coverages. These include sleet, ice, snow, and falling objects.
- HO3 policy– An HO3 policy covers quite a few more events and is the most commonly selected option. This policy provides coverage for way more than the previous policies. With an HO3, your house and personal property have coverage from nearly everything.
Other policies include HO5, HO6, and HO8.
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There are also three different types of landlord insurance policies.
- DP1 policy– This policy provides little coverage on your rental property. The policy lists every peril included, and you will not receive coverage for anything outside of the list. DP1 policies usually include fire, lightning, hail, windstorm, explosions, riots, vandalism, smoke, vehicles, and aircraft.
- DP2 policy– This policy also lists every included peril but covers more than what is offered within a DP1 policy. Additional perils include collapse, freezing pipes, electrical damage, ice, snow, and more. Again, if you choose this policy, you will not receive coverage for anything not included on the list.
- DP3 policy– A DP3 policy is the best option for your rental. This is an open peril policy. That means you will be able to receive coverage for things that are not precisely listed. Within a DP3 you will find a list of exclusions as well.
It is entirely up to you to decide which policy is best for you. Consider the amount you are willing to pay on your premium and the different types of coverage you anticipate needing. If you live in certain places, you may not need to worry about having coverage from floods. If you live in other areas, you may not need earthquake coverage. You may find that particular coverage options are not worth paying more.
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When selecting the insurance policy for your rental, you will want to consider how long you plan to rent out your property.
If you already have a homeowners insurance policy in place and do not tend to rent your home out long-term, you should be fine without landlord insurance. According to the Insurance Information Institute, some insurance companies are fine with this scenario, given they have been notified ahead of time. However, some insurance companies might require an endorsement to be covered in this situation.
You should also be fine only having homeowners insurance if you live in your home at the same time as your tenants and only rent out one room. Whether this is allowed may depend on how long they plan to live there and how many tenants you plan to have at one time.
The Insurance Information Institute also explains that if you plan on renting out your property regularly, even for small chunks of time, you will not be covered by your standard homeowners insurance because this is considered a business.
With that in mind, a landlord insurance policy can benefit you. If you have decided to lease your home to the same people for a lengthy period, a landlord or rental dwelling insurance policy will be necessary. If you rent out your entire home, there is no way around this.
Coverage will vary depending on the policy you choose. Be sure to check with the insurer you are going through to figure out what is covered.
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How much does homeowners insurance differ from landlord insurance in cost?
The Insurance Information Institute states that a landlord insurance policy costs around 25% more than a homeowners insurance policy. The main reason for this difference is the number of claims typically seen when comparing homes occupied by the owner and homes occupied by tenants. There seem to be more claims when homes are lived in by people other than the person who owns them. Landlord insurance policies tend to include more coverage when it comes to liability.
There are ways to save money as well. Some insurers offer discounts for updates you make on the property. You may also receive a discount if you choose to bundle a few different insurance policies.
There is also a variety of coverage options within homeowners insurance and landlord insurance. Depending on the coverage you decide to go with, this price will differ. Do not let the cost be the only thing that makes up your mind.
You must purchase the correct insurance to protect your property. Saving a little money now is not worth how much you face having to pay down the line if anything happens. Landlord insurance tends to be more expensive, but you are less likely to find issues with any claims you make.
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Keep in mind that landlord and homeowners insurance will not cover your tenants.
As a landlord, you might want to consider requiring your tenants to acquire renters insurance. Many landlords put this in the lease because they know their policy will not cover their tenants. A landlord policy exclusively covers the needs of a landlord.
There are many policies for renters that are reasonably priced. Renters insurance is worth requiring. If anything happens to the personal possessions of your tenants, whether damaged or stolen, they will be grateful to have the coverage. This policy will also provide them with liability protection.
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Now that you know more about your options, you should have no issue making the right decision for yourself.
Insurance providers are there to help you assess your many options and find the right one for you. The coverage you need may differ from the coverage another renter needs. It all just depends on your situation.
Think long and hard about the policy you decide to take on. Assess all of your options and consider what you risk by not being insured correctly. Before you allow renters into your home, make sure you are prepared to do so.
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