67.4% of Americans own a home. Not only that, but a good chunk of homeowners rent their home out to tenants.
If you’re thinking about renting out your home, you may be wondering about the best insurance policy. Do you need landlord insurance for a rental property? Or will a homeowners insurance policy be enough? Both insurance policies have coverage differences as well as varying costs.
Here’s your ultimate landlord insurance vs homeowners insurance guide and how to know which option is best for you.
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Landlord Insurance vs Homeowners Insurance
What’s the difference between a landlord policy vs homeowners policy? Homeowners insurance differs because the homeowner needs to reside in the home. If you rent out the entire home to tenants, you may not qualify for homeowners insurance.
However, if you rent a room or a section of the house to tenants while you still reside in the home, your homeowners insurance may suffice. This last point depends on many factors, which we will cover below.
When You Need Homeowners Insurance
You may be able to use your homeowners insurance if you live in your home but still have tenants.
For example, let’s say you permanently live in your home but rent out a room to a tenant. Your homeowners insurance policy may offer additional coverage to protect that room (though you should ask your insurance company).
Another example is if you rent out a room in your home to vacationers or if you rent out a second/vacation home to visitors.
If you do live in the home for a period of the year, you can use a homeowners insurance policy. But if you only live in your home occasionally, you may need landlord insurance.
Your homeowners insurance policy can cover certain events if tenants are in your home, such as a break-in or a fire. But you should always talk to an insurance company about your coverage options and if you qualify for homeowners or landlord insurance.
In addition, you should look into state and local coverage requirements. Some areas have bare minimum coverage requirements when renting your property to tenants. In this case, a traditional homeowners insurance policy may not be able to cover your property.
The state of Massachusetts is a great example. Landlords need to carry insurance that includes at least $750 worth of relocation expenses in case there’s a fire. Most homeowners insurance policies don’t include this coverage.
If you’re unsure of any legal implications, your insurance agent will be able to tell you.
What Does Homeowners Insurance Cover?
Homeowners insurance has many of the same policies as landlord insurance, though homeowners insurance may cover different items. Here’s a breakdown of the common coverage options. Keep in mind, you can always opt for more coverage additions.
“Dwelling” refers to the home’s structure, including additional structures such as the garage. This coverage option protects your home’s physical structure in case of an emergency or a disaster. The insurance company will cover any expenses needed to fix or even rebuild your home.
Common disasters and events covered under this coverage include:
There could also be more events covered in your policy. Specific events are also usually not covered, such as normal wear and tear. It’s recommended you look over your policy and know what you qualify for.
Liability protection covers you in the event of a lawsuit, in case home damage impacts your guests. Liability protection may also cover your family members and even your pets. If your guests require medical attention, they can submit their medical bills to your insurance provider.
Most homeowners choose the minimum liability protection; however, if you rent out a room to tenants, you may want to purchase more liability protection or even a separate umbrella insurance policy.
Most homeowners insurance policies also cover your personal property, such as clothes, furniture, equipment, and more. You’ll receive coverage if these items are destroyed in a natural disaster or even if they’re stolen.
Some homeowners insurance policies have personal property coverage limitations. For example, some policies only cover a percentage of your belongings or may only cover a specific dollar amount.
If you plan on renting a room to a tenant, you may need more comprehensive coverage. It’s recommended you take a complete inventory of your personal property to ensure your current policy will cover those belongings.
Living Expenses After a Disaster
If your home sustains damage, you’ll have to live away from the home, such as in a short-term rental or even a hotel room. Many homeowners insurance policies cover these living expenses, such as hotel and rental bills and even meals.
This is especially important if you rent out a room. Let’s say your home is destroyed in a fire. The living expenses policy will cover the rent you were supposed to collect.
Keep in mind that most insurance policies have a time limit when covering living expenses after a disaster. Fortunately, this coverage is different from dwelling coverage — if it takes longer to rebuild your home, your insurance policy will still cover the cost of rebuilding your house.
When You Need Landlord Insurance
Landlord or rental property insurance protects your property from financial losses, whether a tenant doesn’t pay rent or your property is destroyed.
As stated previously, landlord insurance covers the actual building as well as structures on the property. But many landlord insurance policies also include coverage for your personal property as well as any ownership liabilities.
Landlord insurance is required if you only use your property to rent out to tenants. In this case, you likely rent out your property full-time and don’t live in the home.
What Does Landlord Insurance Cover?
While landlord insurance and homeowners insurance have many similarities, landlord insurance has different coverage specifications and policies that homeowners insurance doesn’t offer. Here’s a breakdown of each.
Landlord insurance also includes a dwelling coverage section that covers just about the same damages and events as homeowners insurance. These events can include:
- And more
It’s still best that you look at different landlord insurance policies and choose the one with the most comprehensive coverage.
