Q: I just moved into a new house and want to start renting out my old house. I currently have a homeowner’s insurance policy. Does that still cover my house now that it’s a rental property, or do I need owner’s insurance?
A: Owning a rental property is a great way to earn extra income. Homeowners who decide to rent out their property may wonder, “Do I need homeowners insurance, or is a homeowners insurance policy sufficient?” Generally, homeowners will need to purchase a homeowner’s insurance policy to cover rental properties, because homeowners’ insurance policies do not provide the same type of coverage as homeowners’ insurance policies.
Owner coverage covers property owners if the home suffers damage from a list of stated hazards. It can also provide financial protection if the owner is found to be legally liable in certain situations.
Homeowners insurance usually only covers residences occupied by the owner, so a rental property owner will want to get homeowners insurance coverage.
Homeowners insurance helps protect policyholders from unforeseen costs resulting from damage to their homes caused by covered events. For example, if a hurricane drops a tree branch onto the roof of a house, punching a hole and causing damage to the contents of the home, homeowners insurance will usually cover the cost of repairing the damage, replacing the contents of the damaged home, and repair costs. cleaning, minus the deductible. If this same scenario occurs in a rental home, the landlord’s insurance policy will pay to repair damage to the home, but the renter’s personal property will not be covered under the landlord’s policy.
Before renting out their property, landlords may want to look at the best landlord insurance companies. Comparing owner rental insurance quotes from different carriers makes it easier for rental property owners to find the best combination of coverage and affordability.
Landlord insurance offers coverage for property damage caused by covered events.
When comparing landlord insurance vs. homeowner insurance, customers will find that both types of policies offer residential protection for the insured property. Residential coverage applies to the physical structure of a rental building. If the building is damaged as a result of a covered event, landlord’s insurance helps cover the cost of repairs.
For example, if a burst pipe in a rental house causes a flood in one of the bathrooms and damages the floor and walls, the homeowner’s insurance policy generally helps pay for cleaning the water and repairing the damaged floors and walls.
Some homeowners insurance policies include coverage for other buildings. This protection extends the scope of occupancy to separate structures on the property, such as a garden shed, fence or detached garage.
While some insurance companies may offer actual cash value coverage, it is recommended that landlords take out replacement cost coverage.
Similar to how a homeowner’s insurance policy works, a homeowner’s insurance policy will pay out claims in one of two ways: actual cash value or replacement cost.
- Actual cash value: Actual cash value coverage calculates the cost to repair or rebuild a rental property at its current value, less depreciation (which takes into account the age, condition of the home, etc.).
- Replacement fee: Replacement cost coverage pays for the costs to repair or rebuild the property at its current price, without depreciation.
It is often suggested that landlords choose replacement cost coverage for their rental units. While replacement expense coverage will usually be more expensive up front, it can prevent the policyholder from having to pay a large picket fee in the event of a claim.
For example, if a fire destroys an older rental property, the policyholder with an actual cash value policy will receive a claim payment that takes into account the long-term depreciation of the home. If the landlord has replacement cost coverage in this type of scenario, the insurance company will pay to repair or rebuild the home at current prices, and depreciation will not be a consideration.
Landlord insurance can provide coverage for lost rental income if the property becomes uninhabitable and the tenant has to move.
Many events covered by landlord insurance have the potential to render a rental uninhabitable. Damage from fire and water damage, for example, can take weeks, months, or longer to mitigate. Tenants cannot live in the property during this time, and landlords will not receive rental payments.
Landlord insurance can offer lost rental income protection if the property becomes uninhabitable due to damages incurred. This coverage is usually limited to situations where the tenant has to leave the property. There are other types of coverage that landlords can look at in purchases that can provide protection if the tenant is late on payments. For this reason, landlords will want to check their landlord insurance policy carefully to see what is and is not covered as it relates to landlord rental insurance.
An owner’s insurance policy will also offer liability coverage for medical or legal expenses.
