Basic Homeowner’s insurance isn’t sufficient when renting out your property. There are subtle risks that can have you paying a pretty penny if you are not covered appropriately. Learn these minor differences and categories, as well as why you should have it, and how to save money on purchasing landlord coverage.
Landlord Insurance Classes
Landlord insurance is similar to standard homeowner and renters insurance. The insurance will cover personal property and general liability. Yet, when it comes to renting out your property, you should consider additional coverage. If your rental is only covered under standard homeowners insurance than is might have cheaper premiums, but beware as claims will most likely be denied. As an income based asset even the rent can be insured in the event of loss. Landlord insurance provides additional coverage that protects your asset and even the income it generates.
Related: Landlord Insurance: Secure Your Rental Property
There are 3 types of landlord insurance, called Dwelling Property (DP) 1-3.
DP-1 landlord insurance is the most basic form of coverage, but can slightly vary between insurance companies. It usually covers the basic dangers such as fire, lightning, windstorms, hail, riots and civil disorders, and smoke issues. Additionally, it can cover aircraft and vehicle damage, volcanoes, vandalism, and other forms of minor property disruption.
It is important to note that DP-1 coverage is limited to actual cash value. Cash value, being the value of the asset after depreciation. Unlike, replacement costs, cash value will only provide funding for the at the current market value of what is lost or damaged.
Intuitively DP-2 insurance provides a bit more coverage than DP-1. It covers everything stated in DP-1, but adds on coverage such as burglary, ice, snow, broken glass, falling objects, electrical damage, frozen pipes, cracked or breaking pipes, accidental overflow of water/steam, and collapse of a part of the building.
The major perk taking on this type of landlord insurance is that you can insure your property with coverage up to the replacement cost. Having the option to declare a set price of the value of your property beforehand without depreciation and current market value can assist in getting your property restored and rented again. This does not take into account inflation and the rise or fall of costs of raw materials, so an annual review is warranted.
DP-3 is essentially, for all perils and dangers to your property, though some insurance companies have unique exclusions. Your property will be classified under full replacement costs as DP-2 would. The major benefit of choosing DP-3 is it also covers loss of rent during such events. Major damages to your property are hard and the loss of the cash flow can accelerate the problem into a foreclosure position. Protecting the cash flow when damages do occur can be the difference in how impactful such an event is on your rental business.
Additionally, if you wish to protect the rent itself in the event that a tenant cannot or refuses to pay, look into guaranteed income insurance.
Related: Do I Need Renters Insurance: What It Is & How Does It Work?
Types of Coverage
Property Damage – This includes everything that can jeopardize your property, protecting the structure, furniture, and appliances. Note that it does not cover your tenant’s personal items that comes through renters insurance.
Liability Coverage – If someone gets hurt on your property (living there or not), due to the landlord’s negligence, you can be sued. This protects against such events including medical fees associated with an injury.
This carries over to property as well such as a flimsy wall board that ends up caving in and breaking an expensive wall mount photo.
Loss of Income – If your tenants lose their job and cannot pay rent, it covers your loss of renter income while you find new renters to fill their room.
Other Structures – This extends to items not directly attached to your main rental property. This includes items like sheds, gardens, fences, swimming pools, and others. You can set your tailored limits for “other structure” coverages.
How to Save Money
Bundling your policies – Insurance companies love customers who bundle their policies. You can put your homeowners, landlords, car insurance, and life insurance all under the same carrier and often find saving in your monthly premium costs.
Installing Safety Features – Insurers take account the amount of risk they are taking on your property before accepting you as a customer. You can make them feel assured by updating your property with safety installations such as alarms, cameras, smoke detectors, and smart-home technology, which often lowers the premiums as well.
Check for Discounts – There are often dozens of insurance discounts that are not widely known. Discounts that include military, veterans, first-time landlord, and more subtle savings. Talk with your agent as to what savings you or your rental might be eligible.
Compare Home Insurance quotes from companies that offer landlord insurance. Do not feel as though you are stuck with a policy once you’ve purchased it. You have the ability to negotiate your homeowners and landlord insurance rates anytime.
Insurance companies will test the market to see how high they can raise premiums before you take notice. Don’t feel like you are chained down with your insurance company. Shopping around and comparing rates will send signals to your insurance company that you are not happy and want lower rates.
Why Purchase Landlord Insurance?
A rental property comes with its own set of risks that are not covered under homeowners insurance. If your property is a rental with standard homeowners insurance than it is like not having insurance at all. This is because if you file a claim under your homeowner’s insurance policy, as a landlord, your claim will likely be denied. Not being covered could cost you hundreds of thousands of dollars out of pocket if your claim is denied for not having the proper insurance.
You can also check this article on best homeowners insurance companies and find many answers to related questions.
Contributed by QuoteWizard
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