Landlord insurance also has liability coverage; however, this only covers your tenant and not you or your family. Like homeowners liability coverage, landlord liability policies will cover the legal and medical expenses that come with a home disaster.
Landlords insurance may also include other liability products. Rent loss coverage is a perfect example — if your tenants are unable to live in your property due to a disaster, this policy will reimburse you for lost rent expenses.
Personal Property Coverage
While not as comprehensive as homeowners property coverage, landlords will still be covered for any property they own in the home. This may include furniture, appliances, vehicles, and equipment. This property is also covered if used by tenants or for any other reason.
Other Coverage Options
Landlord insurance may also include different coverage options, depending on what a landlord needs. Common additions may include:
- Water damage coverage
- Guaranteed replacement cost for your dwelling (your insurance will pay for repairs or rebuilding your property, even if the costs exceed your original coverage amount)
- Umbrella policy
It’s always important to talk to your insurance agent about your rental properties, how many you own, and if you rent them out full-time or partially (to vacationers, as an example). This way, they can recommend the best coverage additions.
Different Types of Landlord Insurance
Another major difference between landlord and homeowners insurance is there are different types of landlord insurance. Here’s a breakdown of the different types.
Dwelling-fire form 1 (DP-1) is the most basic policy. This is a cost-effective option but is the least popular one. That’s because it only offers bare minimum coverage.
You’re only covered for the events listed in the policy. In addition, you’re only reimbursed for the depreciated rebuild value of the property.
Dwelling-fire form 2 (DP-2) is slightly more comprehensive. The plan covers 16 catastrophic events and replacement cost value (RCV) for your property.
While there’s an increase in premium, the RCV coverage helps landlords save tens of thousands of dollars if they need to rebuild their property. Most DP-2 policies also include loss of rental income.
Keep in mind, you may only qualify for a DP-2 policy if you rent out your property full-time.
Dwelling-fire form 3 (DP-3) policies are the most common policies that landlords purchase. That’s because they offer the most coverage and the majority of landlords qualify for them.
DP-3 policies cover just about all catastrophes unless they state any exceptions in the rental agreement. This policy also includes loss of rental coverage and RCV. Just about all landlords can qualify for DP-3 policies, whether they rent out their property full-time or they have some vacancy throughout the year.
Does Homeowners and Landlord Insurance Protect Tenants?
Both insurance options lack certain tenant coverages. For example, they won’t cover a tenant’s property in the event of a disaster and tenants have no liability protection. All of this is covered under a renters insurance policy.
That’s why all landlords should require their tenants to purchase a renters insurance policy.
What’s the landlord insurance vs homeowners insurance cost?
Landlord policies are typically more expensive than homeowners insurance policies, but it depends on the landlord and homeowners insurance coverage.
If you purchase a DP-3 landlord insurance policy, expect to pay 15% – 20% more on that policy than your average homeowners insurance policy. That’s because DP-3 landlord insurance has more coverage options, including all perils.
There are certain factors that affect your insurance policy price, regardless if you purchase homeowners or landlord insurance. These factors include:
- Duration of the rental period (short-term renters are riskier than long-term renters)
- Property location
- Rental income
- Home value
- Age of home and appliances
- Safety and security features
- Owner credit
- Claims history
Most insurance agencies provide a quote and may even offer additional ways to save money on your premium.
Common Claims Filed
How important is properly insuring your property? You’ll be surprised how often you’ll have to file claims. Here are some important claims filed, whether you also live in your home or you rent it out to tenants.
Accidents and mishaps are all too common in the home. Whether you or a tenant mistakenly damage your home’s structure or accidentally cause a fire, these claims are commonly filed.
Fortunately, most policies do cover accidents. The coverage extends to the home’s structure, appliances, carpets, and even other areas such as the countertops.
Don’t confuse accidents with unexpected events, such as earthquakes, which commonly aren’t covered.
While water damage may not always be included in your homeowners or landlord insurance policy, it’s recommended you purchase a water damage addition. This is because many property owners commonly file water damage claims.
Failing pipes, poor plumbing, and even significant water leakage are all covered under this policy. However, it’s essential you prevent water damage and keep up with all plumbing maintenance.
Even though the number of violent crimes is decreasing in Massachusetts, it’s best to be prepared in case your property is the target of a malicious crime. Other than robbery, a homeowners or landlord insurance policy can also cover vandalism.
While all landlords and homeowners should invest in robust security features, you also have the added security to know your insurance will cover any stolen possessions or property damage as a result of a malicious crime.
Landlord Insurance vs Homeowners Insurance: Which Do You Need?
Whether you rent a room in your home or you own multiple rental properties, it’s integral you have the right insurance policy. But do you need landlord insurance vs homeowners insurance? If you’re still unsure, you can contact an insurance agent and ask for their recommendation.
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