Accidents are unpredictable and sometimes unavoidable. When landlords lease their property to tenants, they may want to make sure they have the necessary rental liability insurance coverage in case of landlord liability. This coverage helps protect the owner if a tenant, guest or even a third party contractor is injured on the property. In the event of an accident, owner liability insurance can help cover the injured party’s medical expenses, and can also provide financial protection to the owner if the injured party decides to take legal action.
For example, if a tenant breaks a leg while on the property from falling through a rotten deck plank, landlord liability insurance for the rental property can help pay for the medical bills of the injured tenant, as well as the costs of potential lawsuits against the landlord. related to the accident.
Depending on their needs, landlords may want to choose additional coverage such as guaranteed income insurance, flood insurance, emergency coverage, or additional construction costs.
Landlords can generally customize their landlord insurance to suit their individual needs. Many landlords add extra safeguards to adapt their policies to the unique risks their property faces. For example, a standard homeowner’s insurance policy does not cover flood-related damage. Landlords may choose to purchase additional flood insurance for their rental property if the property is located in an area with a high risk of flooding.
Other coverage options for landlords include:
- Guaranteed income insurance: This protection helps cover monthly rental costs if the tenant misses a payment or is unable to pay the full amount.
- Emergency coverage: Emergency coverage can help cover landlord costs to travel to their property and fix any emergency problems their tenants have, such as a leaking appliance.
- Coverage of additional construction costs: After damage, such as a fire or a burst pipe, the rental property may require additional repairs to bring it back up to code. Additional construction cost coverage helps pay for these additional repairs.
Homeowners insurance premiums tend to be slightly higher than homeowners insurance premiums because rental properties are prone to damage.
The average cost of homeowners insurance is generally higher than the cost of insuring a property with homeowners insurance. In general, rental properties are more likely to suffer damage than owner-occupied homes because tenants often do not feel a sense of ownership when renting a home. This can lead them to skip general maintenance or allow a small problem to develop into a major problem before contacting the owner.
In addition, the cost of owner’s insurance can vary depending on the property. Several factors go into determining the owner’s insurance rate, including:
- Property location
- Unit or house size
- Property value
- house age
- Long term versus short term tenants
- Deductible amount and coverage
- Additional coverage
Premiums may be higher for short-term rental properties than for properties with long-term renters.
With the increase in privately owned vacation rentals, more and more homeowners are renting out their vacation properties as short-term rentals. These homeowners may be surprised to learn that homeowners insurance often costs more on short-term rentals than on long-term rentals.
With long-term leases, where the same tenant may rent the property for months or years, the risk is less. Long-term renters often want their homes to remain in good condition. This makes it more likely that they will contact the landlord with maintenance issues or property issues.
Short-term rentals, such as week-long vacation rentals, have more tenants moving in and out in a short amount of time. More tenants means more opportunities for property damage. In addition, short-term renters often don’t stay at the property long enough to notice problems or report them.
For example, a landlord who owns a beachfront condo and rents it out for the short term might have several different families come to live on the property for a month. Since each family will only be living in the house for about a week, it is likely that neither of them will notice a leak under the sink. Over time, leaks can turn into catastrophic failures and cause water damage, but homeowners may not know about it until it’s too late.
Because landlord insurance does not cover renters’ personal items, landlords may want to consider having tenants carry tenants’ insurance as part of their lease agreement.
Renters insurance is not required by law, but landlords can choose to require it for their tenants. In most cases, needing renters insurance is a good idea for landlords and renters alike.
There are many reasons for renters to get renter’s insurance to protect their belongings. Owner’s insurance only protects the owner; Renters insurance helps protect renters. Tenants generally need their own policies to protect their belongings such as furniture and clothing.
Additionally, needing renters insurance for renters can help landlords. Tenants who are willing to purchase renter insurance indicate that they are willing to work with the landlord. It can also denote responsibility, meaning a tenant can take better care of the property than someone who refuses to protect his own belongings. Landlords can suggest one of the best renter insurance companies, such as Lemonade, to their renters.