Do I Need Homeowners Insurance Or Landlord Insurance For A Rental Property?

First off, congratulations!

Buying an investment property is never easy, it’s a major financial and emotional undertaking. If you did your due diligence properly, you’re now on your way to earning passive income for many years to come.

Being a major investment, it only makes sense to protect it from the many potential perils. And, if you are like most first-time landlords, then it’s likely you’ve found yourself asking this question – “Which insurance policy do I need for my rental property: homeowners’ insurance or landlord’s insurance?”

If you have, you are not alone. It’s a common question that’s on many newbie landlords’ minds.

Fortunately for you, this is what this article will aim to answer.

What Does Homeowner’s Insurance Cover?

Just like the name says, a homeowner’s insurance cover is meant for homeowners. A standard policy is only sufficient for insuring your primary residence. A ‘primary residence’ is the main home that you inhabit.

A homeowner’s insurance policy is made up of coverages that help pay to replace or repair damages caused to your home by certain perils. Such perils include:

· Theft

· Vandalism

· Volcanic eruption

· Accidental or sudden damage caused by an artificially generated electrical current

· Freezing of plumbing

· Accidental discharge or overflow of water or steam

· Weight of snow, ice or sleet

· Falling objects

· Smoke

· Vehicles

· Aircraft

· Explosion

· Riot or civil commotion

· Hail or windstorm

· Lightning or fire

However, if you plan on renting out your home for an extended period, you’ll need a separate insurance cover. And that’s where a landlord insurance cover would come in.

What Does A Landlord’s Insurance Policy Cover?

Being a landlord carries a lot of risks. Without an insurance cover, you may find yourself footing a huge bill should something go wrong.

A landlord’s insurance covers your investment property against damage caused by unforeseen circumstances. A standard policy protects against risks such as:

· Property Damage – If your property is destroyed by a covered peril, your landlord’s cover will meet the replacement costs. Covered perils include storms, earthquakes, cyclones, floods, fires, and theft.

· Tenant Damage – Ever heard of tenants from hell? The kind that causes unimaginable property damage? A standard landlord’s insurance can help cover damage resulting from malicious tenants, their guests, or even their furry friends.

· Your Belongings – Do you provide your tenants with furniture, appliances, and other items? If you do, your landlord’s insurance coverage may help cover their replacement costs should they get damaged.

·Rent Loss – Tenants can break a lease for all sorts of reasons. It could be due to the inability to afford rent, moving to a new place, military deployment, and so on. A standard insurance policy can help cover the lost income resulting from an event the insurer has agreed to cover.

· Legal Liabilities – As a landlord, you may be held legally liable when someone in your property gets injured or their property gets damaged. A landlord’s insurance can help cover the costs.

There are, however, certain things that a landlord’s insurance doesn’t cover. Some of the things excluded from the policy’s coverage include:

· Loss or damage to your tenant’s belongings. A landlord’s insurance doesn’t cover damage to tenants’ properties, such as clothes and electronics. For that protection, your tenants require a different type of insurance called a renter’s insurance policy. It’s for this very reason that a growing number of landlords are requiring their tenants to have it before signing the lease.

· A property that is “owner-occupied.” According to the National Association of Insurance Commissioners, you are typically ineligible for a landlord policy if you live on the property that you rent out. A landlord’s insurance policy is meant for properties that are “non-owner-occupied.”

· Maintenance and equipment breakdowns. Damage resulting from your failure to properly maintain your property won’t be covered by the landlord’s insurance.

Types of Landlord Insurance Policies

There are 3 common types of landlord insurance policies: DP-1, DP-2, and DP-3 policies.

Dwelling-fire form 1 (DP-1) is the most basic and cheapest option landlords have. They are named peril policies meant to cover perils that are listed in the policy document.

Dwelling-fire form 2 (DP-2) offers a slightly better package than the bare-bones DP-1 package. It fits somewhere between DP-1 and DP-3.

Dwelling-fire form 3 (DP-3) offers the most comprehensive coverage of the three. It covers personal liability, “loss of use” or rental coverage, and losses to the building’s structure.

To know which one of the three you need, consult your insurance provider for help.

How Much Does A Standard Landlord Insurance Policy Cover?

A typical policy usually costs anywhere between $960 and $1,320 a year.

If you want to realize your investment goals, then you need to do all you can to protect your investment. Hopefully, this article has helped provide insight on what exactly you need for your property and why. If you need more help, please consider hiring professional services.